Governance in India has been economics illiterate; here's how to fix it

The government needs to appoint economists in secretary level positions in all ministries for things to improve

The Supreme Court has refused to entertain the review petition of two telecom companies who between them were asked to pay over Rs 1 lakh crore to the Department of Telecommunications (DoT) which had billed them for spectrum usage. The government owns the spectrum and the DoT is agency of the government.

The bill was sent almost two decades ago. The dues now include penalties and interest. The companies don’t seem to have provided for the contingency. They were betting on a positive outcome in their litigation against the government.

Now they fear that they will go bankrupt if forced to pay. So they may file yet another petition called a curative petition. Such a petition is an Indian invention. Article 137 of Constitution allows the Supreme Court to review its own judgements and orders.

Economic ignorance

Last week I had written that the judges need to familiarise themselves with the economic consequences of their judgements. But while that is necessary, it may not be sufficient.

Thanks to the manner in which India has been governed, basic economics is entirely missing from the process of decision-making, and the decisions themselves. There is no heed paid to how markets and people will behave to maximise their utilities and returns. It is not an exaggeration to say that the boss group in India has always been clueless.

It doesn’t matter who it is — politicians, bureaucrats, judges — all are innocent of even a fleeting knowledge of economics. As a result there is virtually no economic sense of, and in, governance at all. Decisions are taken either for political gain or judicial correctness/activism or bureaucratic convenience.

In a vague sort of way Jawaharlal Nehru sensed this problem. So he created the Indian Economic Service (IES). For a long time it was believed that these government economists would fill the intellectual vacuum and self-serving decision-making.

But that has not happened because they are either never consulted, or when consulted, ignored. This has cost us dearly over time in terms of mis-allocations, pricing anomalies and other damaging distortions.

The results are there for all to see.

Three suggestions

First and foremost, since status and rank matter so hugely in government, both have to be enhanced for economists. It’s no use employing a few hundred of them of low rank who are ignored even when they speak up, which is rare.

An economic advisor in a ministry must have the rank of a Secretary. That’s how important the job is.

This means at least 50 Secretary level appointments. In the finance ministry the chief economic adviser has a secretary rank. One or two have even been given the rank of minister of state. Otherwise the joint secretaries who are a law unto themselves will never we pay heed.

Second, therefore, the pool from which they are recruited must be enlarged and not be confined the IES. India is not short of economists. But the apparatus of the Indian state is, woefully so. This is a terrible situation to be in.

Finally, every new law and rule must be examined by an economist. Here the bureaucracy must be made to submit. The babus have always created havoc and it’s time we stopped this nonsense.

There are thousands of instances of this but let me give just one.

Currently, in their GST returns purchasers are not expected to provide data invoice/supplier wise, just a consolidated figure for inputs during the month.

The supplier, on the other hand, is expected to post data monthly. Result: there is no way invoice matching can be done digitally.

Instead, matching is to be done manually via audit but that may take years. Meanwhile the supplier can simply run away with unpaid GST, leaving the buyer in the lurch.

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