A lean government can weed out needless bureaucracy

The recent cabinet reshuffle was a great opportunity for PM Modi to finally come good on his 2014 election promise of “Minimum government, maximum governance”. During his tenure, both the reach and size of the government have increased dramatically.

The central government currently has 51 ministries, the highest in any country in the world. There are different ministers each for Industries; Heavy Industry; Micro, Small & Medium Industry; Coal; Steel; Food Processing; Electronics; Renewable Energy; Petroleum; and Chemicals and Fertiliser industries. Essentially, 10 ministries oversee industrial production in India. In comparison, the US, with six times India’s industrial production, has only one Ministry of Commerce.

All these ministries are expensive to maintain. The bigger problem is the needless bureaucracy and regulatory burden each ministry inflicts on its constituents. Also, the BJP does not have the bench strength of experienced and knowledgeable people to man so many ministries. It is time to stop using ministries to reciprocate political favours and reduce the number of ministries to a maximum of 20.

We live in the information age. In the past, citizens recognised that the government was better positioned to collect information and deferred most decision-making to it. This information asymmetry was a source of great power for the state. Today, the government no longer has that advantage. The private sector is better positioned to collect and analyse big data. Slow-moving bureaucratic governments are now dinosaurs and must reform to stay relevant.

There are two alternative forms of government to replace India’s slow-moving bureaucratic government. The first is an entrepreneurial government run like a private sector business with heavy emphasis on business concepts like competition, flexibility, employee empowerment, and customer service. It adopts performance goals and bonuses to reward employees and uses termination to deter poor performance. Premium is placed on customer service, and government organisations are expected to develop measurable bottom lines to enhance accountability. All public works are contracted out to private sector enterprises rather than relying on rigid, inefficient government bureaucracies. Singapore is a good example of an entrepreneurial government.    

The other form of government that PM Modi could consider is a market-based government where the State uses its power to create a marketplace to fulfil a public purpose. Such a government operates with almost no government except enforcement mechanisms to control cheating. Management guru, Peter Drucker, in an essay on the disenchantment with government concluded that government is not a ‘doer’ because of the incompatibility between ‘governing’ and ‘doing.’ He advocated a government that applies market-oriented thinking to public systems and lets “doing” be the responsibility of private, non-governmental institutions. Using an orchestra analogy, he suggested the government should be like the conductor who does not play any instruments but leads the players.    

A good example of a market-based government is New Zealand, where the bureaucracy must “compete” with other public or private organisations even to do the work of the government. Everything publicly funded is subject to competitive tendering. The government has injected the language of competition and incentives into public administration and has pulled out of all activities that can more effectively be performed by non-governmental bodies. In so doing, New Zealand has broken the public monopoly of government on governance.

So while Indians are still asking, “What is a core governmental function?” New Zealand has already decided, “Essentially, nothing.”

The single biggest problem afflicting India is the size and reach of government. If PM Modi wants to be a reformer, he must first rectify the institution he heads. He had a chance to fix things, but he whiffed. It is clear now that ‘minimum government’ was political rhetoric.

The author is Managing Director, Center for Environmental & Economic Policy