US-India Global Review

72 US-INDIA GLOBAL REVIEW JANUARY-MARCH 2018 entire chain of agricultural inputs, outputs, and processed agricultur- al goods (notably sugar). New price controls have been clamped on seeds and even on royalties paid by seed companies to suppli- ers of technology.54 The tax regime is uncertain, and many cases of retrospective taxation have tarnished the investment cli- mate. India is among the biggest users of anti-dumping measures permitted by the World Trade Organization. Even as old controls have been liberalized, dozens of new regulations are issued every year relating to new areas like the environment, health and safety standards, forests, and tribal areas. As with the old controls, the new controls are issued in the name of the public good and are then used by politicians and inspectors to line their pockets. The courts are so angry with cor- ruption that they have increasingly intervened in many of these areas and have started issuing detailed new regulations (especially regarding natural resources), adding to controls and uncertainty. Instead of a million regulations badly enforced and wracked by corruption, India needs fewer reg- ulations well enforced. The third concern is the quality of India’s institutions. The police- judicial system is pathetic, court cases go on forever, few criminals are convicted beyond all appeals, and contracts are very difficult to enforce. This situation favors law- breakers at the expense of law abiders and now taints every walk of life from politics (which is full of criminals) to business, the bureau- cracy, professions, and almost everything else. The bureaucracy is notoriously corrupt and slow moving, marked by widespread absenteeism. Staff positions fall vacant and remain unfilled, leading to huge backlogs of work. Major reforms are needed to make the civil service account- able to citizens, with penalties (including firing) for nonperformers and wrongdoers. The bureaucracy lacks skills in almost every sector — from education and health to transport and electricity. The politi- cal class must find ways to induct experts from outside into the civil service. Bureaucrats complain of current rules that make them crim- inally liable for government deci- sions that lead to private gains for any corporation, even if they have not derived any personal benefit. Those rules hinder quick decision- making and must be abolished. Public-sector corporations remain large, wasteful, and unre- formed. Government banks still control 70 percent of bank lend- ing, have the worst record of bad loans and financial losses, and yet are such convenient cash cows for politicians that no party wants to privatize them. Educational and regulatory institutions need to be strong and independent. But in India, their quality is increasingly eroded by political interference and the appointment of political favorites rather than independent experts. Quick justice requires plea bar- gaining; quick resolution of bad loans and bankruptcies requires good faith in restructuring con- tracts; and many long-term con- tracts need periodic revision in good faith. But corruption is so rife — and accusations of corruption so widespread — that no negotia- tion in good faith is possible, and so the process of litigation and contracts in limbo goes on seem- ingly forever. India needs deep institutional reforms to remedy these ills and to produce a more honest, accountable, and sensitive system of institutions. In their seminal book Why Nations Fail, Daron Acemoglu and James Robinson say that the quality of a country’s institutions ultimately determines whether a nation succeeds or fails. Many poor countries have managed to achieve rapid economic growth in their initial stages even with weak institutions of the sort India has. But once a country enters middle- income status, as India now has, it must improve its institutions or suffer economic slowdown.55 Doing the simplest things to improve productivity has already been achieved, and the future of productivity depends not just on technology but on the creation of strong, reliable, meritocratic insti- tutions that are not easily subvert- ed by money, muscle, and influ- ence. The 25 years from Narasimha Rao to Narendra Modi have moved India from low-income to middle-income status. To reach high-income status, India must become a much better governed country that opens markets much further, improves competitiveness, empowers citizens, vastly improves the quality of govern- ment services and all other institu- tions, jails political and business criminals quickly, and provides speedy redress for citizen griev- ances. That is a long and difficult agenda. Notes 1. World Economic Outlook: Too Slow for Too Long (Washington: International Monetary Fund, 2016). 2. Swaminathan S. A. Aiyar, Escape from the Benevolent Zookeepers (New Delhi: Times Group Books, 2008). 3. Arvind Panagariya, India: The Emerging Giant (New York: Oxford University Press, 2010). 4. T. N. Ninan, The Turn of the Tortoise: The Challenge and Promise of India’s Future (New Delhi: Penguin, 2015).

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