The existence of these ministries, and the large number of civil servants employed by them, creates powerful vested interests to block reforms
Recently, as on many occasions over the last one year, Prime Minister Manmohan Singh talked about reforming the bureaucracy. Yes, the Indian bureaucracy needs to be reformed through changes in recruitment, promotions, evaluations and such related matters. But while it is true that reform of the bureaucracy is important, it is not enough in this era of economic reforms. There is a need to take a second look at the role of the bureaucracy and take difficult decisions like closing down redundant ministries. Keeping them alive takes away from good governance.
Increasing liberalisation of both trade and industry has made a number of ministries and functions—created during the period of import restrictions and industrial licencing—redundant. Not only are they not necessary, the existence of these ministries and the large number of civil servants employed by them, creates powerful vested interests to hold back reforms. The presence of a bureaucracy whose rent-seeking interests are aligned with the continuation of controls can create resistance to reforms.
For example, the government did away with import licencing more than a decade ago. Yet the ministry that was created to implement such licencing—the Ministry of Commerce—remains. The staff size of the Commerce Ministry has hardly been cut. Even the export promotions that these civil servants attempt hardly compares with that done by the companies themselves. India’s biggest export growth is in IT and BPO where the role of the Commerce Ministry is minimal. The role of the ministry in the times of import licencing, foreign exchange shortages and under the regime of export promotion to Russia and East European Countries, perhaps, justified its size. Today, its regulatory role is non-existent.
Instead, its genuine governance functions are now limited to WTO-related issues. Yet, the change in its role has not resulted in a significant restructuring and reduction in its size. The ministry can be closed down, and the WTO negotiations group can be moved into the Ministry of Finance.
The case of the Ministry of Steel is similar. Perhaps, its staff had something useful to do when it was expected to coordinate growth and production in the steel industry. With the ushering in of reforms in the 1990s, over half of the steel production now happens in the private sector. In fact, the role of the Joint Plant Committee was to make guidelines for the production and distribution of steel materials.
There needs to be a recognition of the fact that this ministry and its departments have no reason to exist. As with steel, we have a series of ministries for specific industries. But industrial policy, in the sense of government taking interest in which industry does well and which does not, is now obsolete. India has an extremely bloated set of ministries, by world standards.
These ministries now merely lobby for their industries, while extracting rents from them. Each of these ministries should be closed down. Prime examples of these include the Ministry of Heavy Industries, the Ministry of Food Processing, the Ministry of Chemicals and Fertilisers and the Ministry of Textiles.
Manmohan Singh should first pick on the 20 ministries that do not produce public goods, have outlived their roles, were created for a planned socialist economy and fostered by an non-liberal state, and have the least connection to legitimate concerns of governance. In the next Cabinet reshuffle, he can then shut them down if possible, or hide them away as departments in different ministries.
On the other hand, the UPA government was very quick to shut down the one ministry that should not have been closed—the Disinvestment Ministry—and to tuck it away as a department in the Ministry of Finance where it has slumbered ever since. It has lost its effectiveness now in the face of ministries like Heavy Industry.
By shutting down redundant ministries, two objectives can be achieved. First, the extent of their interference in the economy would go down as their power would be reduced. This would yield benefits to the economy. Second, public expenditure over these—often harmful—ministries would decline over time, as posts would not be filled up. The resources released can then be spent on genuine governance.
Ila PatnaikIla Patnaik