Not just lateral appointments, India needs major administrative reforms

If India wants to be "Viksit Bharat" in 21st century, it can't do so with a 19th-20th century colonial-style administration. Core govt functions need a more professionally trained civil service

The recent kerfuffle over “lateral appointments” misses a bigger problem — the need for major administrative reforms to complement economic reforms. Dealing with India’s bureaucracy, even with an increase in e-services, remains a major complaint of businesses and citizens. If India wants to become a China +1, it must recognise that China conducted a major administrative reform in 1995 — 15 years after it began economic liberalisation — and modernised its government. India recognised the need for it during United Progressive Alliance 1.0 and set up the Second Administration Reform Commission 15 years after we began our economic liberalisation. It produced a tome with over 1,600 recommendations. But, unlike in China, the much-needed comprehensive administration reform did not come.

With a Modi 3.0, the time for this much-delayed reform may have come. Will it happen, and what would it entail? The size of the civil service is quite small by international standards, and its composition needs considerable change — there are too many clerical and administrative staff, and too few technocratic experts, teachers, and health workers. The share of general government employment in total employment was around 1 per cent in the 1990s, the lowest in Asia. Although there has been an increase since then, it has mostly been in security agencies. In most Asian countries, it is above 2 per cent, and in Malaysia and Sri Lanka over 3 per cent.

The small size of the civil service, however, comes at a very heavy cost. In India, the ratio of the average wage of a general government employee to per capita gross domestic product (GDP) is around 4—among the highest in the world. In most of Asia, that ratio lies between 1 (Vietnam, China) and 2.5 (Indonesia, Sri Lanka, the Philippines). Even South Korea, Thailand and Malaysia have a ratio of general government wage to per capita GDP of around 3-4. In the Arab world and Türkiye, that ratio is around 2-3. India’s government, contrary to popular belief, is small relative to its needs but extremely expensive relative to its income. It is also highly interventionist without the personnel or the capability to deliver effectively.

India also pays the upper echelons of the bureaucracy too little and the lower levels too much. The compression ratio— the ratio of average salaries between the highest and lowest brackets — has over time declined considerably. This has come about by keeping the salaries at the top levels low while rapidly increasing those at the lower end of the bureaucracy. The 7th Pay Commission identified the compression ratio as 3.12 for entry-level employees at Grade A compared to Grade C, and 3.74 for the highest paid at Grade A compared to Grade C. The upper end of the civil service has seen its real wages fall well below that of the private sector, whereas at the lower end, salaries (including benefits) can be more secure and are even higher than in the private sector. This has meant that the pay, and as a result the quality, of the inductees at the higher end, with discretionary decision-making authority, has declined, whereas those at the lower end, who make up more than 90 per cent of the government labour force, end up earning a much higher wage than in the private sector.

No wonder many people want a government job — which offers not only greater security but also a much higher compensation package at the lower levels of government. At the apex of this bureaucracy sits the elite administrative service, who are competent and smart individuals but have no time to develop the in-depth expertise needed to remain abreast of global developments in their fields. They often lack the technical edge required to lead India’s government policy in their sectors to retain our competitive edge. They also frequently face excessive political interference in their functioning. A more professional, performance-based civil service, with promotions based on regular testing rather than a time-bound lifelong sinecure, is vital to maintain a meritocratic culture. There is much to learn from the civil service systems of East Asian countries such as Japan, South Korea, Singapore, and Taiwan. Greater specialisation is needed at the top of the bureaucracy, instead of the generalist model India adopted from its colonial administrative system. Selecting and grooming civil servants early in their career for specialisation is essential.

Since liberalisation, India has constituted many regulatory bodies, often headed by retired senior government officials rather than technically competent experts, as is the norm in most other parts of the world. India needs a modern regulatory structure, which is more transparent, less complex, and headed by professionals with domain expertise — hired by open competition — not as a sinecure for retired bureaucrats. India needs a system that will minimise regulatory capture without choking private investment. India’s public spend is not too large, but it is allocated very inefficiently. Almost 50 per cent of total governmental expenditure is non-developmental, with large chunks going to administrative salaries, pensions, and interest payments. India also spends too much at the central and state levels, and extraordinarily little (4 per cent) at the local administration level. The same amount spent at the local level would allow it to hire more teachers, nurses and compounders, as local wages are much lower than those determined at state capitals or at the Centre, and it would also ensure better monitoring of their performance at the local level.

Will Modi 3.0 undertake this desperately needed administrative reform to modernise its government? It is hard to predict, given the coalition nature of the current government, which quickly backed off from even lateral appointments. But if India wants to achieve a “Viksit Bharat” in the 21st century, it cannot do so with a 19th-20th century colonial-style administration. The time to modernise the government more comprehensively may have come. While lateral entry has a role — especially in heading specialised agencies and regulatory bodies — core government functions require a more professionally trained civil service.

The writer is distinguished visiting scholar, George Washington University, and co-author of Unshackling India (Harper-Collins India 2021), declared Best New Book in Economics by the Financial Times for 2022