Reform is a process of understanding the correct role of different institutions and their respective boundaries of decision-making

In each area a debate rages between proponents of market and individual enterprise and those seeking a greater element of societal direction. While each issue is important and in each the discussion across forms of policy and societal concerns is different, there is an underlying set of common themes which we tend to lose sight of in focusing on specific concerns.

Economic reform is not merely about putting together an adequate menu of changes in different sectors; it has a critical element related to the way we govern ourselves. The experience of the past 50 years of independent governance has seen a considerable blurring in this perspective.

The constitutional scheme we adopted provided for three distinct decision-makers: the executives, the legislatures and the courts — each endowed with specific powers and requirements to meet distinct tasks and objectives.

This separation was not arbitrary or whimsical but based on differences in transactions costs associated with different decisions. Thus, the legislature was allowed to alter distribution of rights and resources because it was equipped to record the preferences of the people through representative voting mechanisms.

The executive was to make technical decisions on implementation, based on scientific, epidemiological and statistical data. In this aggregative formulation there is always a concern that individuals and their rights may get obscured. So the judiciary was empowered to protect rights by resolving disputes amongst individuals, between individuals and the state, and amongst elements of the state itself.

The problem with the development experience over the past 50 years is not so much in the quality of individual decisions, some of which have been quite bad, but in losing sight of the requirements of running this complex constitutional mechanism. The reasons for this failure are found in each of the crucial arms of decision-making and in their collective impact.

To start with, the legislature has not discharged its remit of representative decision-making because of a variety of reasons. On the one hand, the flawed electoral process meant that electoral success only partially reflected the assessment of public preferences.

On the other hand, the complexity of the issues requiring legislative attention implied that decision-making was effectively abdicated to the executive “that had the wherewithal”. This legislative failure shows up in some fascinating instances where a government is unwilling to implement legislation passed by an ostensibly representative house on the grounds that it will be politically unpopular! Thus, amendments to rent control, industrial disputes and several other public policy initiatives have not been notified or implemented.

The executive was handicapped over time because its ability to marshal technical skills was hampered both by poor manpower policies and excessive delegation to political authorities of what were technical decisions.

Thus, support prices of foodgrains are based on the requirements of political support in Parliament, rather than objective assessments of costs and the impact on non-supported competing crops. Poor incentive and control regimes leading to widespread corruption compound the problem. Thus, even routine decisions are made or not made, based on their ability to “wet beaks”.

The judiciary, similar to the executive, is constrained by ill-equipped manpower management and extremely limited budgets. In addition, this overstretched institution must cope with the consequences of political and executive failure.

This has drawn it into the realm of executive and legislative decision-making, with obviously deleterious implications for efficiency and even equity. Thus, we have had courts addressing concerns of technology choice, road safety, traffic control, etc.

The limitations of each institution have put stress on the others and created gaps into which the others have inappropriately extended themselves. These extensions have partly been due to a desire to mitigate immediate problems, and partly due to a misunderstanding of their own roles.

Thus, the Fiscal Responsibility Bill is criticised for being an inappropriate restriction on the rights of the legislature! The fact is the Fiscal Responsibility Bill, rather than being a restriction on the legislature, which is constitutionally empowered to make a wide spectrum of decisions, is actually an effort to control the powers of the executive. Similar examples can be cited from other areas of decision-making.

Unfortunately, reform has been portrayed, simplistically, as a conflict between the state and the market. In fact, it is not an issue of conflict, but a process of understanding the correct role of different institutions and their respective boundaries of decision-making.

Restoring the system to correct institutional boundaries, with mechanisms to resolve conflict at the margin, is at the heart of structural reform. In addition, changes in technology and the global environment require us to refashion the core institutions of governance to make them relevant today. The challenge will have to be met by restoring flexibility and dynamism to the basic institutions while retaining traditional concerns of representativeness and rights.