Corruption & Governance


With an acceleration of Indian growth in the 2000s the percentage of people below the poverty line have declined rapidly, by some measures at almost double the rate of the preceding two decades.  The institutions of government (local, State & more recently Center) have not improved and by most accounts have deteriorated further and are unable to provide the basic services that only the government can and must provide.  Most States, including those that are relatively poor, are characterized by pervasive government failure and systemic corruption from top (CM) to bottom (Safai Karamchari).  The public agitations against corruption and lack of public safety and security since 2010 are a sign that the new middle classes and the urban youth are no longer willing to accept bad governance and corruption as a permanent way of life. This provides an opportunity to carry out fundamental reform of the government and of governance systems.

In economist speak, ‘government failure’ is now become a much more important problem than ‘market failure.’ ‘Privatization’ of government services by its employees and government’s monopoly of power are the real problems today.  A new approach must be based on a clear and non-ideological recognition of the strengths and the weakness of the State and the People.  A democratic society has enormous potential for entrepreneurship, innovation and creative development.  The people, their diverse forms of activity and association such as companies, co-operatives, societies, trusts and other NGOs must be allowed and encouraged to play their due role.  The State must focus on what only it can do best and shed all activities that the people can do as well or better.  The heavy hand of government in the form of incentive distorting laws, rules, regulations, procedures and red tape, have also corrupted industry & business and other organized interest groups.  These must be removed so as to release the energy of the people.  The State should confine itself to managing the economy so as to accelerate employment and income growth in a self-sustaining manner, ensure that all citizens receive their entitlements of basic public goods and services and empower the poor so that they have equal rights (and responsibilities) with the better of citizens.[i]

            One element of a solution to the incredible failure of governance is to create alternative non-State institutions within malfunctioning poorer States to build physical & social infrastructure and carry out development tasks, perhaps including some of the basic functions of governance.  There is an even more urgent need than elsewhere to get the stifling hand of government out of the peoples’ business, by downsizing government and liberalizing State laws, rules and procedures, and focusing whatever positive energy the government is able to muster on the ‘basics of governance.’  The mammoth State of UP will perhaps also have be broken up into (three-four) smaller States so that the span of state govt. control is more suited to the provision of basic public services and rural development.

The State and its functionaries have accumulated excessive power to the point that it has corrupted them not just financially but in spirit.  Paradoxically the system’s power to do useful work has been undermined, while its ability to do harm has multiplied. Countervailing power must be created to check the power to misuse and to strengthen the ability of the system to do good.  Power must be returned to the people from whom it has been usurped and the State and its functionaries made accountable to the people. This will only happen if the State sheds all activities that the people and its institutions, both economic and social, can do, and the State becomes a facilitator instead of a controller.  Only then will the State focus on and accomplish what it alone is able to but has neglected to do, the supply of Public Goods and Services.

Systemic Corruption

    It is important to understand that corruption is no longer a matter of individual turpitude or immorality. It is pervasive, systemic and entrenched.  It is therefore useful to understand its nature by analyzing it along two dimensions.  Economic and Institutional.  The main Economic categories are,

(i)                 Government purchase of Goods and Services (including government employment).

(ii)               Production and sale of Goods and Services by Departmental Public Undertaking and Public Sector Units. 

(iii)             Natural Resource Rents: Natural resources include all minerals (including coal, oil & gas), Land and Electromagnetic Spectrum (2G, 3G).

(iv)             Natural and Artificial (policy created) Monopolies & PPP contracts related to these.  Networks such as electricity T&D & rail lines, airports, major ports and dams are natural monopolies. State Electricity production, Railway services (INR), Coal India, Dual use items of Defense production are monopolies created by policy & can be made competitive by policy change. PPP contracts for these as well as for Social services exclusively produced & supplied by government take on the character of artificial monopoly when good auction procedures are not used.  

The main Institutional dimensions are,

(a) The “Lower Bureaucracy:” The ‘State government’ machinery dealing with repeated routine economic & social activities. This is the machinery we deal with as citizens, as workers, as employees, as self-employed, as small businesses, as NGOs and large corporations as tenants or house owners, as land owners or renters.  This is the government whose functionaries, often referred to as “babus,” we all interact with, in one way or another, in every sphere of activity. Also includes the entire local government (Nagarpalikas & Panchayats) & a part of the Central bureaucracy (non-IAS, IPS) that operates at State-City level (e.g. Customs, Income tax, Central excise). Regulations & Permissions for land, buildings, real estate, commercial activity, services and industry are subject to a host of regulations by City and State governments, each of which are used to extort money from individuals, self employed and small businesses.[ia]


  E-filing of returns, self certification of non-technical items, certification by registered private professionals (like architects, engineers, CAs, valuers) where technically necessary and cascading monetary penalties on all violators, including the certifiers. This would require the building a comprehensive digital data base, containing certification and violation record, including the names and institutional connections of those who disclose violations and those who impose penalties (PAIS). Part of the penalty could also be earmarked as a reward for those who e-report violations.

(b) The “Higher Bureaucracy”(Officers of the central services like IAS, & equivalent parts of State services)  The decision making process for deciding on policy and implementing one off or unique procedures that have to decided anew every time. This is more high level decision making.

(c) The Criminal Justice system. This is the notorious “politician-criminal-police” nexus that actively thwarts the “rule of law,” and believes it is above the law and behaves as if the constitution of India does not apply to it. Judges who take bribes to give knowingly wrong decisions should perhaps be seen as part of this.

     With some danger of over-simplification, much of the first two economic categories of corruption is institutionally carried out by the lower bureaucracy, with systemic payments (bribe shares) moving up the system, while much of the third and fourth economic categories of corruption is done at the Higher bureaucracy level (with Lower Bureaucracy involvement only when needed) either with knowledge of or under the direction of the political bosses.

Economic Dimensions

There are four major categories or sources of government related corruption in India.

Govt. Expenditures/G&S Purchases

Goods and Services Purchases that constitute the expenditure side of the budget of government at every level.  This includes wages & salaries and therefore hiring and recruitment and contracts for construction and maintenance of roads etc.  My informal inquires & reading suggests that the cut that government as a whole takes (shared between the functionaries & the bosses) has gone up progressively from about 15% in the 1960-70s to a range of 30% to 50% in the 2000s (% depends on nature of the G&S).

Public Production & Sale of items that can be produced by private producers and sold in market.  These include all the Central government and State government owned PSU.

There is a massive system of corruption in government expenditures and purchases/hiring of workers in which all levels of workers are involved, from the lowliest sweeper & chaprasis, through petty clerks, dealing hands inspectors & superintendents through officers and politicians. In this well oiled machinery the unchanging faceless bureaucracy collects the bribes and shares it up to the officer and political level.  It is my understanding that a new politicians or concerned State minister does not have to ask for anything, it would be delivered to him whether he wants it or not. This is the part which is so pervasive and systemic that only a major institutional reform can reverse the process.


   Privatize all Central and State public sector units producing private goods and services (e.g. hotels, steel). Require all relevant details about Government Purchases (and hiring) to be put on a Public Accountability Information System (PAIS) available to the public and accessible through the web.[ii]

Natural Resource Rents

Natural Resources such as Urban Land, minerals/oil, Spectrum, Aquifers. Theoretically these resources are the common property of the citizens. With few exceptions government at different levels [Local (Nagarpalika, Panchayat) State, Central] control all natural resources through multiple means and can manipulate policies, rules, procedures & enforcement to extract resource rents for themselves and those who help them cheat the people out of these resources.    These are generally large case by case decisions and are therefore likely to be controlled at relatively higher levels of State, Central Governments.


An economically sound way to reduce natural resource related corruption is to make it compulsory for government to sell or lease all natural resources through an auction procedure that is designed to facilitate a large number of bidders.  These auction procedures have to be simple, well designed and understood, otherwise the corrupt will manipulate these auctions too.  There are a host of complication related to Urban land that have to addressed separately in detail. One of the most critical is the way “Land use” is determined and changed. Manipulation of this aspect can be source of massive corruption.

PPP for Natural (or Created) Monopolies

  PPP Contracts related to "Natural Monopolies" or artificially created "monopolies".  Manipulation of terms and conditions and the contracting process can be used to give contracts to favored parties. In some cases, an honest person knows that the strict terms of the contract cannot be fulfilled without making losses. The dishonest know that they can later bribe and get terms changed and therefore apply. 


   Many of these contracts have failed because inputs are controlled by government monopolies for which the solution is to de-monopolize, privatize and promote competition.  In some cases the failure is due to management of natural resources exploration and government ownership of discovered, for which the auctioning of natural resources is the basic solution. In some cases government has arbitrarily dis-allowed price increases, the solution to which are independent empowered, professional regulators and clearly defined and understood "force majeure" clauses and the burden sharing for such unpredictable costs.  Besides this a thorough review of the reasons for a failure will suggest modifications of contract format that will make them both fair and just for all parties, including failed bidders. For instance separating the fuel elements from electricity contracts! Definition of known risks and clear specification of how these will be translated into equity draw -down or lower re-contracted returns


The role of government must be redefined to abandon the many functions accumulated over decades where the government adds no value and focus on the basic functions of governance that only the government can perform, but have been neglected.  Right sizing of government requires both downsizing and re-focusing of government attention on essentials.

Down Sizing

Downsizing of the government requires privatizing of production, shutting down of control department and ministries and eliminating producer and middle class subsidies.  All these add to the power of government and thus undermine the power of the public and accountability of the elected representatives to the people.  This is particularly so when the power to harm is so much more than the power to do good. Use of such production units and producer & middle class subsidies for personal vote yielding populist measures is one of the reasons for fiscal bankruptcy. 

Privatize production

 The government must get out of the production of “private” goods and services, i.e. those that can be sold to and consumed by individuals on an exclusive basis.  There are several reasons why ‘private’ goods should be left to the private sector to produce.  Firstly they can just as well be produced and sold by non-government (commercial, co-operative or non-profit) organizations, so there is no positive reason for government to produce them.  Their production has been usurped by a ‘Leviathan’ government in its unquenchable thirst for power.  Secondly, the incentive structures in government are not conducive to efficient commercial operation.  The rigid financial rules (e.g. sale by auction) do not allow even the honest and sincere public servants to run producing enterprises in an efficient manner.[iii]  The layers of government hierarchy (PSU/DPE, concerned ministry, cabinet & parliament) as well as the CVC and CAG system is not conducive to making management decisions in a complex economy or to risk taking in an inherently uncertain world.  Thirdly, the rate of return on the assets employed in these units is less than the interest rate that could be earned on the sale value of these assets and much less than the rate of return of similar units in the private sector. Note however, that the “resource rent” on natural resources such as oil that have scarcity value can & should be mopped up by government through a royalty or other resource rent tax, whether the producer/user is a government or private company.  The proper comparison for oil producer/user companies is therefore net of oil resource rents.

Privatization of competitive and contestable goods (including units producing civil & dual use items for defense forces) can be done with all deliberate speed, while that of natural monopoly (such as power distribution) must be accompanied by setting up of appropriate regulatory systems.  Regulators already exist for the financial system (RBI & SEBI), so privatization of banks & other financial institutions (e.g. UTI) can be initiated without delay.[iv]

Eliminate Departments

 Many areas have been de-controlled and de-licensed; yet the staff, divisions, departments and ministries set up to implement such controls and licenses continue.  These must be eliminated to remove the threat of ad hoc interference and red tape and root out the control mentality that has wormed its way deep into the government.  Similarly, there is no need for ministries and quasi-public institutions dealing with ‘private’ goods & services such as steel, sugar, fertilizer.

Phase-out Non-Poor Subsidies

Subsidies must be targeted on the poor, which for this purpose should include the bottom 40% of the population.[v]  Impact studies show that in general the poor benefit less then or at best proportionately to the middle-upper income groups.  Better targeting requires a systematic effort to eliminate both producer and middle class subsidies and search for channels that can be used to focus subsidies on the poor.

The origins of many subsidies have long been forgotten and they continue because large subsidies always build strong vested interests.  The fertilizer (Urea) subsidy is a good example.  Its original justification was to induce small and marginal farmers to adopt new HYV technologies, as higher  fertilizer usage was an inalienable part of the HYV package.  Over the years it became a subsidy for large surplus farmers, particularly those producing food grains for the market.  This subsidy can be eliminated by complete decontrol of fertilizer with the subsidy focused on small farmers through a smart card system managed by fertilizer co-opeeratives. The money saved can become available for irrigation & rural infrastructure that helps all rural poor including small & marginal farmers.

Refocus Government

Broadly speaking the government has three broad functions that it must perform for the economy and society.[vi] This is the provision of “Public” goods and services, the correction of “externalities” and “social welfare.”   The former has been most neglected over the past three decades.

Public Goods

‘Public goods,’ is an economic concept with a precise technical definition, one element of which is “non-excludability” and another is “non-rivalry.”  The classic ‘public good’ (actually service) is ‘defense’ where exclusion is literally impossible and once provided everybody shares in it.  Other services that meet the definition are general administration, the judicial system, police, roads & prevention/control of communicable/epidemic diseases.   Though in principle government could charge individuals for the use of local roads it is prohibitively expensive to do so (economic non-excludability).  Rural roads, once built satisfy the non-rivalry condition in that they the traffic is very light (and they are thus empty) most of the time.  Inter-city roads have very strong element of externality (marginal cost ~ zero relative to average fixed cost), so that they are also considered ‘public goods.’ Public health measures such as public (not individual) supply of clean drinking water, sanitation & sewerage, population control and public education about nutrition, cleanliness etc. correct negative externalities and are accepted as ‘public’ goods.    Similarly literacy & primary education (though ‘private’) have positive externalities for the entire society (including the educated) benefits from the expansion of the pool of literates. and can be similarly classified even though it does not meet the exclusion criteria in urban areas.[vii]  Because of limits to divisibility and the sparseness of population, many basic infrastructure services (drinking water, primary education) in rural areas have very high average fixed costs relative to marginal costs and can be classified as ‘public goods.’[viii]

 Fifty years after independence the population coverage and the quality of supply of these basic services is pathetic and globally embarrassing. Much more attention, time and funds need to be spent on these basic public goods & services.  Government responsibility for supply means that government must provide the required funds but it need not produce all these services.

Non-Governmental Producers

Private schools have played a vital role in the high educational attainment of Kerela.  Production of services must be entrusted to those who can supply the service most efficiently.  This implies that the poorest worst performing states have the greatest need to entrust the job to non-government organizations.

The UP government has covered all its districts with secondary schools for girls by giving a one time grant to any organization that was willing to set up such a school.  Similarly there now exist non-profit organizations that can provide quality primary education at one-tenth the cost of the government system.  Unlike government schools where teachers do not show up these organizations guarantee that on completion students will be able to pass pre-specified tests.   Similarly the Gujarat government has contracted the running of several health centres to non-governmental organizations.  This has solved the problem of perennially absent staff and non-functioning centers.  Such organizations must be used wherever they are available to provide universal primary education & primary health services.

Public-Private Partnership

There are also specific areas within these broad public service categories, for instance construction & management of jails, in which public-private partnership can be effectively used to improve efficiency.  Again the key concern should be efficiency & quality of output (“biggest bang for the buck,”) not ideology.

Institutional Reform

Defense, Judicial, Police and general administrative services can only be provided by the government, so that the focus has to be systemic reform and introduction of modern management practices for improving efficiency.  Archaic laws have to be repealed; archaic procedures modernized (written evidence-signed & sworn, limited adjournments based on prior written request & notice to counter party) to provide justice to those who have cases going on for as much as 30 years.  The Police system, which has become an instrument of political power for the ruling party has to be refocused on providing personal security & upholding the rule of law. Its slow but steady decline into anarchy has to be stopped and eventually reversed.[ix] 

Correcting Externalities

Externalities are a known form of market failure even in a competitive economy and need to be dealt with through government intervention.   Apart from the externalities that we have incorporated in the concept of ‘Quasi-public good,’ the most important externalities relate to Knowledge and information & environment /pollution.  The significant areas in the former are Science & Technology, higher education in special fields of national importance, development of strategic technology (e.g. aerospace & nuclear)[x] and Research & Development and the spreading of knowledge especially in agriculture (information/extension).[xi]  This is best achieved through a mix of government expenditures and tax/direct subsidies.  The optimal mix can be different for different sectors and also changes over time.  The private sector can play a much greater role in correcting these externalities at lower cost to the exchequer, but government will also continue to be an important player in this area.  Similar solutions apply to environmental externalities, of which control of water pollution is the most important from the expenditure perspective.

Social Welfare

  The third important expenditure related function of government is social welfare.  The definition of Social welfare has a large element of context specificity, in that it cannot be defined independent of the average income & wealth of the country.  Equally there is a basic minimum that even a relatively poor, democratic country must ensure in the 21st century.  We cannot allow people to die of starvation or to be chronically hungry (1% or 11 million in 2011-12).  Society must also take ultimate responsibility for the old, infirm and disabled and for abandoned or destitute children.  Every citizen has the right to life, physical security, basic human dignity and equality before law and constitution.   The government has the duty to eliminate pockets of feudal oppression and bandit government that still prevail in parts of the country.[xii]  Known criminals, dacoits & murderers cannot be allowed to publicly hold the law to shame because of their muscle power, political power or (sometimes ill gotten) wealth.


  There is an urgent need to strengthen the checks and balances in the political system.  Though the framers of our constitution paid a lot of attention to the potential for corruption in the bureaucracy, they made the fatal mistake of assuming that all future elected representatives would incorruptible and selfless like those who fought for independence.  They could not imagine that the judiciary could also be corrupted.

Civil Service Reform

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 politicized 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 judgment 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.  For the rest of the bureaucratic system it would be more pragmatic to take the latter viewpoint as the working hypothesis.

Criminal Legislators

    There is an urgent need for electoral reform to reduce the currently overwhelming incentive for corruption.  If the Neta-criminal nexus is not broken a time will come in the not too distant future when it will become virtually impossible to stop the criminalization of the entire police force.  In our view the minimal elements of a solution are, (a) State funding of elections through a matching funds approach. (b) Freedom to companies to donate funds subject to shareholder approval.  (c) Transparent accounting and mandatory auditing of the accounts of political parties that receive State or company funds. (d) Mandatory bar to running for any political office by any one against whom criminal charges have been legally framed, (e) Special courts to try politicians/potential candidates against whom such charges have been framed so that those who are the object of motivated/false charges can be tried and cleared quickly.


     The police force has over time become an important instrument of political power.  The police are therefore no longer an independent instrument for enforcing and upholding the rule of law and for providing personal security to all its citizens. The misuse of police by the political masters for personal ends as well as the use by the police of state power vested in them, for their own personal ends, is not merely a theoretical possibility but a frightening reality.  This enormous power of the police to do harm must be checked before it becomes uncontrollable.

   A number of commissions from the Dharam Vira commission to the Law Commission have suggested the creation of a buffer between the political bosses and the day-to-day operation of the police.  One approach is to set up an autonomous police commission in each state along with open and transparent process for appointing the senior officers of the commission.  There is also need for an independent public prosecutor whose job is to take cognizance of, oversee investigation of and prosecute major crimes (e.g. murder, armed robbery/dacoity, kidnapping, rape, police crimes). To ensure accountability to the public, which has become the object of police harassment, each police commission & public prosecutor would be accountable to an oversight committee of representatives from all walks of life (including the administration & judiciary).  This would ensure that the police themselves obey the law and the law-breakers among them are given exemplary punishment.

Law & Incentives

            Laws, particularly economic laws (including contract law), do not merely define what a citizen/resident can or cannot do.  They create a system of incentives and dis-incentives for economic agents and those charged with implementing the law.  Most economic laws have had consequences that the originators had no inkling off.  The common result of the myriad such laws are to create incentives for rent seeking, rent creation, bribery and corruption.  The rules & procedures for public institutions, such as universities, research institutions, and hospitals, are equally oppressive.

     Recent studies have demonstrated the (static) costs imposed on producers by the bureaucratic red tape and harassment which results from oppressive rules and procedures.  The dynamic costs, of discouragement of creative, innovative & knowledgeable people from entering business, may be more devastating in the long run. It is necessary to systematically audit all economic laws from the incentive perspective and modernize them keeping in mind the results that they have produced.  Laws, rules and procedures must be modified to minimize the time & money cost of compliance to relatively honest economic agents.

  Labor laws, though made with the best intentions have in many instances had the opposite of the intended affect.  Labor laws that focus on health and safety of the workers are essential and should be extended to unorganized workers.  Similarly the right of assembly, formation of labour and right to strike are democratic rights of workers.  Harmful laws are those that try to overturn market demand, supply and pricing principles, such as elements of the Contract Labor Act Industrial Development and Regulation Act and the Industrial Disputes Act.  These elements of laws by protecting existing organized sector workers provide an incentive for them not to work sincerely & efficiently and also provide a dis-incentive to hire new workers.  They need to be made more flexible so that organized labour-intensive manufacturing & services are encouraged to generate higher productivity jobs. One way would be to formulate a modern new law that creates incentives for labor-intensive manufacturing in new units with new employees, but ‘grandfathers’ protection available to existing organized sector employees.

India Vision 2025

Over the next decade, the people must re-establish their democratic power by forcing the Central and State Governments to undertake the following reforms:

·         Review Laws, Rules, Regulations and Procedures to remove distortions and harmful incentives (e.g. red tape, corruption).

  • Remove distortions that provide a disincentive to hire labor in the organized sector and encourage capital intensive, non-labor using techniques of production and supply.

·         Promote economic freedom and competition in the supply of all goods and services by removing controls on private/non-governmental economic activity and introducing modern professional regulatory mechanisms where needed.

  • Regulatory systems are needed for ‘natural monopolies,’ fiduciary financial institutions, education (school and college) and health (food, drugs, surgery).

·         Privatize Public sector units producing ‘private’ goods & services.  Corporatize, un-bundle and privatize all departmental public enterprises (except those producing nuclear, aero-space or defense systems).

·         Privatize Public Sector Banks and Financial Institutions and move from government oligopoly to genuine competition.

·         De-centralize the supply of ‘Public goods and services’ to the lowest possible level of government and empower each level with the appropriate tax and expenditure power based on the principle of subsidiarity.

  • Nagarpalikas and Panchayti Raj institutions must have the power to tax local land and property (within specified bands) and to control the supply of local public services. The metro’s and towns must be run by appropriately empowered elected Mayors

·         Introduce a Public Accountability Information system (PAIS) that requires government to collect and put on a website all information relating to the expenditures made in the name of the poor and ostensibly for their benefit.  Empower user groups to ensure accountability of expenditures and provision of service to these users.

·         Government must ensure all its citizens (poor, rural, urban slums) the following basic entitlements:

  • Drinking water of acceptable quality for all by 2020. Pollution of drinking water sources should be eliminated and drinking water quality reach global standards by 2025.
  • Modern sewerage, sanitation waste collection and disposal facilities in all urban and semi urban agglomerations and appropriate systems for all villages. Emerging economy standards by 2010 and global standards by 2020.
  • Epidemic and infectious disease control of global quality
  • Permanent Road connectivity to all villages.
  • Basic education (ability to read, write & arithmetic) and job skills (one of 4000-6000 recognised skills).

o   Water harvesting, watershed development, tanks, wells for conserving water for personal, agricultural or other uses in all rural areas.

Though government has the responsibility to provide the funds needed for provision of these entitlements it need not produce everything itself.  Wherever more efficient non-governmental delivery mechanisms are available they should be used.

·          Reform the Police system by setting up operationally autonomous Police Commission in each State.  A Public oversight committee, with representatives of government and prominent citizens, would also be set up to ensure that the police do not misuse their authority and obey the law that they are charged to uphold.  The monitoring/oversight committee should have the authority to ensure that any policeman that misuses his position or violates the law is given exemplary punishment.

·         Set up a National Legal commission to provide similar oversight over the legal system and the neutrality and probity of judges at different levels.

·         Introduce a law to debar those against whom criminal charges have been framed in a court of law from holding or standing for election to a public office, till such time as the person has been acquitted.  Set up a special tribunal for expeditiously trying all such cases in which the person wishes to stand for public office or is holding public office at the time of notification of the new law.

·         Ensure access of the rural areas to information on crops, non-agriculture and related activities through telecom connectivity (internet, internet telephone) at competitive cost.  This requires immediate access of the private sector to monopoly networks like the telegraph system, elimination of explicit or hidden taxes (e.g. revenue share) on rural telecom provision, and modernisation of agricultural R&D and extension systems (autonomy, management, accountability).

·         Replace the myriads of anti-poverty and related programs for the poor by a UID linked smart card system that entitles the poor to a consolidated income supplement based on all relevant family parameters (income, health, age, gender) and identification & authentication systems.


* This policy paper draws heavily on “A New Development Paradigm: Employment, Entitlement and Empowerment,”  Arvind Virmani, Economic and Political Weekly, Vol. XXXVII No. 22, June 1-7, 2002, pp. 2145-2154. See also, Arvind Virmani, “A New Development Paradigm: Employment, Entitlement and Empowerment’, Global Business Review, International Management Institute, SAGE Publications, Vol. 3, No. 2, July-December, 2002, pp. 222-45.

[i] Rights cannot be divorced from responsibilities without serious adverse consequences.

[ia] There are reports that small media & journalists (#SMJ) are taking pictures of building violations, encouraged sanctioned by corrupt officials to extract "Hafta" payments, and forcing these officials to share a part of their "Hafta" with them (#SMJs) under threat of publication.

[ii] Arvind Virmani,Planning for Results: Public Accountability  Information System (PAIS),” Working Paper No. 1/2007-PC, Planning Commission, March 2007.

[iii] One such secretary level officer told me of his personal experience of being charge sheeted for selling in the market, without due auction process, a by-product of the industry that had traditionally been dumped into the surrounding areas.

[iv] Those who genuinely believe that government is to blame for recent financial failures, should realise that systemic tinkering or change of government will not change the basic incentive structures.  Similar, perhaps worse crisis are inevitable in the future if ownership remains in government hands.

[v]  Arvind Virmani, “The Sudoku of Growth, Poverty and Malnutrition: Lessons For Lagging States,” Working Paper No. 2/2007-PC, Planning Commission, July  2007.

[vi] The issue here is expenditure related functions, not macroeconomic, tax and other policies.

[vii] In general both basic public health & basic education services are more accurately defined as ‘quasi-public’ goods.

[viii] Once a primary school is built and teacher provided, or piping for drinking water established, the marginal cost is almost zero (relative to the fixed cost).

[ix] It has already reached a point where a beat policeman in Delhi can threaten a SSI producer with overnight theft of materials lying on his premises if an adequate ‘hafta’ is not paid to him.

[x] Technologies of power where normal commercial considerations do not apply and availability depend on geo-strategic considerations.

[xi] Thus government must provide facility grants to R&D organisations and scholarships to PhD students in S&T. 

[xii] ‘Bandit’ or ‘Predatory’ government is a particular form of pre-feudal government defined in the theory of political economy.