This pain pain and misery and misery is TOTALLY is TOTALLY unnecessaunnecessaryry

This Conference is about changing India

13 and 14 April 2013, New Delhi

India Policy InstituteHyderabad

Indian Institute of Public AdministrationDelhi

GOVERNANCE REFORMS CONFERENCE

Introductory Session 13 April10 am: Mr T N Chaturvedi invited by Sanjeev to chair the session10:02 am: Introduction to the Conference (Sanjeev)10:10 am: Inaugural address (Gurcharan Das)10:25 am: First half of talk by Sanjeev11 am: Tea break11:15 am Second half of talk by Sanjeev12:05 pm: Special Guest’s comments (Justice Tewatia)12:10 pm: Chairman’s comments12:30 pm: Lunch break (1 hour)

INTRODUCTION TO THE CONFERENCE

Sanjeev Sabhlok

Welcome!

Welcome to the elegant campus of Indian Institute of Public Administration

Who is attending this Conference? Intellectuals

Senior officials, academics and business executives

Reformers Young leaders from middle class India

(Freedom Team of India/ Centre for Civil Society)

Ordinary citizens interested in governance

Thank you for coming

You are uniquely interested in improving the governance of India From all across India Significant time and cost

Despite short notice Thank you for making the effort to

attend Thanks to IIPA for making this happen

We’ll have participant introductions after lunch

Objective

To identify reforms in governance frameworks to create world-class governance in India Public administration frameworks Economic policy frameworks Regulatory policy frameworks

The Conference won’t have much time to identify sectoral policy reforms eg. Education But we’ll conduct preliminary discussions on a

few areas

Framing this Conference

HOW do we reform India’s governance?

We need to know precisely what to do. E.g. if you become Prime Minister

what will you do?

“Insanity: doing the same thing over and over again and expecting different results. Einstein”

Root cause of misgovernance: Policy/system design failure Policies are badly designed

Policy frameworks are not used System’s incentives are flawed

Inevitability of corruption Modern thinking (including

Arthashastra) not used Politicians make policy on whimsy, not analysis Bureaucrats are totally unaccountable

This Conference is about changing the system

व्यवस्था� परि�वर्तन

We should not hesitate to adopt the world’s best ideas World best practice governance

frameworks Evidence-based economic/regulatory policy Public administration frameworks

In 1970s/80s, the world discovered economic and regulatory reforms

In the 1990s, the world discovered governance reforms

India has adopted neither

Broad structure of the ConferenceIntroductory session on first day: Inaugural address by Gurcharan DasTwo part presentation by Sanjeev (1.5 hours)

Post lunch on first day (and on second day)Detailed workshops

One paper presented on SundayPreparation of Strategic Plans for use by:

Government of India/ major political parties Future political parties and reform movements

Conference Summary/ Report to be published

But first, some housekeeping Please wear ID card at Conference for

meals Restrooms - location Water Tea

Served at 11 am sharp Maximum 15 minutes

Lunch break 12:30 pm for 1 hour

For any assistance please contact IPI/ Freedom Team of India volunteers

Dipinder Sekhon KK Verma Sureshan P Akshay Shah Vidyut Jain Abhijeet Sinha Rajan Mehta

etc

Language at the Conference We’ll use only English at the

Conference You can discuss in Hindi with me/

FTI/IPI members after the conference

Following will be uploaded on IPI website

These final slides Key recommendations/ strategic

plans Papers that are presented/

shared at the Conference

INAUGURAL ADDRESS

Gurcharan Das

Inaugural Address: Gurcharan Das

World renowned author

India Unbound and

India Grows at Night

HOW WE - TOO – CAN GET

WORLD CLASS GOVERNANCE

Sanjeev Sabhlok, former IAS (1982 batch)

Questions later

Questions/answers will not be possible in introductory session

Please note your questions for discussion in the afternoon session.

A bit about me

IAS 1982 batch, PhD Economics from USA Taught at Lal Bahadur Shastri National Academy Resigned in January 2001 to reform India – from

outside 15 years of reform work

Preliminary work in February 1998 (India Policy Institute)

December 2000: Moved to Australia after finding unresponsive bureaucracy/politicians/ citizens

Joined National Executive of Swatantra Bharat Party (2004)

Started Freedom Team of India (December 2007) Wrote Breaking Free of Nehru (2008) Organised National Reform Summit at Haridwar on 5-8

April 2013

This talk is:

A distillation of key learnings from over 30 years of experience in the IAS and Victorian Public Service

Given limitations of time I will focus only on key frameworks (systems):Public administration systemEconomic policy systemRegulatory policy system

Plan of my presentation

Part 11) Theory of good governance2) India’s system compared with Australia’s3) Public administration reforms for India

Part 24) Economic policy reforms for India5) Regulatory policy reforms for India6) Transition from India’s system to world-best system

1) THEORY OF GOVERNANCE

What’s our policy about policy? Think from the highest level first:

what is policy and what should it consider?

We need a policy about policy Frameworks and systems Without good frameworks, bad

policy is inevitable

Two main questions to ask

What should a government do? Are there limits to what a government can

do? How do we arrive at these limits (eg. net

benefit test) How should it do it?

How can a government comprising self-interested politicians and bureaucrats do what we want it to do? (public choice theory)Policy that doesn’t consider both these

issues will be fundamentally flawed

The “What” must be well thought out“Bad administration, to be sure, can destroy good policy, but good administration can never save bad policy.”

- Adlai E Stevenson Jr

The “How” must also be well thought outPolicy that is unable to pierce the veil of incentives during implementation is bad policy

Good policy necessarily considers implementation issues

This is what we want

Goal

This is what we get

OurGoal

Bureaucrat

(black box)

…. by failing to think about the politician’s and bureaucrat’s incentives

Bureaucrat’s goal

Sequencing of my talk

I will discuss the “How” first Public administration (delivery) reforms

Then I will discuss the “What” Policy framework and gatekeeping Economic policy

A word re: Arthashastra

Arthashastra underpinned India’s past success For 12 out of the past 20 centuries India

was the world’s wealthiest, and 2nd wealthiest in six out of the remaining eight centuries Due to the public policy stance outlined

in Arthashastra

Let’s put Arthashastra squarely into the centre of public policy discourse Most analysts of Arthashastra have

missed its point its insights are extremely modern we should read between the lines to

understand what Chanakya is trying to tell us

All about INCENTIVES (including disincentives)

Chanakya wanted a strong, minimal state, with control over incentives

Two axes: liberty, incentives

Liberty

Incen

tives

Reminder: incentives include disincentives!

Key dimension #1: Liberty

Liberty is an end in itself. But also necessary for people to do their best

Lao-Tse’s advice to the king: “Win the world by doing nothing. How do I know it is so? Through this: The more prohibitions there are, the poorer the people become… The greater the number of statutes, the greater the number of thieves and brigands.”

“I love quietude and the people are righteous of themselves. I deal in no business and the people grow rich by themselves.”

India was much wiser in ancient timesकहा�वत

जहाँ�� का� ��ज� हाँ� व्य�प��� वहाँ�� का� प्रज� हाँ� भि�खा���

Government should not engage in business

Free markets Free enterprise

The natural effort of every individual to better his own condition is so powerful, that it is alone, and without any assistance, not only capable of carrying on the society to wealth and prosperity, but of surmounting a hundred impertinent obstructions with which the folly of human laws too often encumbers its operations.

- Adam Smith 1776

“Any restriction on liberty reduces the number of things tried and so reduces the rate of progress”

- H.B. Phillips (mathematician)

1

2

3

n

Two obstacles to freedom

Opportunity(technical

frontier)

Governance must enable liberty

(social reform is not a government’s job)

Ideasdon’t

come fromgovernments

People create ideas, and wealthGrowth = f (freedom, opportunity)

Innovationpushesout the frontier 2) Social control

• interfering religious beliefs• science and critical thinking insufficiently valued

People innovate better if the

government getsout of their way

1) GovernmentNanny, paternalistic state:• interfering policies and laws• “Food police”

Injustice• contracts not enforced

Key dimension #2: Correct incentives Chanakya thoroughly understood incentives:

Best talent in government High salaries for top officials and Ministers But vigorous checks/ audits (even spying) Instantaneous dismissal and severe punishment for

non-performance/corruption

Today we have the OPPOSITE incentives in India! The results achieved today are inevitable

Singapore follows Chanakya’s principles and succeeds

The problem of government failure Policy makers typically focus on market

failure

But the real elephant in the room is government failure

“Power corrupts, absolute power corrupts absolutely” Politicians lavishly spend taxpayers’ money Bureaucrats maximise their empire

Understanding incentives

Institutions (rules)

Incentives

Response

EndowmentLocal circumstances

(beyond the control of the policy maker)

SystemCreated by policy maker}

Examples: Incentives explain behaviourDisposing personal rubbish

The same Indians don’t throw rubbish on the roadside in Singapore

Tenure Without job tenure an IAS/IPS officer will focus on

delivery, for fear of losing the job

Corruption Indians were incorruptible when British

merchants first came to India. (They were astonished at such integrity!)

But today Indians are world-famous for corruption. Why?!

Incentives are at work 24-7

We ask our politicians to lose crores of rupees during elections. Then we pay them very low salaries. Question: Will such people serve us or loot us?

=> Conclusion: our system guarantees corruption.

Chanakya would have understood But we don’t care to see the world scientifcally

Burying our head in sand won’t make incentives disappear

Incentives are at work even in our dreams!

Incentives are as powerful as a physical force

Gravity pulls downwards, hence water flows downhill

Incentives drive human behaviour and almost entirely determine what someone will do

But incentives are difficult to analyseInvisible, complex, layered, and conditional

Despite this difficulty, we ignore incentives at our peril

Example of the power of incentives I offer you Rs. 100 or Rs.200. Which will you

pick? Rs.200 Always.

Incentives may be invisible but have REAL, PREDICTABLE EFFECTS

Incentives need not only be economic But economic incentives usually overwhelm

others

Myth: that Indians are somehow “different” Apparently we have a natural

tendency to be corrupt

Not true

Indians respond to incentives EXACTLY as predicted Chankya predicted it Modern economics predicts it New public management predicts it

China has moved toward incentives and markets-based governance Teachers are dismissed in China if

a class’s academic results are below par While in India some teachers get

paid even if they don’t ever go to school!

Naturally China does better than OCED in PISA, India is at the bottom of the world

Results exactly as predicted

Half of Class 5 kids in India can’t read Class 2 texts

The incentive (principal-agent) problem

Agency theory Company owners motivate managers through incentive contracts so manager actions (which are unobserved) can be aligned to owners’ goals.Usually:

1. Base salary (for participation) plus2. Performance pay (incentive compatible wage)

Plus hire/fire instantly based on performance

Controlling bureaucrats is very hard

Citizens, the masters, have to solve a TWO STAGE problem:

1) First controlling representatives (politicians) 2) Second, how politicians can control

bureaucrats

Citizen

How to control

?

How to control

? Black boxof incentives

Black boxof incentives

Lots of hidden actions & complex incentives!

Politicians’ interests are totally different to ours Politician’s goal is to get re-elected He knows that citizens can’t agree on anything

Impossibility theorem He can game the system by catering to a

niche Median voter theorem Lobbying/ pandering (subsidies/loan waivers)

In addition, he must necessarily be corrupt in India, it being a mandatory requirement of the Indian electoral system

How we can force politicians to look after our interest Meet the participation constraint

Partly fund elections by the state to reduce use of black money and allow good people to contest Australia pays about $2 per valid vote cast

High salary to attract good people into politics Pay incentive compatible wage

Salary high enough to prevent incentives for corruption

Link pay with performance Reduce tenure (from 5 to 3 years) to keep them on

toesSingapore and Australia pay politicians well, thus attracting top talent and reducing incentives for corruption – Chanakya would have approved.

Bureaucrats’ interests are different to ours, too“Lurking below each public servant is a full-fledged human being with predictable self-interested behaviour” (Sabhlok,BFN)

His goal: to expand his empire (importance) Obstacles/ inefficiency/ symbols, not real work

Solution:Meet participation constraint

High salary to attract good peopleIncentive compatible wage

Performance based reward/pay Tenure totally abolished at executive levels Stern punishment for underperformance/ corruption

Consider Chanakya’s wisdom re: incentive compatible wage "the highest salary paid in cash, excluding

perquisites, was 48,000 panas a year and the lowest 60 panas a year. The ratio of the highest salary to the lowest, was eight hundred to one.” (Balbir Sihag)

If lowest salary is Rs.4000 per month, then highest should be Rs. 32 lakh per month (or Rs.3.8 crores per year)

Even a top salary of Rs.1 crore will go a long way.

But there must be ability to instantaneously fire.

India’s bureaucracy: The current situation Salary is not high enough to:

A) attract demonstrated high quality talent B) prevent corruption

Indeed, there are rewards for corruption

No punishment for non-performance Tenure is particularly insidious Articles 310,311

=> Our politicians can’t control bureaucrats

Paying in “patriotism cash equivalent” is not always a good idea

Market rate for a particular skill

Australia pays market rate + incentives

India pays 1/3rd market rate+ nationalism

Sacrifice “for

the nation

”

Incentive to perform and be honest,

else will lose job – and money!

Incentive to be arrogant

(doing “sacrifice” for country) and unaccountabl

e

Minimum conditions must be metPasteur: Milk must boil before bacteria die

Participation constraintAND

Incentive constraint must be met

XTo kill incentives for corruption

What about transparency?

Can transparency (by itself) eliminate corruption? No.

Easy for corrupt officials to provide “transparent reasons” for awarding large government contract to bribe-giver

We can have all the transparency we like, but the corrupt will find a way

We must attack INCENTIVES, and must not PREACH

Unless participation and incentive constraints have been met, other factors don’t have any effect

What about Lokpal?

Can punishment (by itself) eliminate corruption? (eg Lokpal)

No.

Low possibility of detection: When 95 per cent are corrupt, chance of getting caught is small, so why worry?

Risk premium on corruption: Lokpal will allow corruption “rates” to increase on due to increased risk of punishment

Unless participation and incentive constraints have been met, other factors don’t have any effect

Commonly advocated anti-corruption solutions can work after basics are met Transparency CAN work Lokpal CAN work

Basic conditions will make 95 per cent people honest

After that remaining 5 per cent corruption can be eradicated by transparency and lokpal

Where will money to increase wages come from? First, we must remember: “penny wise

pound foolish” If the top levels can become honest, the rest

will follow Singapore PM is paid $2 million

Government should stop doing things it should not be doing in the first place That will give citizens the freedom to

produce => greater revenues

2) INDIA’S SYSTEM COMPARED WITH AUSTRALIA’S SYSTEM

Flexible control over bureaucracy Bureaucracy is controlled by Acts of

parliament Public Service Acts of 1902, 1922 and 1999 In Victoria, recent Public Administration Act

2004

This, being flexible, allows continuous improvement

Agile system. Empowers but demands total accountability Secretaries appointed by Prime Minister/Chief

Minister Contractual, with clearly defined KPIs

Secretaries empowered to hire and fire other staff Hire and fire option with 4 months notice Secretary appoints Deputy Secretary

who appoints Directors, etc. down the line Open market recruitment by application for each

position Remuneration parity with private sector Contractual service at all executive levels Portability of employment contributions for retirement

Australian government doesn’t dabble excessively with the economy Extremely limited role of government

in managing economic activity (in comparison with India) Almost no administered price, including

in the utilities sectorTargeted subsidies to the poor

Freely floating currency Very low duties (free trade) Almost no subsidies for any sector

=> Starkly different governance! Superior management (including project

management) skills Self-actualising organisational culture Strong performance management system Diverse background of government

employees (most with private sector experience)

Head of civil service often in mid-30s Good performers are rapidly promoted

Extensive delegation of responsibility Free and frank policy advice Significant use of modern IT

Strong system for accountability KPIs and performance contracts for

Secretaries KPIs flow into performance plans of lower officials All executives are fully accountable for contracted

results Independent review of Secretaries’ performance

Performance bonus contingent on performance

Not uncommon for executives to be demoted or dismissed for non-performance

Organisational culture

Blue culture on the "circumplex“

Self-actualising No one is called

"Sir", only first names.

Everyone equal as a person

India's culture is very red in comparison!

(Aggressive/Defensive)

Staff are expected to:

show concern for the needs of others involve others in decisions affecting them

resolve conflicts constructively be supportive of others work to achieve self-set goals help others to grow and develop point out flaws (ie not just accept low

standards) be a good listener give positive rewards to others

Staff are not expected to:

do things for the approval of others "go along" with others win against others accept goals without questioning them be predictable never challenge superiors do what is expected oppose new ideas

Focus on world-best policy products Policy officers conduct world-class

research Short, crisp, professional briefings for Ministers

No “peons”/clerks Officers organise everything themselves

Rapid turnaround of documents/emails Independent Board (with non-

departmental directors) provides high quality corporate governance

Productivity tools extensively used. And experts/ academics consulted All documents dealt with electronically

Key documents auto-scanned at time of receipt TRIM to store documents including emails Govdex to share confidential documents across

Federal and State governments Telepresence (Huge TV screens)

No unnecessary travel for meetings Constant interaction with OECD, other

international jurisdictions and world-best academics Eg. Centre for Market Design in University of

Melbourne

3) PUBLIC ADMINISTRATION REFORMS FOR INDIA

Political incentive reforms

As discussed: key reforms could include State funding of elections High salaries but no perks Performance bonus based on

increased GDP reduced corruption, etc

Lokpal to deal primarily with corrupt Ministers

Bureaucratic system reforms As discussed:

Eliminate tenure Contractual appointments (Under Secretary

and above) Salaries comparable with private sector Performance pay related to outcome Ability to dismiss without notice for non-

performance (with 4 months salary in lieu)

Reduce clerical staff and hire policy experts

But this is "not practical”!

Good policy maker must design transition path.Eg. Following steps0: Stop deputations to centre for two yearsAsk an HR company to advertise all Secretary positionsMonth 3: Prime Minister and Ministers appoint New Secretaries on 2-year contract based on merit

Secretaries not successful in getting these job sent to cadre

New Secretaries then advertise Addl and Jt Secretary positions and hire in next three months

Month 6: Those not successful return to cadre

Transition contd.

Month 9: Strategic plans Month 21: Implementation of strategic

plans completed New Public Administration Act Any relevant Constitutional amendment

By end of 2nd year, full transition to be rolled out in the Centre Similar transition rolled out in the States

Within three years civil service would be fully restructured and become agile/efficient

4) ECONOMIC POLICY REFORMS FOR INDIA

Chanakya’s insights, once again

Chanakya does not prohibit anything Alcohol/ prostitution/

most meats He regulates it He promotes trade,

particularly imports Open economy is the

key to prosperity

Liberalisation does not equal deregulation

India: yet another proof that economic freedom works

Freedom is increasing rapidly in India since 1990s Most sectors liberalised

E.g. mobile phonesSome sectors are free because the

government is basically defunct in those areas

Overall, we have very low levels of freedom

=> Need to liberalise most sectorsEducationHealth

India’s output has responded rapidly to very limited increase in freedomTable: Share of world output measured in terms of PPP

Country 1980 1990 2000 2010 2016

China 2.2 3.9 7.1 13.6 18.0

United States 24.7 24.7 23.6 19.7 17.8

India 2.5 3.2 3.7 5.4 6.6

Japan 8.7 9.9 7.6 5.8 5.0

Germany 6.7 6.1 5.1 4.0 3.4

Russia 0.0 0.0 2.7 3.0 2.9

Brazil 3.9 3.3 2.9 2.9 2.9

United Kingdom

4.3 4.1 3.6 2.9 2.6

Australia 1.3 1.3 1.3 1.2 1.1

Economic reforms needed

Review and reduce unnecessary role of government

Fiscal system reform Financial sector liberalisation (with prudential

regulation) Privatisation of utilities and defence production

where possible – with regulatory oversight Open economy (trade) Urban/regional planning reforms to allow markets

to signal demand and supply Infrastructure reforms (PPP etc.)

5) REGULATORY POLICY REFORMS FOR INDIA

Need for optimal (just right) regulation Liberalisation ≠ deregulation We need regulation to prevent/ punish harmful

effects But no more than that When social marginal cost equals social marginal

benefit (SMC=SMB – equalised for ALL policies) Can be assessed through a cost-benefit analysis

(CBA)Many challenges in CBA but without such test

we get truly bad policy

Points to consider

Policy must not be made in response to a particular incident It must be evidence based (cost-

benefit/ statistical analysis) E.g. cost of saving a life must be

equalised across all interventions

Regulatory Impact Statement Gatekeeping role, includes

Cost benefit test Public consultation (transparency)

Bad policy reduced

The basic idea applies to all projects (eg. infrastructure/ public private partnerships)

But India doesn’t have gatekeeping processes yet

Victoria’s independent gatekeeping mechanism Department prepares RIS Independent Commission assesses the

RIS Minister signs the RIS and publishes

for consultation The Treasury department advices

Cabinet (where appropriate) Parliamentary Committee scrutinises

RIS for integrity and diligence

10 questions to eliminate bad policy

1: What would happen without any role for government2. Identify problem/s with the base case and explain why these are problems3. First principles test (should government intervene at all)4. What can government do about the problem/s?5. Freedom test

10 questions to eliminate bad policy

6. Strategic gaming test7. Government failure test8. Real experience test9. Cost benefit test10. Transition path

(details in Victorian Guide to Regulation/ policy competition held by Freedom Team of India)

Urgently needed regulatory reforms in India Legislate a mandatory requirement for

RIS for any public policy/ significant project Mandate the 10 point process as the basis for RIS

Create independent Commission to assess adequacy of RISs

Ensure public consultation so the truth emerges

Reducing red tape (costs of regulation)

Measuring regulatory costs

Standard Cost Model (European) Regulatory Change Measurement

method (Victorian) Reducing red tape provides

significant benefits businesses and the community

6) TRANSITION FROM CURRENT SYSTEM TO WORLD-BEST SYSTEM

Strategic plans and transitional strategy

This is time to our homework Then good results will be certain

In this conference we will specify each step of what a good government should do in its first six months Transitional path

These goals of good governance are very easy to achieve These are PROVEN methods These are consistent with the views of

India’s greatest economist - Chanakya

Let’s remember that Indians are the same as other humans Same species. No difference in behaviour.

We need to establish a Chanakya School of Governance India has excellent technology, medical and

management schools.

But not one good school of governance (Note: Governance goes beyond public

administration)

We need many excellent schools of governance

Suggested: Let the private sector in India establish a world class Chanakya School of Governance

Federation of reformers recently created

At the National Reform Summit in Haridwar recently, a Sone Ki Chidiya Federation has been created for reformers Vision Agenda for Change

Let this Conference create Strategic Plans for reform

REMARKS OF SPECIAL GUEST

Justice Tewatia

Remarks of Special guest: Justice Tewatia

Former Chief Justice of Punjab & Haryana and Calcutta High Courts

CHAIRMAN’S REMARKST N Chaturvedi, Chairman IIPA

Chairman’s remarks: T N Chaturvedi

Padma Vibhushan Former Comptroller

General of India (1984 -1990)

Governor of Karnataka (2002 to 2007)

Governor of Kerala 2004

Chairman, IIPA

Request to contribute funds

Please contribute to the India Policy Institute which is significantly out of pocket for running this conference.

Please also contribute to Freedom Team of India and Sone Ki Chidiya Federation which are taking all necessary steps to bring governance (including policy) reforms to India.

Lunch Break: 1 hour

Questions and Answers after the break

DAY 1: POST LUNCH SESSION

Plan for post-lunch session

1:30 pm: Initial set of issues, and outline of strategic

plans

2:00 pm: Strategic plan for “How” What should be done? What should the transition plan

look like?

3:15 pm: Tea break

5 pm: Closure for first day

QUESTIONS/ISSUES ON INTRODUCTORY SESSION

Issues in your mind at this point We’ll note on the whiteboard We’ll deal with many of these issues

later (today or tomorrow)

STRATEGIC PLANS

Task: Prepare a strategic plan Imagine you are the Prime

Minister’s main policy adviser. Prepare a strategic plan (with

transitional steps) to deliver governance reforms in: How: Public administration reforms What: Policy/ regulatory

framework reforms

Process that we’ll follow

We’ll sub-divide the question We’ll then break out into small

groups and discuss What’s already happening in India? How can we modify existing practice

to seamlessly bring about change? What are key obstacles and how can

we remove them? Moderators will report back to the

delegates

Task 1: Strategic plans for public administration1) Abolition of tenure [Dipinder]2) Setting market comparable/ performance based salary [Sureshan]3) Recruitment through open competition for each post [KK Verma]4) Change in organisational culture [Rajan/Abhijeet]5) Use of IT and technology [Akshay/Madhu/ Vidyut]

How will each of these be done (including transition)/ what’s already happening in India?

Any other thoughts/issues

Identify any issues/obstacles Identify solutions

Request to contribute funds

Please contribute to the India Policy Institute which is significantly out of pocket for running this conference.

Please also contribute to Freedom Team of India and Sone Ki Chidiya Federation which are taking all necessary steps to bring governance (including policy) reforms to India.

DAY 2: STRATEGIC PLANS CONTINUED

Review of Day 1

Theory and introduction

How can a government do its work? Public choice theory/ Arthashastra

Participation constraintIncentive constraint

Strategic plan for effective public administration

Strategic plan for effective public administration

1) Abolition of tenure2) Setting market comparable/ performance based salary3) Recruitment through open competition for each post4) Change in organisational culture 5) Use of IT and technology

>> We did not discuss improved incentives for politicians, but these are outlined in BFN

Today

What a government should do

School of governance

How can these reforms be implemented?

Concluding session

Timing

9:30 am to 12:30 pm morning session Tea at about 11 am

12:30 pm to 1:30 pm Lunch

1:30 pm to 5 pm evening session Tea at about 3:15 pm

Review of the “What” question Economic policy framework

Maximum freedom subject to accountability

Regulatory policy framework Optimal regulation Red tape reduction

4) ECONOMIC POLICY REFORMS FOR INDIA

Chanakya’s insights, once again

Chanakya does not prohibit anything Alcohol/ prostitution/

most meats He regulates it He promotes trade,

particularly imports Open economy is the

key to prosperity

Liberalisation does not equal deregulation

India: yet another proof that economic freedom works

Freedom is increasing rapidly in India since 1990s Most sectors liberalised

E.g. mobile phonesSome sectors are free because the

government is basically defunct in those areas

Overall, we have very low levels of freedom

=> Need to liberalise most sectorsEducationHealth

India’s output has responded rapidly to very limited increase in freedomTable: Share of world output measured in terms of PPP

Country 1980 1990 2000 2010 2016

China 2.2 3.9 7.1 13.6 18.0

United States 24.7 24.7 23.6 19.7 17.8

India 2.5 3.2 3.7 5.4 6.6

Japan 8.7 9.9 7.6 5.8 5.0

Germany 6.7 6.1 5.1 4.0 3.4

Russia 0.0 0.0 2.7 3.0 2.9

Brazil 3.9 3.3 2.9 2.9 2.9

United Kingdom

4.3 4.1 3.6 2.9 2.6

Australia 1.3 1.3 1.3 1.2 1.1

Economic reforms needed

Review and reduce unnecessary role of government

Fiscal system reform Financial sector liberalisation (with prudential

regulation) Privatisation of utilities and defence production

where possible – with regulatory oversight Open economy (trade) Urban/regional planning reforms to allow markets

to signal demand and supply Infrastructure reforms (PPP etc.)

5) REGULATORY POLICY REFORMS FOR INDIA

Need for optimal (just right) regulation Liberalisation ≠ deregulation We need regulation to prevent/ punish harmful

effects But no more than that When social marginal cost equals social marginal

benefit (SMC=SMB – equalised for ALL policies) Can be assessed through a cost-benefit analysis

(CBA)Many challenges in CBA but without such test

we get truly bad policy

Points to consider

Policy must not be made in response to a particular incident It must be evidence based (cost-

benefit/ statistical analysis) E.g. cost of saving a life must be

equalised across all interventions

Regulatory Impact Statement Gatekeeping role, includes

Cost benefit test Public consultation (transparency)

Bad policy reduced

The basic idea applies to all projects (eg. infrastructure/ public private partnerships)

But India doesn’t have gatekeeping processes yet

Victoria’s independent gatekeeping mechanism Department prepares RIS Independent Commission assesses the

RIS Minister signs the RIS and publishes

for consultation The Treasury department advices

Cabinet (where appropriate) Parliamentary Committee scrutinises

RIS for integrity and diligence

10 questions to eliminate bad policy

1: What would happen without any role for government2. Identify problem/s with the base case and explain why these are problems3. First principles test (should government intervene at all)4. What can government do about the problem/s?5. Freedom test

10 questions to eliminate bad policy

6. Strategic gaming test7. Government failure test8. Real experience test9. Cost benefit test10. Transition path

(details in Victorian Guide to Regulation/ policy competition held by Freedom Team of India)

Urgently needed regulatory reforms in India Legislate a mandatory requirement for

RIS for any public policy/ significant project Mandate the 10 point process as the basis for RIS

Create independent Commission to assess adequacy of RISs

Ensure public consultation so the truth emerges

Reducing red tape (costs of regulation)

Measuring regulatory costs

Standard Cost Model (European) Regulatory Change Measurement

method (Victorian) Reducing red tape provides

significant benefits businesses and the community

Task 2: Strategic plans for policy framework reform

1) Legislative framework for RIS (including sunsetting requirement) [Dipinder]2) Detailed guidance on RIS/ policy framework [Sureshan]3) Independent commission to assess RISs [KK Verma]4) Review of key legislation and policies using policy framework within 1 year [Rajan/Abhijeet]5) Red tape reduction program technology [Akshay/Madhu/ Vidyut]

ANY OTHER THOUGHTS ON FRAMEWORK REFORMS?

Any other thoughts/issues?

Issues/obstacles Potential solutions

SECTORAL POLICY ANALYSIS

5 policy areas for analysis based on governance/policy framework School and higher education

[Dipinder] Economic policy (trade/commerce/

production) [Sureshan/ Madhu] Local government [KK Verma] Utilities (energy, water)

[Rajan/Abhijeet] Transport (roads and public transport)

[Akshay/Vidyut]

Economic Policy paper by Dr. (Ms) Madhura Mitu Sengupta Associate Professor, Department of

Politics & Public Administration, Ryerson University, Toronto, Canada

Paper accepted: “Economic Policy Reform and Governance - The Challenge of Decentralization”

Flight delays due to bad weather in N. America

Likely to reach, but late

SCHOOL OF GOVERNANCE

School of governance

We have IITs/IIMs but no internationally reputed school of governance

Governance is a science that includes: Public administration and management Economic analysis (particularly public choice,

agency theory, and mechanism design) Policy analysis (cost-benefit analysis) Regulatory analysis (measurement of

regulatory costs) We need a number of world-class schools

of governance

The task: Setting up a world best school of governance How can a financially sustainable (ie. not

dependent on subsidies from government) be established?

Who would like to pay fees and attend courses?

What courses should it teach?

NEXT STEPS OF THE JOURNEY

Who will implement these reforms? Governments/ political parties? Universities/ civil society?

Three governance reform organisations: India Policy Institute (1999), Hyderabad Freedom Team of India (2009), Indore Sone Ki Chidiya Federation (April 2103),

Delhi

>> Influence next government

Concluding comments

Thanks to IIPA Thanks to TN Chaturvedi, Gurcharan

Das, Justice Tewatia and IIPA faculty and staff

Thanks to participants who contributed funds for this Conference

Thanks to other participants for attending and contributing their ideas

Let this Conference mark the beginning of a journey, not its end Please join:

Freedom Team of India and/or Sone Ki Chidiya Federationif you want these reforms to be implemented

India Policy Institute is still out of pocket for this Conference. So please contribute.

VOTE OF THANKS

Dipinder Sekhon

Together let’s change India