There are two problems that the bureaucracy shares with its political masters running the government (ministers).  Distorted incentives and the corruption of power Existing systems have distorted the incentives for working efficiently & productively.  In the case of Public servants (bureaucrats & politicians) the dis-incentive is compounded by the imbalance of Power between the State and the Public:  Power corrupts and absolute power corrupts absolutely.  As the systems of governance deteriorate under rent seeking, rent creation and corruption, the power to do good falls relative to the power to harm.  The result is that today, the latter is much greater than the former, so that the rare employee wanting to do good has the dice loaded against him/her.

     The insights of modern economics that incentive structures are important for how economic agents behave, were largely ignored in setting up institutions and in devising economic & other policies.  The role of moral & social conventions in ensuring respect for and implementation of law was given undue weight.  Though post-independence leaders in India were imbued with ideals that defied economic incentives, this has long since ceased to be true.  Countries that built institutions and systems with some recognition of economic incentives have sustained good governance much longer (Singapore is a widely cited example) .  Unfortunately, this was not so in India, so that we are now faced with comprehensive failure of governance.

    Employee Privatization of Public Services (corruption) is an extreme form of the principle-agent problem that has been known to economics for some time but has been largely ignored in India.  This is the problem of how large institutions, including the political system and government bureaucracies, can ensure that the workers in these institutions follow the goals of the institution.  This problem has reached epidemic proportion with perhaps 80% of ‘public servants’ maximizing their own personal interests,[1] rather than working for the professed goals of the organization in which they are employed.[2]  The proportion of such people in the upper bureaucracy, which generally constitutes about 2% of the total, may be around one-third and perhaps fall even further in the top most reaches which are much more in the media spot light.  Recent studies have demonstrated the (static) costs imposed on producers by the bureaucratic red tape and harassment that results from oppressive rules and procedures.  The dynamic costs, in terms of discouragement of creative, innovative & knowledgeable people from entering business, though much harder to measure may be more devastating in the long run

Even if the government restricts itself to its basic functions, the civil service will still be needed to perform these functions.  One view is that the service is too politicised to even perform these functions effectively, unless its autonomy is restored to levels that prevailed during the first few decades of independence.  This requires the process of selection, appointment, posting and promotion to be distanced from politics and made relatively autonomous.  Another view is that once the government sheds all the lucrative rent generating functions that it has accumulated over the years, it will become less attractive to those who view politics and government as a (privately/ personally) profitable business or occupation.  The extreme forms of deterioration can then be controlled through the creation of countervailing power and new checks and balances.  Though efforts must be made to reform the system as proposed in the first viewpoint, in our judgement these are either unlikely to take place or will be effectively undermined by the system.  These efforts must therefore be focused on the most critical area, namely the police (plus political and judicial).  For the rest of the bureaucratic system it would be more pragmatic to take the latter viewpoint as the working hypothesis.


Regulatory Functions

One practical solution is to remove the regulatory functions from government proper and put them in a separate organization.  First, the generalist government has neither the expertise nor the professionalism needed to do a good job of regulation.  A professional organization staffed with adequate specialized skills and knowledge is essential for efficient regulation and this is best created within a separate autonomous and independent organization.  Second, such an organization can be better insulated from the day-to-day pulls and pressures of democratic politics as has been demonstrated in the case of the RBI.  Third, it allows government to act as a higher court of oversight in that it is available to act in the (hopefully) rare situation in which the regulator is tempted to extract rents.


   As all financial and policy actions have to be approved by the upper bureaucracy, in particular the civil service head of a ministry or departments, an honest officer can be coerced into following illegal orders. Two instruments used to coerce honest officers are verbal orders and threats of transfer and bad posting.  One solution is to make it compulsory, by law, for the political ministers to give all orders in writing i.e. an order is valid only if given in writing and a verbal order is legally invalid and can be ignored by the bureaucracy. The argument that this would create administrative problems is sham. An honest bureaucrat who is verbally told by his minister of an urgent problem that needs immediate attention, has the intelligence and the authority to take deal with emergency situations under his own authority. But he will certainly think twice of taking illegal action on a verbal order as then he is fully culpable for the illegality.  The second solution is to prescribe by law/rule minimum tenures for posting and transfers. A period of 2 to 3 years has been suggested.  This will mean that the onus of proof to demonstrate malafide shifts from the one being transferred to the one ordering the transfer.  ie an honest officer gets recourse to the judiciary, while a corrupt/inefficient officers (who is in practice is more likely to get and keep the lucrative/cushy posting) can be transferred with sufficient proof of incompetence.

Performance Measurement

     Computerised management information systems should be set up for all government departments and agencies that provide an administrative service (e.g. courts, police, taxation, and municipal regulation).  These would be the basis for monitoring individual cases and employees, doing statistical analysis by user and employee and providing management information.  This would help in identifying and rectifying delays and bottlenecks in the administrative system.

Incentive structures

    The secrecy of the Annual Confidential Report (ACR) makes it irrelevant as a motivating device.  A move from ACR to Annual Performance Review may be useful in motivating and rewarding employees.  Retirement rules should also be changed to make it easier for those who get stuck at any particular level in the hierarchy to leave without losing any pension benefits.

Internal labor market

    The departmental structures within the government are very rigid.  Mobility could be improved by creating an internal labour market within the government.  This would create a more open procedure for comparing the supply and demand for different posts, and for fitting the two better.  There are currently about 41 different administrative & technical services (cadres) at the centre and 13 at the State level.  It is therefore, necessary to breakdown the barriers created by multiplicity of separate cadres & services.

Planning & monitoring

     The ideology of planning has contrasted with the pathetic lack of planning and co-ordination at the ground level.  Roads are dug up within weeks of fresh asphalt being laid.  Drinking water is drawn from the river downstream from where untreated sewage is dumped.  The emphasis at the ground level must be changed from service provision and control to planning, co-ordination, monitoring and rewarding/ penalising.  Instead of national plans that are ignored by many states after the funds have been sanctioned, we desperately need good planning at the local (below the state) level.

Specialisation and Expertise

     Management of the open market economy requires much greater expertise and skills than a controlled one.  A greater degree of specialisation will be required in administering such an economy.

Education and Training

   Older generalist officers would also have to acquire new skills.  A system of training and re-training would need to be set up with greater emphasis on modern Human Resource Development (HRD).

[1] This is a guess based on conversations with knowledgeable people including IB officers.

[2] ‘Public servants’ covers the entire government system including the police & the semi-autonomous agencies of the govt.