Economic Times
Jan 26, 2005

Reform the Top Civil Service
Arvind Panagariya

The forthcoming budget will test the resolve of the UPA government to put economic reforms back on the fast track.  Politically feasible reforms include the adoption of a 15 percent uniform tariff on all imports, a unified value added tax on goods and services as outlined in the Kelkar report on the implementation of the Fiscal Responsibility and Budget Management (FRBM) Act, taming of the deficit as required by the FRBM Act, and slashing the list of small-scale-industries (SSI) reservation to 100 items or less.

 But the UPA government, which places governance high up on the reforms agenda, must also show courage to initiate the reform of India's top-level bureaucracy.  Whatever its merits in the immediate post-independence era, the top civil service, monopolized by the elite Indian Administrative, Foreign and Central Services, is in dire need of reform today.  Like the rest of the economy, it too must give up its India wide monopoly on administration and face competition.

Under the presidential system, an incoming U.S. President is free to appoint his Cabinet members from the entire U.S. citizenry.  This allows him to bring the top experts from different fields into his Cabinet.  For example, the U.S. Secretaries of State have often been top experts in international affairs while Treasury Secretaries have been top bankers, financial experts or economists.  In addition, the U.S. President gets to appoint several top layers of bureaucracy and is therefore able to bring individuals with the necessary detailed specialized knowledge into his administration. Simultaneously, Cabinet members and top bureaucrats from the outgoing administration typically return to think tanks and universities to upgrade their knowledge base while they wait for their side to be returned to the
White House in the next election.

In contrast, in India, under the Parliamentary system, the Cabinet must be selected from among the Members of Parliament who, for the most part, are career politicians.  As such the chances that experts will hold the Cabinet positions are negligible.  This fact places the top-level bureaucracy in India in an enormously privileged position: most Cabinet members look to their secretaries for guidance when it comes to policymaking.  Under such circumstances, if the secretaries and those immediately below them also happen to lack the necessary expertise, we run the risk of blind leading the blind.

In the years immediately following the independence, this risk was minimal. Prime Minister Nehru himself was extremely knowledgeable, the independence movement had produced a stellar cast of leaders and, above all, policymaking was a much simpler task.  This last fact meant that the acquisition of the necessary expertise by super bright members of the top civil service within
a relatively short period was entirely feasible.

With both the Indian and global economy grown manifold and the globalization progressed much farther than at independence, policymaking is a complex task today.  As an example, take the tasks facing the commerce ministry.  A very partial list of its duties includes making rules to meet our WTO obligations while maximizing the benefits from trade for the country, negotiating future
agreements with other WTO members, handling trade disputes with the trading partners in the WTO, negotiating and implementing free trade area agreements with selected trade partners, making export and import policy, and dealing with anti-dumping and safeguard actions taken by India against foreign firms and those taken by foreign governments against Indian firms.  Each of these tasks requires technical knowledge in both economics and law. 

Having spent the better part of the last ten years studying these subjects, I still must still constantly consult other experts to improve my
understanding of them.  Therefore, unless I am especially slow to learn, it is inconceivable that our top commerce ministry officials whose terms typically last for only three years and who come to the ministry from departments where they "specialized" in altogether different subjects can gain command of the subjects in a matter of months.

Unsurprisingly, notable contributions by many brilliant and sincere officers notwithstanding, on balance, successive ministers have been poorly served. The recent Patents (Amendment) Ordinance, 2004 graphically illustrates why deeper knowledge matters: reading the Ordinance, one cannot help but wonder if the pharmaceutical multinationals duped our innocent officials into believing that what is good for the U.S. (and perhaps Indian) pharmaceutical industry is also good for India.

Commerce ministry is, of course, not an exception.  The argument I make applies to other ministries such as finance (which has so far done the most to draw upon the professional expertise, though not nearly enough), external affairs, heavy industry, textiles and apparel, law, education and food and agricultural.  There is a distinct possibility that the pace of reforms has been slow in part because self-interested bureaucrats, who inherently prefer to maintain status quo and fear the transfer of power from them to markets,
have contributed to making their ministers skeptical towards reforms.

Any reform of the top civil service must solve two related problems: it must open the door to experts and break the current monopoly of the IAS and IFS over top bureaucratic jobs.  There is a common solution to both problems: open all jobs at the level of Joint Secretary and up to outsiders.  There should be no guarantee of seniority-based automatic promotions to the officers to these positions just because they had successfully competed in an examination two decades earlier.  Instead, they should be expected to compete against the best available candidates within and outside the IAS and IFS.

Both U.K. and New Zealand, which had top civil service systems much like the current Indian system, have reformed them over the last decade to decade and a half to allow lateral entry and introduce competition.  New Zealand has gone so far as to adopt a system in which the top civil servant in each department is appointed on a contractual basis for a renewable fixed term. U.K. has a more mixed system that nevertheless provides the necessary competition at the margin.