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Haseeb Drabu and Anurag Behar, made two pertinent and interesting observations. Drabu said the Life Insurance Corporation of India (LIC) was rapidly emerging the investor of last resort for the Congress-led United Progressive Alliance (UPA) to make good its fiscal obligation of investing in the banks it owns to enhance their capital. Behar, in his column on the state of public education, explained the real significance (according to him) of the provision in the the Right To Education Act that mandates that private schools admit one student from underprivileged sections of society for every three students (from other sections).
Seen together, the two highlight an interesting (but undesirable) contribution of the UPA to policy formulation: outsourcing the policy response. Instead of looking at how public policy and governance principles need to be reinvented to ensure older institutions come up to speed, the preferred approach of this government seems to be come up with a method where its involvement is minimized.
This short-cut approach, while taking the responsibility of attending to the problem off the government’s shoulders—and making those who see a minimal role for the state happier—is creating long term systemic problems, both institutional and economic.
In the case of LIC, as Drabu points out: “As far as the government is concerned, it is in a win-win situation; it helps it trim expenses and yet maintain its ownership and control over banks. But in the process, a complex and cumbersome structure of cross holdings within the government which is detrimental to governance and growth is being created.”
Similarly, Behar argues, that RTE, though well intended, has a fallout: “Legislation cannot infuse social purpose and commitment. Good intentions are accelerating ghettoization and withering away of the public education system, and (creating) another nationwide opportunity for corruption which will be uncontrollable.” Instead of looking for a quick-fix solution to a problem created over decades, UPA may be advised to go back to the drawing board to see how the system can be made accountable.
Both situations dealt with by Mint’s columnists are structural solutions being proffered by the government; to be fair to UPA, this is a trick that previous regimes have attempted. The only difference is that it is now more a rule than an exception. Staying with Drabu’s point, it is clear that getting LIC to do the government’s bidding achieves two objectives. First, it takes care of the government’s responsibility of ensuring capital adequacy as required by regulatory standards. Second, and more importantly, by asking LIC to do this, it has kept the transaction off its own books—lower expenditure means that much less paper pressure on the already out of line fiscal deficit.
There is a pattern to this. The first indications came when UPA took charge in 2004. The creation of the National Advisory Council (packed with NGO representatives), under the stewardship of UPA chairperson Sonia Gandhi, led to the outsourcing of social policy. Almost all entitlement schemes announced since have their origin in the NAC’s mandate. And since the government never owned the idea, it has always been a reluctant participant in policy formulation to execute it. The gap has led to less than optimal policy being put in place, but given the large spending associated with most programmes, it has introduced structural changes in the Indian economy.
Similarly, for the last eight years the government has simply ignored warning calls on the implementation of policy (as pointed out in Capital Calculus last week: It is not the image). Eventually, after the filing of a raft of public interest litigations demanding investigation into the implementation of policies, monitoring has now been outsourced, albeit unwillingly, to the courts. It has reached such a pass now that even the policy mandate is influenced by the apex court. Where does that leave the government? It is one thing to complain about judicial overreach (in some cases, this is justified) but another to fail to dispense the government’s primary responsibility: governing.
Meanwhile, progressive fiscal mismanagement threatens to usher in a fresh economic crisis. Managing the consequences of this, has once again been outsourced. The Reserve Bank of India is now entrusted with the task of ensuring macroeconomic balance in a circumstance where the union government has abandoned its role in defining and adhering to fiscal policy. So clever has been this manoeuvre that in public perception it is RBI’s failure to keep interest rates down that is being blamed for slowing economic growth—akin to blaming the fireman for causing a flood in the neighbourhood while putting out a fire.
Now, the state is attempting something similar to deal with corruption and leakages in gigantic social sector spending programmes. The latest mantra on offer is a shift to cash transfers to deal with corruption in the public distribution system—ignoring that in some states it operates perfectly well. Then, this approach simply outsources the problem of dealing with corruption. More dangerous is the shift in thinking that this short cut approach entails. Public policy is designed to deliver benefits and not prevent misuse—there is an entire policing arm of the government that is entrusted to deal with this task. It is not that public policy should not look at consequences of misuse; just that it can’t be its central focus.
Taken together, all this tells the story of how the constant outsourcing of its responsibilities is exacerbating the governance vacuum within UPA. With about two years left for its term to conclude, it may be time for the government to start worrying about its legacy.
Anil Padmanabhan is a deputy managing editor of Mint and writes every week on the intersection of politics and economics.
http://www.livemint.com/2012/02/27001636/India-outsourced-Manmohanomic.html
Seen together, the two highlight an interesting (but undesirable) contribution of the UPA to policy formulation: outsourcing the policy response. Instead of looking at how public policy and governance principles need to be reinvented to ensure older institutions come up to speed, the preferred approach of this government seems to be come up with a method where its involvement is minimized.
This short-cut approach, while taking the responsibility of attending to the problem off the government’s shoulders—and making those who see a minimal role for the state happier—is creating long term systemic problems, both institutional and economic.
In the case of LIC, as Drabu points out: “As far as the government is concerned, it is in a win-win situation; it helps it trim expenses and yet maintain its ownership and control over banks. But in the process, a complex and cumbersome structure of cross holdings within the government which is detrimental to governance and growth is being created.”
Similarly, Behar argues, that RTE, though well intended, has a fallout: “Legislation cannot infuse social purpose and commitment. Good intentions are accelerating ghettoization and withering away of the public education system, and (creating) another nationwide opportunity for corruption which will be uncontrollable.” Instead of looking for a quick-fix solution to a problem created over decades, UPA may be advised to go back to the drawing board to see how the system can be made accountable.
Both situations dealt with by Mint’s columnists are structural solutions being proffered by the government; to be fair to UPA, this is a trick that previous regimes have attempted. The only difference is that it is now more a rule than an exception. Staying with Drabu’s point, it is clear that getting LIC to do the government’s bidding achieves two objectives. First, it takes care of the government’s responsibility of ensuring capital adequacy as required by regulatory standards. Second, and more importantly, by asking LIC to do this, it has kept the transaction off its own books—lower expenditure means that much less paper pressure on the already out of line fiscal deficit.
There is a pattern to this. The first indications came when UPA took charge in 2004. The creation of the National Advisory Council (packed with NGO representatives), under the stewardship of UPA chairperson Sonia Gandhi, led to the outsourcing of social policy. Almost all entitlement schemes announced since have their origin in the NAC’s mandate. And since the government never owned the idea, it has always been a reluctant participant in policy formulation to execute it. The gap has led to less than optimal policy being put in place, but given the large spending associated with most programmes, it has introduced structural changes in the Indian economy.
Similarly, for the last eight years the government has simply ignored warning calls on the implementation of policy (as pointed out in Capital Calculus last week: It is not the image). Eventually, after the filing of a raft of public interest litigations demanding investigation into the implementation of policies, monitoring has now been outsourced, albeit unwillingly, to the courts. It has reached such a pass now that even the policy mandate is influenced by the apex court. Where does that leave the government? It is one thing to complain about judicial overreach (in some cases, this is justified) but another to fail to dispense the government’s primary responsibility: governing.
Meanwhile, progressive fiscal mismanagement threatens to usher in a fresh economic crisis. Managing the consequences of this, has once again been outsourced. The Reserve Bank of India is now entrusted with the task of ensuring macroeconomic balance in a circumstance where the union government has abandoned its role in defining and adhering to fiscal policy. So clever has been this manoeuvre that in public perception it is RBI’s failure to keep interest rates down that is being blamed for slowing economic growth—akin to blaming the fireman for causing a flood in the neighbourhood while putting out a fire.
Now, the state is attempting something similar to deal with corruption and leakages in gigantic social sector spending programmes. The latest mantra on offer is a shift to cash transfers to deal with corruption in the public distribution system—ignoring that in some states it operates perfectly well. Then, this approach simply outsources the problem of dealing with corruption. More dangerous is the shift in thinking that this short cut approach entails. Public policy is designed to deliver benefits and not prevent misuse—there is an entire policing arm of the government that is entrusted to deal with this task. It is not that public policy should not look at consequences of misuse; just that it can’t be its central focus.
Taken together, all this tells the story of how the constant outsourcing of its responsibilities is exacerbating the governance vacuum within UPA. With about two years left for its term to conclude, it may be time for the government to start worrying about its legacy.
Anil Padmanabhan is a deputy managing editor of Mint and writes every week on the intersection of politics and economics.
http://www.livemint.com/2012/02/27001636/India-outsourced-Manmohanomic.html
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