RED TAPE TALES

India is taking steady baby-steps to abandon the legacy of an exceptions-based regime and embrace a rules-based one instead. EPISODE #67

Dear Reader,

A very Happy Monday to you.

Last week I savoured the Passport Seva experience. Must admit that the process of renewing my passport exceeded the expectations that had been built up by anecdotal experiences of friends and acquaintances. I had the interview on Tuesday and the passport was delivered to my home on Thursday. Wow!

Especially if I go down memory lane and recall the excruciating effort it required to clear the bureaucratic hoops. The red tape designed to trip you up was a perfect ecosystem for middlemen. The difference in the two experiences captures the transition India has managed in this period: evolving from an exceptions-based to a rules-based regime.

So this week I explore this makeover and examine the attendant implications. Do read and share your experiences.

This week’s cover picture was another street photography moment. I was exiting a parking lot onto the main road when I spied some provocative graffiti: “Society Sucks”. The cast of characters who spontaneously popped into the frame at that Kodak-moment made the picture that much better IMHO.

Last week I made a mistake. In ESG I mistakenly identified “Social” as “Sustainability”. Sorry. Thank you Dr S Majumdar and Debu for catching the error and flagging it. Ever grateful to such alert readers.

A big shoutout to Dr Majumdar, Vivek, Gautam, Debu and Vandana, for your informed responses, kind appreciation and amplification for last week’s column. Gratitude also to all those who responded on Twitter and Linkedin. Reader participation and amplification is key to growing this newsletter community. And, many thanks to readers who hit the like button😊.

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EXCEPTIONS vs RULES

On Tuesday, the day of my interview at the passport office, I went prepared for a siege as it were—carrying sufficient reading material, a drinking water flask and dry fruits in my backpack.

No matter who said what but I had that horrible experience embedded in my muscle memory from some 25 years ago as citizen Anil. It just refused to go away. The queues at that time were multiple and endless; and thrice when I got my chance with the official my application was turned down for some weird reason. And this for a renewal. Guess that was the plan. As soon as I wandered out the scalpers approached me discretely, offering to fix the problem.

Upset at being subjected to this go-around I didn’t just decline the scalper’s offer. Instead I called a contact in government and requested help. Magically all the innumerable queries disappeared and my passport was renewed. The next time it had to be renewed I pulled the same trick.

Fast forward to last week. The application was filed and processed online and the only time I had face time with an official was when one had to submit the standard picture and biometrics. The entire process lasted 45 minutes and by the time my hail cab had reached the first red light from the passport office I got an SMS saying that my passport was being printed!

My first experience is a perfect example of an exceptions-based regime. Yes I got away by misusing my privileged access. On the other hand, citizen Anil would either have to go through the grind or use the scalpers. And the second instance is an example of the good that accrues when you are subjected to a rules-based regime: all citizens are treated the same. Yes, privilege will still find its special way, but the lack of it will not deny a service.

In short the passport experience holds a mirror to a larger transformation of India that is underway. Something that will influence the future political economy of growth—especially its distribution.

Continuity

Given that 65% of India is less than 35 years of age, most citizens availing of a passport will be unaware that they have been spared the excesses of an exceptions-based regime. Interestingly, this project was conceived during the regime of the Congress-led United Progressive Alliance (UPA).

Not only did this entail hitting the reset on red tape and challenging the entrenched regime of middlemen it also involved outsourcing the processing work to a private entity—Tata Consultancy Services (TCS), the home grown software giant which is part of the stable of companies owned by Tata Sons. Ironically it is the very same Congress which is levelling allegations today of “suit-boot ki sarkar”. Indeed this makeover was like crossing the Rubicon.

To its credit the Bharatiya Janata Party (BJP)-led National Democratic Alliance (NDA) continued where the UPA left off in 2014. If nothing they have only reinforced this mindset reset to enable a rules-based regime to not only mitigate retail-corruption but also initiate immense efficiency gains by eliminating red tape.

The bi-partisan consensus generated by the ideological extremes of Indian politics is another feel good footnote of this makeover.

Disintermediation

At its core what the passport experiment has done is to engage in transparency and enabling disintermediation. Just like the ATM allowed us to bypass the myriad queues and red tape to draw money from one’s bank account (again an experience the Millennials have been spared), the online passport facility has short-circuited the legacy of red tape.

It is actually a terrific case study on how the public sector can be made efficient by allowing for transparency. And in this the best tool is technology, backed up by the powerful Right to Information (RTI)—wherein citizens can demand information on procedures otherwise hidden behind the opaque vaults of the government.

The biggest application of disintermediation has been the Direct Benefits Transfer (DBT) of the social welfare schemes of the government. And within this the scale of the Mahatma Gandhi National Rural Employment Guarantee Scheme (MNREGA) is staggering.

Annually about Rs1 lakh crore are transferred to the poor in rural areas who demand work. Previously this was being achieved physically resulting in leakages to middlemen facilitating the transaction. Now the money is transferred directly to an individual’s bank account (another collateral gain has been financial inclusion).

The cumulative savings, on account of leakages, at the end of March 2021 under MNREGA, according to the union government was Rs 33,475.47 crore—sufficient to fund a third of the annual spending on the scheme.

Overall the union government undertakes DBT for 313 government schemes to transfer Rs 5.35 lakh crore every year. The cumulative gains from DBT are estimated at Rs2.2 lakh crore at the end of March 2021.

Source: Government of India

The union government dash board tracks DBT performance and ranks states. I was quite taken aback that how some states failed the smell test so miserably—scoring less than 40.

Trust Quotient

The transition to a rules-based regime is happening steadily. What this is doing is to create greater acceptability as there is proof of concept. It is what late Arun Jaitely once explained: “You have to deliver a service the government has promised to generate the trust quotient to undertake reforms.”

If you recall, the idea to link the Aadhaar (the 12-digit unique identity) and the Income Tax-PAN was first proposed by Jaitley when he was the FM in the first tenure of the second avatar of the NDA.

The blowback was immediate as it became difficult to conceal illegal dealings using multiple PANs. By linking it with Aadhaar the government had created the equivalent of an economic GPS. The deadline for mandatory linking of the two identities continues to be extended though. The good news is that the resistance to this rules-based move is much less today.

Similarly, the move to create ‘One Nation, One Tax’ under the Goods and Services Tax regime was an idea that has been tossed around from the turn of this Millennium by a cast of several finance ministers. Again to Jaitley’s credit for clinching the GST deal—another matter that it is still a work in progress.

There are innumerable experiences of such efforts to effect a regime makeover. Undoubtedly the progress is slow. No one said it will be easy. Undoing the legacy of seven decades will take time. But change is inevitable.

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Recommended Reading

Last week Bloomberg Quint, the excellent online business news portal, published an interview with V Anantha Nageswaran, the country’s chief economic advisor.

This was a very candid and illuminating conversation which shed light on so many issues, including fuel prices and on India’s ability to absorb the impact of the economic vagaries triggered by the Ukraine conflict. In this must read interview, Nageswaran provides the perfect perspective to weigh the challenges.

Sharing an excerpt on dealing with rising fuel prices—absorb the impact or pass it on?

“The other way of looking at it is that if the government does provide duty relief to at least partially absorb the increase and in the process if the government's borrowing rises and the bond market reflects that, it gets passed on to everybody and not just oil users. That's because the cost of government capital is a benchmark. So, that is another layer of cost on the entire economy.”

“In general, if you have persistence of oil price at $110 per barrel and above, then that would require a burden sharing decision between oil marketing companies, consumers and the government. But if it is $100 per barrel or below, it is manageable without upsetting the current arrangement.”

And another one on India’s economic prospects in a volatile world order.

“On balance, we should be able to manage. Should higher oil prices persist for FY23, then we have to remember that it will impact the whole world. We know about our vulnerabilities but we do not have the vulnerabilities of some of the other emerging economies with respect to food prices, etc.

What will then happen is that investors and markets would start to look at relative fundamentals. There, I think, India stands in good stead. That gives me confidence.

Yes, definitely compared to two months ago or four months ago, compared to before Omicron, things are looking tougher. Before we could line up at the start line for a sprint, this situation has arisen. But India should be able to weather the storm better than other emerging economies or even developed economies.”

Hope these teasers have convinced you to read/view the full interview.

If yes and you wish to read the interview please click this link. Alternatively if you wish to view the video of the conversation please click this link.

Till we meet again next week. Stay safe.