For the last few quarters, India has experienced two ‘strikes’ that have set it back by many years: the ‘decision-making strike’ by government officials and the ‘investment strike’ by the organised private sector.

We are, it seems, stuck. So, how do we get both sets of important economic actors moving again? To get to the solution, let’s briefly understand the reasons leading up to these twin strikes.

Decision-making strike

Friends in the government refer to the ‘5 Cs and 1 M’ which make good governance, especially decision-making, a high-risk, low-return activity. The 5 Cs are: CBI, CVC, CAG, CJI and CIC. The M is of course the media.

Prior to 2010, this used to be more relevant for appointed officials (bureaucrats). Post-2010, especially after the arrest of ministers and others in the 2G case, the 5 Cs are seen as a threat to the elected officials (political leaders) as well. Paradoxically, it is usually the non-corrupt officials who are much more scared of the 5 Cs and 1 M, while the corrupt ones know exactly how to massage the system and stay out of trouble. Today, dynamic, output-oriented officials in government have a perverse incentive system: do something for the public good and land afoul of one of the 5 Cs, or do nothing out of the ordinary, and remain safe.

One would argue that ground-level execution challenges are the hardest hit by the decision-making strike. Earlier, dynamic district authorities and state-level officials could deliver quick outcomes and remove such hurdles for the private sector. That, alas, is no longer true, and routine work takes much longer.

5 Cs and 1 M

The central bureau of investigation (CBI) is supposed to be the prime anti-corruption investigative wing of the government. It has many talented officers, but at the same time, various perceptions attribute different motives for its actions. We have evidence of several CBI cases where the trial in courts took forever to acquittal, but reputational damage was done in ‘trial by media’. A surprising number of CBI probes find their way into the media. This violates the fundamental right of life and liberty of the accused official, of being ‘innocent until proven guilty’. It’s surprising that while there is much anguish and judicial oversight about the ‘Radia Tapes’ leaks, there is no similar chagrin at the routine leaking of CBI investigations. Lesson for most officials then is – do nothing that attracts the attention of the CBI.

Indeed, the decision-making strike has afflicted CBI too. In some cases, despite a broad consensus that an accused official is not culpable, a note written by the public prosecutor or a junior official in the agency is seldom amended or changed by her or his seniors in CBI to avoid allegations of being in cahoots with the accused.  

The central vigilance commission (CVC) is supposed to be the ultimate watchdog on corruption in government. Unfortunately, it is seen as ‘toothless’ and a recommendatory body. This does not detract from its very real fear for honest officials. It’s comical to see CVC complaints flying in when an official is being considered for a senior appointment. These complaints have little purpose than to delay the appointment. But the decision-making strike means that such complaints, however absurd, may not be summarily dismissed. Again, final action against ‘corrupt officials’ takes forever, whether it is conviction or acquittal.

The comptroller and auditor general (CAG), a constitutional body, is more sinned against than sinning.

The last few years have seen CAG focusing on larger ‘scams’ and the political class accusing it of overstepping its brief. One would say that CAG’s reports have not wrongfully implicated bona fide actions; their reports have been effective at restricting brazen decision-making. Honest and upstanding officials now have a way of persuading their superiors asking for egregious decisions – that the CAG would take it adversely. That said, the CAG’s impact is too little, too late. Those who are dynamic and outcome oriented will only gain from CAG oversight, and have little to fear. This holds true for both elected and appointed officials.

The chief justice of India (CJI), representing the judicial system, is perhaps not talked about enough. Quick closure of criminal and corruption cases is desirable. We must punish the guilty expeditiously, and exonerate those innocent equally speedily. However, with the slow pace of judicial processes, the guilty have a long time to enjoy themselves, while the innocent see little hope of clearing their name within, say, one year. Officials see this inordinate delay as a perverse incentive not to do anything which could land up in court.

The central information commission (CIC), representing the Right to Information (RTI), is popular with various activists. It may be politically incorrect pointing out the deleterious consequences of RTI on senior-level decision-making. Public policy is all about deciding among conflicting stakeholders who would seldom agree. At the operational level, simpler matters like issuing land records are not contentious. But strategic, policy-making decisions will always be case-specific. In such policy decisions, specific issues could be interpreted differently by different sides to the transaction. Making file notings available to all under RTI has made elected and appointed officials alike loath of taking quick decisions and contributed to risk-aversion.

The media, especially the profusion of smaller newspapers and electronic news channels, excels in hyping up news that criticises elected or appointed officials. While much criticism is valid, the ‘innocent until proven guilty’ principle is completely absent. Worse, some newspapers and news channels are established by local magnates, with interests in sectors like real estate, mining, natural resources or the like. Such media outlets run deliberate calumny against elected and appointed officials who refuse to oblige them. The Delhi- centric media worldview does not appreciate that nearly all of the 640 districts in India have such examples.

‘You must be joking’

Saintly cynics hold forth on how all this is nonsense. One comes across many from outside the group of elected/appointed officials, who scoff at these 5 Cs and see them as mere alibis. This is perhaps lazy thinking by righteous individuals, usually those who have little experience of working with large organisations and their incentive and disincentive structures.

Stop and think if the 5 Cs and 1 M were unleashed on you in whatever career you are in, would your behaviour become more risk averse? As a private sector professional, I was attending a leading industry chamber’s meeting where private port operators were aghast at the prospect of being declared a ‘public utility’ and being subject to the very same 5 Cs. Assume that editors were subject to CBI oversight on how they source their news, and whether there is a whiff of any criminality in such procurement of news – very soon, the regular publication of that newspaper or journal would be in jeopardy. So, for all you righteous indignant folk, perhaps you may like to imagine yourself under the thrall of the 5 Cs and 1 M. Then evaluate how valid is your criticism of cowardly officials hiding behind spurious arguments.  

This is certainly not a defence of the decision-making strike, but is a pointer to what we should be doing to get over this hurdle, imagined or otherwise.

Investment strike

Turning to the investment strike by the organised private sector, it is fairly evident that large corporate groups have lost the confidence to make large investments in Indian locations. They are happily seeking out more investment-friendly foreign climes, though. Net FDI (investments flowing into India minus investments from India flowing outside) is actually negative. Only a handful of Indian states, where the thrall of the 5 Cs is less, are seeing investments.
In the media and among top official levels, there is an absurd focus on ‘foreign investment’ into India. The same enthusiasm is not shown for wooing domestic investments. Perhaps elected and appointed officials should realise that if the domestic investor is not confident enough to deploy capital, there is little likelihood that the foreign investor would come in.

What is the main reason for the investment strike? It may be an arbitrary regulatory system, perceived victimisation of the organised private sector by agencies such as CBI, or arbitrary tax demands by government agencies. More often, it is the ground-level execution challenges, such as ordinary law-and-order issues, land-related issues, other approvals and coping with an army of inspectors from sundry departments. There is no closure and finality in decision-making by elected/appointed officials, when the private sector needs stability and predictability in decisions.

Perhaps the last nail in this coffin was driven by the recent case where a leading industrialist met a senior official, and because a subsequent decision by the competent authority was taken on the basis of representations in such a meeting, the CBI alleged a criminal conspiracy. Now, private sector leaders will be shy of meeting top elected and appointed officials, let alone making fresh investments.

Lastly, one would agree that these constraints on the government’s side have been long-standing. But the twin strikes have hit hardest in the last three to four years. Five years ago, it would be difficult to imagine senior ministers, bureaucrats and private sector top management in jail for long periods without bail. Today, at the central as well as the state government levels, many officials and private sector executives have been put in judicial custody.

The question is not whether these people are guilty or not – that is for the courts to decide. The challenge is to break out of this impasse.

Way out

Other countries have passed through such a time of uncertainty. Successful countries have resolved these issues and moved on to a better trajectory. What can India do in the next five years to put the Twin Strikes behind us?

Five ideas come to mind; three immediate and two longer-term.

1.    Change in incentive structures for officials

2.    Change in investigative processes

3.    Fast-track courts for PEPs (‘politically exposed persons’)

4.    Relook at PILs,  RTI, media etc

5.    Radical change in recruitment / selection of senior leaders and officials

1. Incentive structures - change
‘Show me how (s)he is rewarded, and I will show you how (s)he works.’ This old adage holds true for governments as well. Some offices in government are critical – for example, a municipal commissioner, a health commissioner or education commissioner or a PWD secretary or power secretary and their ministers at the state level, and similar such in the union government. Each entity of government, at the city, state and union level, should determine its own top priorities, and the officials associated with such priorities. These elected and appointed officials should be given performance-linked incentives (PLI). Such a system is already prevalent in PSUs, and that practice should be easily to implement for such group of officials in government. Such incentives should be linked clearly with easily monitored outcome indicators. Of course, this should be balanced with disincentives – loss in emoluments in case the base case targets are not met.

There will be a small minority that would misuse this system. But that would be less harmful than the current system, which penalises all decision-making.

2. Investigative processes - change
The distinction between bona fide decisions and those made with mens rea (‘guilty mind’) is a crucial one, and investigative agencies, including CAG and CBI, need to be acutely aware of this. In a recent case, the CAG looked into a matter and decided the decision was justified, but the CBI in the same matter registered an FIR. The best way, perhaps, is for investigative agencies such as the CBI to have a panel of experts in various fields (sometimes termed an ‘eminent persons group’). Such an expert panel could help investigative officers whenever guidance is needed on the difference between ‘galat’ and ‘galti’.
Moreover, there must be a strict time limit for completion of investigation. Incentive and disincentive structures need to be instituted for investigative agencies as well to comply with time limits. For this, the necessary resources and help must be available to investigative officers.

Equally important is streamlined judicial determination. Public prosecutors must be encouraged to vigorously press their case, and seek expeditious justice. We should aim at having completed investigations in six months, resulting in dropping of charges or prosecution in a fast-track court as below.

3. Fast-track courts: speedy justice for leaders

In order to make judicial determination effective, a case must be tried and orders for conviction or acquittal be passed in a maximum of one year. There is case for ultra-fast-track courts (UFTC), in keeping with the penchant for ultra projects. Again, suitable incentives and disincentives for sticking to the time limits would have to be made available for judicial officers of UFTCs. Instead of trying to get all officials into UFTCs, perhaps the best classification is PEPs (‘politically effected persons’) as defined by the global Financial Action Task Force. In the Indian context, PEPs would perhaps include all ministers of the union and states, MPs, MLAs, and all senior bureaucracy including police.

In general, PEPs include individuals who are or have been entrusted domestically with prominent public functions, for example, heads of state or of government, senior politicians, senior government, judicial or military officials, senior executives of state-owned corporations, important political party officials. The automatic disqualification of convicted MPs/MLAs, coupled with UFTCs, could clean up our legislatures within three years!

The three steps above could be undertaken by end 2014, and serve India well in its journey to 2018, over the next five years. They would certainly break the decision-making strike, and lead to lifting of the investment strike as well.

The two longer term steps below would take a little more time and consensus, but certainly need to be pursued.

4. Relook at PILs, RTI, media etc

PIL was an innovation for a different India, when mass media was much less ubiquitous. There is evidence to show that PILs have had a good impact over the last two decades. However, with the advent of mass media and social media, it is difficult to imagine how rank injustice would go unreported. PILs are now more in the nature of private interest litigations, as has been observed by several judges and jurists. They also tend to deny quick justice to non-PIL cases. Time to either persuade the judiciary to stop PILs, or enact a comprehensive legislation to do this and ensure much, much quicker justice to all.

Similarly, off-the-cuff remarks by judges during trials need not be used to demoralise officials, whether elected or appointed. It is nobody’s case that corruption cases should not be reported, but the media must observe the principle of ‘innocent until proven guilty’.  

Similarly, the RTI has its restrictions, as defined in the Act itself. Now that eight years have elapsed, top decision-makers need to critically evaluate its provisions. With the utmost respect to unelected RTI activists, they are not responsible for ensuring quicker growth or more jobs to unemployed youth. This is the responsibility of the elected officials. It is not an either-or situation – be transparent or else, but a nuanced situation, where, in public interest, restrictions on RTI are imposed.

5. Radical change in recruitment/selection of senior leaders and officials

Unless we get the best leaders as elected officials or appointed officials, outcomes will be elusive. In many ways, it is simpler to get better elected officials – Indian politics is moving towards performance getting rewarded by re-election. For appointed officials, the 2008 report of the sixth central pay commission chaired by justice BN Srikrishna has made an excellent recommendation in Chapter 6.1. The most important recommendation is:

“Lateral entry at higher grades

6.1.13 Apart from opening up the process of selection for deputation to the higher level posts, the Government should also identify some of the SAG and HAG posts requiring technical or specialized knowledge and which are not encadred in any of the service. These posts would be open for being filled by suitable officers within the Government as well as by the outsiders. The Government can also suggest some names for consideration of the selecting agency. The selection for deputation to these posts could be made by the UPSC irrespective of their working in the Government or outside it.”

This and other recommendations in Chapter 6.1 could be implemented without much ado. We need to get away from a seniority-driven system for senior appointments to a talent-driven system for such appointments. Else, we will have the unedifying case of one joint secretary in the power ministry during a five-year term seeing five short-lived power secretaries. Alas, outcomes in the power sector are known to all in 2013.

The next five years are going to be an ‘interesting’ time for India. The Twin Strikes are here with us: decision-making and investment both are on strike. It is up to us to find creative solutions, instead of mutual finger-pointing and a feeling of ‘nothing can be done’. For a brief period in the boom of 2004-08, there were naive triumphalists in the private sector who proclaimed that India grew when its government was sleeping. This is utter nonsense. For India to do better, the Indian government needs to work much, much better. The big question for the next five years is – how we can get better governments, so that our private sector can focus on its key competence and create more jobs for the youth who are going to enter the workforce in staggering numbers over the next decade.  The five suggestions above, along with many other bright ideas, need to be executed quickly, to get India going again.

Pathak, a former IAS officer, is a practitioner in finance, infrastructure & public policy. Twitter: @shypk

(This column is part of the cover story in the November 1-15, 2013 print issue. To subscribe to the magazine, click here)