Let me talk a bit about how I see the way forward. I have ten ideas or ten areas where we can make huge progress if we apply ourselves in the right way.
First, we must go back to the constitutional principle that our job as governments, as society, is to ensure justice: social, economical and political. That cannot just be words, it has to be put into action. If we put it into action we must ask the finance commission, no longer will you allocate money just because people are poor.
Because after 50 years of giving money to poorer people, the poor are getting poorer and poorer and the rich are getting richer and richer. Something is structurally wrong. We have to allocate based on the right incentives, we have to tax based on fairness. The ratio of direct to indirect taxes in most OECD [Organisation for Economic Co-operation and Development] countries, the target is 60% direct taxes because it’s progressive, it’s targeted.
In our country, we don’t even come close. We have skewed pay-outs, those that are able to capture the system can get huge pay-outs even as a class, and those who do not have access don’t see such upside. I’ll go into the detail in a minute.
Corruption is a clear way of destroying economic equality or justice, because those who are able to pay “x”, get 3x or 5x out of the state. So, these are the root causes of inequality or the barriers to achieving justice – social, economical and political. There are practical steps we can take. The courage to act and to frame laws and to execute them, based on the words that come out of our mouth, or reside in the Constitution.
Second, we must incentivise states for the empowerment of women and investment in children. I said this to the 15th finance commission, to Mr NK Singh [chairperson of the 15th finance commission]. I said of all the variables you use to incentivise states, nowhere does it say what percentage of girls are in school. Nowhere does it say do women have equal access to property rights.
Why is that important? Because there is no future without children and there are no children without women. Statistic after statistic shows us, if you focus on the right things – for example, the correlation between the access to menstrual hygiene and women staying in school is huge – the more you give them access, the more likely they are to stay in school.
The correlation between more than 10 years of school and menstrual hygiene access is very very high. You can see the chart here. If they stay in school, they delay marriage. If they delay marriage, you have lower infant mortality, maternal mortalities. They have healthier babies and you get a lower total fertility rate and you get a virtuous cycle.
If you ask me for a single thing that makes Tamil Nadu stand where it stands today? In 1921, the Justice Party government legislated the right for women to vote and compulsory elementary education for boys and girls. From that day, we have focused on empowering women and that has brought us to where we are today, a 100 years-plus later.
The third thing we must do is be a much more tolerant and harmonious society. Anybody who has been in financial markets knows that investors prize stability, predictability. There is no prosperity without peace. There is no justice without universal inclusion. If you have a system that can turn on the whims and fancies of whoever is in power that day, that is not the environment, the milieu, into which anybody is willing to put capital.
Even our political opponent in Tamil Nadu, Jayalalithaa [the late chief minister and leader of the Anna Dravida Munnetra Kazhagam], her slogan was Amaidhi, Valam, Valarchi [peace, prosperity, growth]. First start with peace, calm and harmony then we can look at good agriculture, good farming, and thereby good growth and good prosperity.
An essential component of a good and tolerant society would be...
Full freedom of speech and expression. There is no all-knowing and all-seeing person. It is heresy for religious people and plain unscientific for rational people that any one human being can be that brilliant, that perceptive, that well-read, that knowledgeable in everything. That is what cults are for, not what normal people in a democracy should talk about.
The more open dialogue we have the better our decisions, the better the perception of buy-in from those who have been engaged in the dialogue, the healthier our democracy and the better our perception of the freedom that our forefathers fought for us to get.
Of course, the media has a big role to play. Every day, we see the media become more and more beholden to other interests. But I don’t worry too much about that, the role of the media overall is declining very rapidly with the universality of internet access.
In a place like Tamil Nadu, no media controls the narrative, social media controls the narrative. The penetration of the internet is about 80% in the population, everybody is on 50 WhatsApp groups. You cannot even spread fake news very long because it gets called out by 10 other guys who can tell the truth.
We must strengthen our institutions. There has been a long debate about the observed correlation between the strength of institutions and the economic progress of a nation or a state. Which is the chicken and which is the egg? Is it that economic progress drives citizens to demand better institutions or is it that better institutions create better economic outcomes?
I think the debate is settled once and for all because we have seen the reverse. We’ve seen the decline of institutions in developed economies and we’ve seen the consequent downfall of economic activities. So, it’s very clear now, that you need good institutions, independent institutions with checks and balances. That’s how you get a harmonious society, that’s how you get a good economic outcome.
In fact, part of our problem, why we’re seeing this huge global, kind of, deterioration of democracy, not only in India but we’ve seen the far right rise in many parts of the world, is globalisation. Let’s be very clear that this is not the first age of globalisation, but maybe the third or fourth or fifth.
There have been times when the world has been much more integrated economically than it is today. This version is unique because of the speed of transport, the movement of population, the connectivity of the internet, the remote nature of services, these are some very unique features to this globalisation.
But purely, from an economic activity perspective we are just another wave in the cyclicality of globalisation. Globalisation always increases the pie. Always, always, always. Mathematically it is provable. What it doesn’t do is ensure that the bigger pie is equally divided. In fact, unless there are continuous efforts to break the model or the pattern, every time the pie increases rapidly, it will increase inequality. It will end up in – too few hands, too much money. That leads to the kind of disgruntlement across the societies we have seen in the US, in Europe, in the UK and others in the world.
We have seen that this disgruntled feeling leads to a discrediting of the institution. And the discrediting of the institution leads to all kinds of economic malaise. So we are observing vicious cycles in many places and we need to turn that around into a virtuous cycle to ensure that our institutions become independent and well governed.
At the risk of stroking some old wounds in Delhi, the sixth point I want to make is that we need a massive improvement in the judiciary. We need to increase the ratio of funding we give to the judicial system, we need to reduce the time and complexity of getting a decision.
As a participant in global debt markets, I can assure you that the single biggest barrier to India’s growth from a financial perspective is the lack of an efficient debt market. The reason we have no such market is because all debt markets require an underpinning, they require a timely, predictable, “based-on precedent” dispute resolution system that allows people to know what the risk is if the return doesn’t happen.
We don’t have that. If one goes to court, it can take up to 20 years. We don’t have a developed debt market because we don’t have a reasonable, predictable judicial and dispute resolution system. We have more problems than that, the independence of the judiciary is under serious threat. The huge delay; we’ve all heard of the notion that justice delayed is justice denied. I will quote Arun Jaitley, the former finance minister of India and the former Rajya Sabha MP, when he said he wondered if post-retirement appointments are influencing pre-retirement judgements. All of these need to be considered and fixed.
In fact, Article 37 of the Constitution [under Part IV, the directive principles of state policy] states:
“The provisions contained in this Part (that is part 4 concerning the government, I add) shall not be enforceable by any court, but the principles therein laid down are nevertheless fundamental in the governance of the country and it shall be the duty of the State to apply these principles in making laws.”
So, when I say the court doesn’t have any place in certain debates, I’m only quoting the Constitution, I’m not denigrating anyone.
We need a significant devolution of power. We are the most centralised, least effective form of government anywhere in the world today. You take large countries from Communist China to capitalist America, the devolution of power is to the states, to the counties, to the towns and to the villages. From school boards to police forces are run by local bodies, taxes are set by counties and states. Licences are issued for industrial permits by cities in China.
We have everything setup in one place. Not just one place, but one place that includes states that were carved out because they have different languages, cultures and histories. These have since become so far apart in any measure of outcomes – from education to per capita income, to access to health – that it makes no sense. The luxury of devolving power or the luxury of putting power close to the people is that it greatly increases the chance of success.
Let me just give you two ways of looking at it: The Union government had these flagship schemes like Swachh Bharat or Krishi Kalyan. If you look at any CAG [Comptroller and Auditor General] report you will find so many instances where they say that the building was built for the toilets but no water supply was provided by the municipality because it was not funded on an ongoing basis by the Union Government.
There are schools in Bihar that was given money for whitewashing, but they only had thatched schools, you couldn’t whitewash the thatch. You cannot have a one size fits all coming from any place, least of all Delhi. But, if you give it to the local bodies, they can customise the programme to their needs, the local representatives will be more responsible to the local voters and most of all, they will be accountable. What we really need the Union to look after is things like the stability of the currency, international relations, defence and international Trade, and so forth, etc.
What we need panchayats upwards to look at is solving people’s daily problems. Let me give you an example of what we have done with Tamil Nadu just now. Because of the stunting data that we have seen, particularly after demonetisation, the chief minister has announced that the state is going to run a pilot project – breakfast programme in schools.
We could have gone multiple ways in this. We already have a noon meal scheme programme in place where [in] every government school, all children are supplied lunch at school, but there are huge limitations on that. If we spend 1 rupee on providing this lunch, about 70 paisa goes to labour and 30 paisa goes to procurement and cooking.
So, what we’ve done is to come up with a pilot approach where we give this money as a block grant to a panchayat. That panchayat must create a self-help group of the mothers of the children who attend that school. Those people will be given the money to buy supplies to cook it and deliver it to their own children with government support.
Some genius then came and told me that the problem with this is, there is going to be a lot of corruption. So I asked the question, is there likely to be corruption in the purchase of food when the mothers are buying it for their children village by village, or is there likely to be corruption if we do state-wise tender of Rs 2,000 crores. It makes no sense to me that there will be more corruption when the mother buys for son or daughter. So, we can change this construct by making it more evolved. We need do it all the way from the Union government down to the Panchayat.
We need to do data collection and data-based decision-making. Of late, we have seen that whenever the numbers doesn’t suit the political narrative, we just stop measuring . This is the worst possible strategy to take. When you have data you really understand what is happening you can be thoughtful about the plan.
In Tamil Nadu, the first thing when we came in, we said one of the first five pillars of administration in my initial budget will be a data-centric approach. We started collecting information, started cross referencing data. The state already has so much data. And in many programmes, like loan waivers that had been promised in the manifesto, we were able to save 75%. We were able to save thousands of crores from the bill because we were able to cross reference the data and figure out frauds. Thousands of crores.
Sometimes you collect data – this Union government is voracious in collecting some data – but the data is of no use to anybody. For instance, during Covid, every single Covid vaccine data to the decimal point was collected by the Union government. But, when we tried to do a survey, where is the penetration and where we should focus more, we did not have access to the data. Only the Union government has access to the data. They did not give us access to the database.
So, in frustration we had to start a parallel database where we’re running the data entries twice, first through the Union and then for our own record, so that we can analyse which block, which street, which house, what is the penetration of vaccination.
Income tax data, which tell[s] us who is eligible and who is not, states don’t have access. GST [Goods and Services Tax] data (I’m a member of the GST council) – till recently we were not given access to the GST data. Only in the last council meeting, upon my request and support of other members of states – that every state can access the GST members of their own and other states, otherwise there is arbitrage, we don’t know what the same entity is doing in other states of their operation – now we have agreed, the GST council collectively, that all data will be collected and shared with everybody. We must collect more, make it more accessible and applicable in decision making. All of this will help us reduce inequality.
We must align incentives and create better organisational structures for our government employees. We have a profound problem, at least in Tamil Nadu. I won’t comment on other states. We have a decay in the culture of our government employees. There’s zero accountability. There is no alignment of incentives. Suspensions or transfers are the ultimate stick but they don’t really have much deterrent-value. We have very little by way of carrot.
In almost every department in the government of Tamil Nadu, as the minister for the Human Resources department, I can say that our vacancy rate is north of 30%. Many people want this to continue because you see if someone has two-three jobs, then they are not accountable for anything.
If you ask them about A, they say I was doing B, if you ask them about B, they were doing C, etc. If we try to fill this 30% of these jobs, we can’t afford it because the pay scales in government service is sometimes two times or three times the market wages, then the pension costs come in. So, we need some profound change there.
In Tamil Nadu we are doing three things:
• We are trying our best to substitute technology and automated systems as far as possible. All government services – it is my stated intent in the assembly – will go one of two ways. For the majority I want it done online. Remove all rent seeking, remove all need for travel and remove all barriers to access. For those that cannot, we will deliver this service to their house. Surely there will those who are too old, don’t know how to access technology and do not have anyone to help them. We will deliver the service to their house using our own data
• The second way we can improve this is to change the law. We were the first state; it took us one year of waiting for the vetting by the governor, the home minister, the president and finally after the new president has come we have got signed into law a bill we passed 12 or 13 months ago, which says the British-era law which states that if a document is registered stating somebody as the owner, it cannot be reversed by the government even if it’s prima facie, fake or false or fraud, it has to go to court. You know what happens if it goes to court. We changed the law.
We said if it is prima facie fraud, if somebody has registered temple land in someone else’s name, or government land or clearly some other owners, then the registration inspector general has the right to cancel that, subject to every single time there is such a cancellation there must be a criminal prosecution of a government employee who made that registration. So, we have a check and a balance. This law we drafted and put it to legislative assembly within few months of coming to office. It has taken us 13 months to get it approved by the Union. So, we can change the laws to improve the incentive alignment or to change the practice.
• Third, in the Tamil Nadu Government we have undertaken a complete top to bottom review. We will set up a committee to re-look at all aspects from hiring to training to placement, vigilance and anti-corruption, to RTI [right to information], all of which falls under the HR ministry. We’re about to announce the composition of that committee right now
In total, what I would like to say is that if we do all of these things, we can return to the politics of hope and prospects, as opposed to the politics of threats and fear mongering and zero-sum othering that we see today. Engendering hope is a much harder task than stroking fears. But a government or a representative that consistently delivers, that does a public mark-to-market can help build credibility and faith in the system.
It is hard, but doable.
P Thiaga Rajan is the finance minister of Tamil Nadu.
The Anil Dharker Literature Live Independence Lecture was held on August 25 at The Experimental Theatre, National Centre for Performing Arts, Mumbai.