Revenge of the Babus
Liberalisation has expanded the power of the bureaucracy, creating a permanent establishment that never retires
Liberalisation has expanded the power of the bureaucracy, creating an establishment that never retires.
In February 2013, a month before former telecom secretary Rentala Chandrasekhar was to retire, there was a buzz in government circles about where he would go next. Would he be the next Comptroller and Auditor General ( CAG)? The next Insurance Regulatory and Development Authority ( IRDA) chairman? The next chief of National Technical Research Organisation? Or the next chairman of Nasscom? The 1975- batch officer is described by colleagues as “one of the Government’s best”. Yet it was remarkable how Chandrasekhar’s expertise was deemed transferrable for jobs as diverse as insurance policy, intelligence gathering, auditing and industry management for software. Chandrasekhar, who is now chairman of Nasscom, is not alone in this game of retirement roulette, where, red or black number, everyone must win. Defence Secretary S. K. Sharma, who retired on May 22, became the new CAG the next day. Former heavy industries secretary S. Sundareshan retired in December 2012 and was appointed mission director of the direct cash transfer scheme in June, and Gireesh B. Pradhan, who retired as secretary in the new and renewable energy ministry in December 2012, is tipped to be the new chief of the Central Electricity Regulatory Commission ( CERC).
India is currently witness to the second coming of bureaucratic control. Serving or retired bureaucrats have engineered a takeover of virtually every important decision- making body. Of the 12 economic regulators created since liberalisation, nine are headed by retired bureaucrats. Appointments to constitutional bodies like CAG, Central Vigilance Commission or RBI inevitably come from their ranks. In 20 states, the chief information commissioner is the state’s former chief secretary. They head human
rights commissions, SC and ST commissions and finance commissions, and are even part of bodies like the National Disaster Management Authority ( NDMA). They have filled a vacuum left by a weak and insecure government at the Centre and strengthened a formidable system of patronage in the states. Two decades after liberalisation, Babu Raj is back as India’s only permanent establishment.
THE REGULATION ACT
The Competition Commission of India ( CCI), a new regulatory body which was to supervise competitive practices, was instituted in 2003. A technocrat was apparently considered for the job but retired commerce secretary Dipak Chatterjee was picked instead. The appointment was challenged in a PIL filed by advocate Brahma Dutt who argued that a bureaucrat could not preside over a quasi- judicial body. Then chief justice V. N. Khare was quoted as saying, “At this rate, a day would come, maybe after 20 years, when the 26 judges of the apex court would be replaced by bureaucrats.”
Regulators’ raj has its origins in the 1991 liberalisation policy. Reforms instituted then were, ironically, meant to end bureaucratic control over production and distribution of services and let private players come into play. The logic was strong. Stories of corruption and crony capitalism in major economic sectors pale in comparison to the coal and 2G scams of the past decade but there were notable instances, even in the 1990s, of licences being given for a price. In 1996, for example, a case was filed against ex- telecom minister Sukh Ram for awarding contracts to a private firm for a bribe of Rs 3 lakh, no match for the recent 2G scam but a high- profile case in its time.
The Telecom Regulatory Authority of India ( TRAI) was set up in 1997, followed by CERC in 1998, IRDA in 2001 and the Petroleum and Natural Gas Regulatory Board ( PNGRB) in 2007. With growth, the nature of Corporate India changed. More than entrepreneurship, businesses depended on acquiring control of natural resources. The Supreme Court judgment in the 2G case made it clear that even spectrum, for instance, was a public natural resource that the Government held in trust.
The major scams such as 2G and Coalgate show that rather than regulation, arbitrariness governs the allocation of resources. So where were the regulators then? Former government officials point to a systematic weakening of independent regulators: The bureaucracy had found a way to strike back.
“The first TRAI headed by a retired judge, Justice S. S. Sodhi, functioned well and took some important policy decisions. But the Department of Telecom didn’t like it at all,” TSR Subramanian, former cabinet secretary, told INDIA TODAY. The government disbanded TRAI in 1999 after finding it too independent. The official reason, ironically, was that the regulator had to be made more independent. It was reconstituted in 2000 with its powers substantially weakened and its judicial functions transferred to a separate tribunal. “If we had a strong telecom regulator, we may not have had a 2G scam. Similarly, if we had a regulatory body that could oversee the allocation of a priceless natural resource like coal, there may not have been a controversy,” he points out.
The reality is that all regulators after TRAI went the same way, controlled either by the parent ministry or a manipulation of appointments. According to S. L. Rao, a senior economist who was appointed chairman of the first CERC in 1998, the top post was kept vacant for 10 months after his term ended in 2001 so that the incumbent power secretary, Ashok Basu, could take over the job after his retirement. Basu served as the CERC chairman from 2002 to 2007.
At the central level, there has been a near- complete dominance of IAS appointees to head regulatory bodies, a
‘ regulatory capture’. TRAI, for instance, is currently headed by former commerce secretary Rahul Khullar while Ashok Chawla, another former commerce secretary, heads CCI, and former fertiliser secretary S. Krishnan heads PNGRB. Khullar left his office a week before his TRAI appointment in May 2012; Chawla retired as commerce secretary in January 2011 before joining CCI in October that year; and Krishnan retired in August 2010 and took up his latest assignment in October 2011.
In the same month that Khullar was appointed chairman of TRAI, the Federal Communications Commission in the US appointed two young commissioners, Ajit Pai and Jessica Rosenworcel. Both had extensive experience in communications law. So why aren’t young domain specialists heading regulatory bodies in India?
Selection panels for regulators often work as a closed circle where secretaries take charge of appointments. While these positions should be open to applicants from a variety of sectors— lawyers, economists or academics— there is the impediment of the ‘ cooling- off period’. A person appointed to a regulatory body cannot accept commercial employment for two years after his terms ends, virtually debarring anybody who is young or mid- career from applying. Conversely, no cooling- off period applies to retired officials who take up their new posts often within a month of their retirement. These jobs are now fairly lucrative. In a move ironically designed to attract professionals from outside government, the sixth Pay Commission in 2006 increased the salaries of central regulatory body members to Rs 3.25 lakh a month and the chairman to Rs 3.75 lakh a month.
RULING BY COMMITTEE
While retired bureaucrats call the shots on independent regulators, Babu Raj is also back in vogue at the Centre. Importance was given to an empowered group of ministers in the earlier decision- making structure; this has been replaced by committees headed by bureaucrats after Pranab Mukherjee’s departure for Rashtrapati Bhavan.
Over the course of last year, the eGoM system was replaced by committees headed by the top bureaucrats at the Centre or from the Planning Commission. Among the new committees set up were a panel headed by the cabinet secretary to review defence pay and pensions, a panel under the telecom secretary to oversee a national fibre optic network, an interministerial panel headed by B. K.
Chaturvedi of the Planning Commission to review hydel projects on the Ganga and another committee of the Planning Commission to monitor public- private partnership projects.
Last year, the Prime Minister constituted a committee of secretaries under his Principal Secretary Pulok Chatterji to deal with the critically important issue of power sector reforms. But the Government also broke a long- standing trend by appointing a bureaucrat, Rajiv Nayan Choubey, to the post of director general of hydrocarbons ( DGH) last year. His appointment to the technical arm of the oil ministry, a position that had been held only by engineers or scientists, had raised eyebrows as the post was never advertised nor was a selection panel formed.
A system of patronage had always existed for powerful bureaucrats who managed to get themselves appointed to governorships or constitutional positions like CAG or RBI governor. Often, this happens at the cost of those within their respective departments. It’s almost unheard of, for instance, for a deputy CAG to take over the top job.
In a letter addressed to the Prime Minister in March, the Forum of Retired Officers of the Indian Audit and Accounts Service urged the Govern- ment to adopt a more transparent procedure for the appointment of the next CAG after Vinod Rai retired in May. “The system is that the cabinet secretary picks up three names and takes it to the PM. We had asked that a proper selection committee be constituted and the list of candidates broadened to include one name from the Audit and Accounts Service,” a former deputy CAG told INDIA TODAY. The Government went ahead and appointed retiring defence secretary Shashi Kant Sharma.
Former bureaucrats have made their way even into bodies like the National Commission for Minorities, which generally had representatives from a cross- section of communities. It is now headed by Wajahat Habibullah, a former IAS officer who retired in 2005 and also served previously as India’s first chief information commissioner ( CIC). Similarly, the heads of the SC and ST commissions, P. L. Punia and Rameshwar Oraon, had served as IAS and IPS officers before joining politics.
Organisations such as Union Public Service Commission ( UPSC), NDMA and the Central Administrative Tribunal ( CAT) are notorious for being postretirement homes for bureaucrats with influence. Two of the nine NDMA members are retired bureaucrats while of the six administrative posts for CAT in Delhi, four are occupied by retired IAS officers. Of the 34 administrative members across all states, 25 are retired IAS officers. Similarly, in the nine- member UPSC, seven are retired IAS officers.
The list of commissions is only getting larger. Two of UPA’s key social legislations, the Food Security Bill and the National Water Framework Bill, propose regulators. Under the food bill, Right to Food Commissions will be set up in each state and at the Centre while the water bill proposes a regulatory authority in every state to decide fair prices for drinking water. Read: More jobs for loyal officers.
MORE JOBS FOR THE BOYS
The information commissions, set up to enforce the RTI Act, serve as a fascinating case study. In 20 of 28 states, the chief information commissioner was previously the principal or chief secre- tary. A report published in April 2012 by the Commonwealth Human Rights Initiative noted that about 90 per cent of the heads of the central and state information commissions and 53 per cent of their subordinate information commissioners were retired bureaucrats. The study pointed to an upward trend. How did this come to be?
Consider this. In May 2012, the Maharashtra government appointed Ratnakar Gaikwad as CIC, one week after he retired as chief secretary. The story goes that Gaikwad, who had an excellent record, was keen on an extension but was given the CIC job
instead as compensation.
In November 2012, a Supreme Court ruling caused an uproar among RTI activists when it said only sitting or retired chief justices of high courts or an apex court judge could head central and state information commissions. The order is currently being reviewed by the Government, but the court’s initial contention was that only ‘ loyal’ government officers are appointed to the post.
The establishment of information commissions at the central and state level has cost the exchequer an estimated Rs 100 crore a year according to news reports. These are positions that come with all the paraphernalia of a top government job, including a house, a car, two clerks, a peon and salary on a par with that of the chief secretary of the state, about Rs 80,000 a month.
According to a newspaper report from July, 150 serving or retired bureaucrats are among the 420 applicants for central information commissioner posts this year. It’s little wonder then that the institution is treated as a bureaucratic fiefdom. M. L. Sharma, a serving information commissioner, took early retirement in July this year, allegedly because he did not want to work with the new Chief Information Commissioner, Deepak Sandhu, who was an officer junior to him.
Over the last two decades, five new tribunals were proposed which took away substantial powers from high courts and civil courts in financial and intellectual property law. These tribunal benches typically function with one presiding member who is a retired judge and one administrative or technical member who is often a retired bureaucrat.
In 1993, the government created
the Debt Recovery Tribunal ( DRT) which today has 33 benches across all states. These tribunals are generally acknowledged to be a failure with over 70,000 cases pending with its various benches. Despite this, the Government proposed the creation of the National Company Law Tribunal ( NCLT) and the National Tax Tribunal ( NTT) in 2002, and the Intellectual Property Appellate Board ( IPAB) in 2003. The reasons given once again were the huge backlog of cases and the need for specialisation. However, according to senior advocate Arvind Datar, who challenged the creation for NCLT and NTT, the real reason is that these tribunals would provide an excellent source of postretirement jobs for former bureaucrats. “There was no justification, for instance, in creating a 20- bench NCLT which was supposed to have 62 members when the arrears in company law were just 6,000. NTT was similarly supposed to have 50 members,” he explains.
So how do we reverse this capture of important decision- making bodies by the bureaucracy? In 2006, the Planning Commission published a report ( Approach to Regulations: Issues and Options) with some suggestions. The report highlights the fact that there is no uniformity in thinking behind setting up independent regulators. It points to the fact that many of them differ in terms of the extent of powers, tenure of members, selection procedures, and more. The petroleum regulator, for instance, can issue licences but has no say over tariffs. CERC fixes tariffs and issues licences, while TRAI has only recommendatory powers. To fix these things, it suggests setting up a regulatory affairs department in the Ministry of Personnel and having a minister for regulatory affairs. The idea was to bring in some oversight.
Former regulatory body members say there is no system of checks and balances within regulatory bodies. “There has to be a method of making the members more accountable because the scope for misuse of power is enormous,” says Mohan Gopal, a legal expert who was a former SEBI board member. The suggestions of the report have never been taken up, which suggests that the status quo will continue.
No independent evaluation has ever been undertaken but the failures of the system are evident. Telecom licences were handed out arbitrarily, natural gas prices were increased allegedly at the behest of corporations and the electricity sector is in debt to the tune of hundreds of crores. Not all of this is due to former IAS officers being at the helm and there are some notable exceptions. Vinod Rai did a sterling job as CAG while the outgoing CERC chairman Pramod Deo, a domain expert in energy, is spoken of highly. But they are only exceptions to the rule. S. L. Rao explains that part of the reason that electricity regulation hasn’t taken off in the states is that bureaucrats heading the regulators refuse to take tough decisions on pricing.
As stories of political control over the bureaucracy dominate the news, first with Ashok Khemka and then Durga Shakti Nagpal, serving and retired officers have pointed to serious flaws in the system. “If bureaucrats did their duty, there would be no scams. Out of every 100 bureaucrats, 10 are always ready to join the queue,” Khemka damagingly said in a recent newspaper interview.
To go with this capture of institutions, there is now more proof that bureaucrats are insulated from the very policy they make and implement. In a recent order, the Government has decided to reimburse the total cost of treatment abroad as well as fund the return airfare for IAS, IPS and IFS officers. And despite an ailing economy, the 7th Pay Commission has been approved, which will increase salaries of all Central government employees. India needs to be rescued from its bureaucracy and that change will require strong action, not another commission.
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SHASHI KANT SHARMA Former defence secretary. Now serving as the comptroller and auditor general.
R. K. SINGH Retired as home secretary on June 30, 2013. Appointed special adviser to Bihar Chief Minister Nitish Kumar on August 16.