Thursday, March 02, 2006

Good governance is all about simplifying life


Recently the terms "governance" and "good governance" are being increasingly used in development literature. Bad governance is being increasingly regarded as one of the root causes of all evil within our societies. Major donors and international financial institutions are increasingly basing their aid and loans on the condition that reforms that ensure "good governance" are undertaken.


The concept of "governance" is not new. It is as old as human civilization. Simply put "governance" means: the process of decision-making and the process by which decisions are implemented (or not implemented). Governance can be used in several contexts such as corporate governance, international governance, national governance and local governance.

Government is one of the actors in governance. Other actors involved in governance vary depending on the level of government that is under discussion. In rural areas, for example, other actors may include influential land lords, associations of peasant farmers, cooperatives, NGOs, research institutes, religious leaders, finance institutions political parties, the military etc. The situation in urban areas is much more complex. Figure 1 provides the interconnections between actors involved in urban governance. At the national level, in addition to the above actors, media, lobbyists, international donors, multi-national corporations, etc. may play a role in decision-making or in influencing the decision-making process.

Good Governance

Good governance has 8 major characteristics-

It is participatory, consensus oriented, accountable, transparent, responsive, effective and efficient, equitable and inclusive and follows the rule of law. It assures that corruption is minimized, the views of minorities are taken into account and that the voices of the most vulnerable in society are heard in decision-making. It is also responsive to the present and future needs of society. Good governance is an ideal which is difficult to achieve in its totality. Very few countries and societies have come close to achieving good governance in its totality. However, to ensure sustainable human development, actions must be taken to work towards this ideal with the aim of making it a reality.

India needs today is good governance, which is possible if sensitive human beings hold the reins of power. Good governance will only help the nation achieve progress in every field. India's a lone bronze at Athens Olympics was the result of bad governance. Is it not a national shame to win one bronze from the population of one billion? There are a number of examples like this where we have failed. Amidst globalization, good governance will only propel us towards success. The nation can still pin its hope on the large section of middle class for its development.

Globalization as a phenomenon has touched India in very limited ways.

The Government's unwillingness to de-bureaucratize is partly responsible for this. If some sectors of the economy have made progress then it is in spite of the government rather than because of it.

The levels of portfolio investment have remained nearly the same between 1992-93 and 1996-97. Portfolio investment by foreign institutional investors has not increased from the levels achieved in 1993-94. The positive effect of opening up the economy to FDI has been negated by India's apprehensions about foreign ownership, even partial ones. Bureaucratic factors and a crippling lack of infrastructural facilities make India unattractive for FDI. A World Bank survey in 1998 placed India at the bottom in a group of 53 emerging economies, in terms of quality of overall infrastructure facilities. Therefore, relative to its position in the world economy and financial markets, India has regressed from its position in 1990-91!

India has roughly 25 per cent of the developing countries population and it receives merely 2.17 per cent of FDI. While China, with roughly the same population and a Communist regime to boot, receives 16 times more FDI than India. Clearly, India is neither connected to global capital markets nor is it considered a potential home by global capital in search of higher value in emerging country markets. Policy announcements, in late 1998 and early 1999, that the Government would enlarge the automatic approval list of FDI, simplifying procedures have been entangled in bureaucratic lengthy procedure. The proposed change of Foreign Exchange Regulation Act into Foreign Exchange Management Act may help in reducing controls.

Example - Good governance is all about simplifying life

What Wipro has generated in a single day, through exports, was more than what India does in one month. It can cover India's fiscal deficit in 22 days to a month. It was regretted that it was not a public sector company. If it was so, it would have added enough to its market cap to not only wipe out India's fiscal deficit, but to turn it into a decent surplus.

The market cap of the top two stocks Wipro and Infosys which stands at $62 bn (Rs 2,69,370) is much more than the GDP of Pakistan at $55 bn for the current year. The combined m-cap of the BSE ($ 275 bn) now stands at almost 62 percent of India's projected GDP for the current year ($443). The combined market cap of BSE is on its way to matching India's GDP. The top five stocks in terms of m-cap account for more than 20 percent of India's GDP and 35 per cent of BSI's m-cap. In the US, Microsoft with the highest m-cap of $495 bn, accounts for just four percent of NYSE's capitalisation and less than six per cent of the US GDP. The combined m-cap of three other stocks Zee, HLL and HCL Tech at almost $ 34 bn (Rs 1,46,716 crore) is just a shade off India's total forex reserves of $ 34.9 bn. The market cap of the BSE, $ 275 bn, is much more than the total time and demand deposits lying with the banks, $204 bn. The market cap of Wipro ($46.8 bn) alone is much more than the total currency (notes and coins in circulation) with the public ($44 bn) in India.

The chief reason for this quick progress on the info technology sector is that there are no inspectors monitoring info technology (at present anything between 60-65 Inspectors visit any manufacturing industry ostensibly to ensure compliance to various norms, rules, regulations and laws, but actually to collect bribe). Had the bureaucracy had come to know earlier about the progress, they would have put the brakes on it straightaway. The rationale of bureaucracy is that how can any sector of the economy claim progress, without being obstructed by it. Info technology companies have progressed because there were no inspectors or their superiors to be pandered to. He also said that the government had created IT Department. The bureaucrats are likely to create a mess of it. This sector progressed without bribing anybody because no licenses and permits had to be taken. One may not totally agree, with the assessment. But the fact remains, that in many areas, the Government instead of becoming catalytic agent to the progress was doing actually the opposite, through its cutting edge levels functionaries. The biggest danger faced by the economy is from within. The danger is in the form of sabotage by graft, self-defeating leaks, which need to be plugged in. It is more so in the case of export promotion schemes. In the case of duty draw back, the duties are expected to be refunded to the exporters by the customs. Corrupt officials conniving with the exporters for over invoicing the value of the export, costs the Government heavily. This way, the value increases, and the Government shells out, several times the actual sum due. The passing of the export bills is a gold mine.

Unfortunately, in the present scenario, corruption is not a stigma. A decade ago, a corrupt official would have been looked down on by all. It was a kind of an informal disapproval, which was more effective than any punishment. At present, corruption is accepted as a part of life and no disapproval of any kind is attached to it. Apart from this, the procedures for complaining and taking action are tardy and lengthy, that the affected persons find it to be a waste of time. In any case, the businessmen pass on the increased cost to the customers or realize it from the Government by either not paying duties or taxes. There is a need to have a valuation list of exports and exporters, so that the black sheep, thriving in the liberalized regime are exposed and dealt with strictly. Another suggestion is that only officers of proven integrity and honesty should be appointed to head sensitive divisions. The Heads of this Divisions should be at the public counters, where public come in contact with the Department, themselves by surprise at least twice or thrice a month. This way, they will become aware of the problems not only of the public but also their own. They will know a; first hand, where the bottle necks lie and what can be done to rectify the situation.

Computerization, with the facility, to access the files, only by the next senior officer, at any time, will help in curbing malpractices. But success of the system will depend upon entering the information in the computer. Computer, by itself, cannot abolish corruption or increase efficiency. It is only an aid and a tool to efficiency. If tire entry itself is not made properly or only made after accepting a bribe, the position will not improve. More important than the computer is the man behind it. Man behind the machine wilt work better, faster and efficiently only, if he knows that quick retribution will follow, if he is found working only for speed money and not for speed. The best safeguard for the public will be, not to put up with injustice and corrupt practices but to protest against it. Unless the citizen's work for a Government that works transparently and honestly, the situation will not alter. There is a price tag on everything and nothing comes cheap in life. There are no free lunches. More than anything the Government should learn a few lessons from the IT sector, where without any licenses, quotas, permits or permissions; it has progressed beyond the wildest expectations. It is time to simplify laws rules and regulations to the utmost point of transparency, so that people work for the progress of the country

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