Raghuram Rajan's exit from the RBI demonstrates the rot in India's bureaucracy. Far from being merit-based, it is seriously politicized. Bureaucrats have become sycophants. Self-respecting independent thinkers have no place in India's system. Even the most capable survive or thrive only through their handling of political masters. The quality of their work stands for very little.
It is no fault of the bureaucrats. The problem is systemic. It starts from the top. When ministers, who are politicians, masquerade as administrators and experts, how can their staff be any different?
Perhaps the most impractical feature of India's parliamentary system is the practice of appointing legislators as ministers. Legislators are elected by the people to devise solutions to social problems, not to become administrators themselves. Almost always they have no experience or skill in the area of their ministry. To expect them to deliver quality in this age of specialization is simply absurd.
When career politicians are placed in charge of career administrators, it defeats the purpose of both. It takes politicians' focus and time away from their primary tasks of lawmaking and oversight. It places them in an impossible situation of overseeing themselves. It hurts execution because they are not experienced managers. But what's worse is that it makes the entire administration partisan.
When career politicians are placed in charge of career administrators, it defeats the purpose of both.
This defeats the bureaucrats' primary purpose of providing non-partisan and efficient administration. They spend more time dealing with the goings and comings of politicians. They have the absurd task of training their bosses, and going along with their politics. The authority granted to the politicians makes patronage, not performance, their fastest path to advancement. With no scrutiny from any other branch of government, the two become cohorts in corruption. And "the fence starts eating the crop," in the famous words of former Prime Minister Rajiv Gandhi.
If Rajan was let go because he wouldn't stop chasing the government's political cronies for their refusal to pay back public-sector bank loans, god save our nation. More likely, he just refused to do the government's bidding. He had public disagreements with his minister on many issues. He refused to reduce interest rates when the Modi government wished. And he chastised the government for its euphoria about the nation's economy. Modi was certainly within his right, and with good precedent, to not extend the term of an RBI governor appointed by the previous government. So, as Sanjaya Baru, a leading political commentator notes, "the Empire struck back."
The lack of independence of the top bureaucrat behind India's monetary policy has been a problem from the very beginning.
But the independence of India's monetary policy is a huge issue. It cannot be brushed aside with nationalistic rhetoric that India will do just fine without Rajan. The rupee has devalued 69 fold since Independence. Since Modi came to power its value has diminished by another 14% (from ₹59 to ₹67 per dollar). This negates all improvements made in India's growth rate.
The lack of independence of the top bureaucrat behind India's monetary policy has been a problem from the very beginning. From the time of Nehru, RBI governors have had to do what the government wished. When the first governor, Benegal Rama Rau, went against the wishes of finance minister T T Krishnamachari, Nehru scolded Rau. He was told to "keep in line with government." Rau quickly resigned.
Contrast this with the independence given to the first manager of the US monetary policy, in 1790. The country's finance minister, Treasury Secretary Alexander Hamilton, insisted on setting a private national bank. He said, "To attach full confidence to an institution of this nature, it appears to be an essential ingredient... that it shall be under a private not a public direction." For governments fall to the "temptations of momentary exigencies," he said. After several refinements designed to contain purely private interests, the US system settled on the modern day Federal Reserve. Its head is guaranteed total independence.
The irony is India's politicians often bemoan that the bureaucrats are really running the government. This appears to be total nonsense...
This points to another fundamental problem of the Indian system which leads to politicization of executive officials. The chief executive -- Prime Minister or Chief Minister -- is the sole appointing authority. Lower ministers, vice chancellors, chairpersons of boards, etc., can't even appoint a peon if the PM or CM so decrees. When top executive officials have only one political master, what would stop them from engaging in partisanship?
What makes matters worse is that India doesn't have separation of powers between the executive and legislative. MPs and MLAs cannot come to the rescue, or scrutiny, of executive officials. India's system fuses legislative and executive powers in the guise of providing "efficiency". But this only leads to bureaucrats' proficiency in flattery and servility to manage their transient political masters.
Then, there is the curse of reservations. It is inherently political in nature. Everything it touches, including bureaucracy, makes it political. In describing how the British avoided politicizing their bureaucracy, Ivor Jennings, their famous constitutional scholar, once noted, "The intrusion of politics is the first step towards the intrusion of corruption... as every university administrator... under political control knows full well." But in India vote-bank politics is here to stay. That reservations ultimately help neither governance nor the beneficiary community is beside the point.
[S]tructural defects cannot be fixed by tweaking, or by lecturing our bureaucrats. Rajan simply succumbed to a broken system.
The irony is India's politicians often bemoan that the bureaucrats are really running the government. This appears to be total nonsense, judging from the wholesale transfers of officials after every election. Clearly, this was the not the case with Raghuram Rajan. He wasn't allowed to run his department as he wished.
The truth is India's bureaucracy is affected, like everything else, by India's poor political system. This system has fundamental weaknesses -- fusion of powers, sole appointing authority, making ministers out of politicians, no legislative oversight, vote bank politics, reservations -- that hurt our officials' performance. Such structural defects cannot be fixed by tweaking, or by lecturing our bureaucrats. Rajan simply succumbed to a broken system.
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