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VIEWPOINT: ECONOMIC GRAFFITI
Reform Of Small Things
The focus of liberalisation must be on making regulators
responsive and efficient
By Kaushik Basu
When US space shuttle
Challenger exploded 73 seconds after takeoff on January 28, 1986, killing
all astronauts aboard, the first thought in everybody's mind was that
something major had gone wrong. But investigations revealed the tragedy
was due to the malfunctioning of some tiny o-rings, which are, literally,
little rings used to seal joints.
 Amidst
our larger concerns for the Indian economy-the fiscal deficit, inflation,
exchange rate-it is easy to forget that an economy's success depends also
on the o-rings, the small things. In India there is immense frustration
among the people about the bureaucracy, the police and governance in general.
As the draft approach paper to the 10th Five Year Plan notes:
"People perceive bureaucracy as wooden, disinterested in public welfare
and corrupt. The issue of reform in governance has acquired critical dimensions."
To break this bureaucratic
gridlock, it is important to turn our attention to the o-rings of our
economy, which get ignored because they are not part of any of the larger
schemes of economic policy.
In most Indian universities, after a student
submits his PhD thesis, it takes between one and two years for the final
examination, the viva, to be held. The delay is unpardonable. Most European
universities conduct the viva within three months of submission and American
universities do so literally within weeks.
Hardly any resource is needed to change this.
It simply requires the will of the vice-chancellor. It will require the
university to courier the thesis to the examiner and a few phone calls
to hurry him. It may also require changing the rule that the thesis be
sent to at least one examiner abroad. This is anyway an absurd rule, frequently
fulfilled by sending the thesis to some sub-par professor whose only qualification
is that his address is not in India.
The Indian software industry was raring to go
from the early 1980s. What held it back was nothing major, such as a shortage
of skilled personnel or other resources, but our arcane import restrictions.
To import a computer a company had to run to Delhi, convince the customs
officer it could not manage without a computer and plead with the Commerce
Ministry. The process could take up to two years. Changing this bottleneck
needed no resources, just some thought and will. The change happened in
1991. Infosys Technologies grew five times from 1981 to 1991 and 500 times
from 1991 to 2001.
For the last several years I have been travelling
regularly to Stockholm for work. On arrival at Arlanda airport I would,
like most locals, take the airport bus to the city centre, and wait there
for 5-10 minutes for a taxi. A few years ago I was surprised to find the
airport bus driver ask me if I would need a taxi on reaching the city
centre. When he had this information from all passengers, he relayed it
to the information desk at the city centre by phone. On arrival we had
our taxis waiting. This has been the system ever since. This change of
system needed no parliamentary debate, no money, just a clever and concerned
bureaucrat to think it up. Ten minutes for each person is nothing, but
when you add it up for the thousands travelling through Arlanda, it amounts
to a considerable saving of resource.
Can these o-rings never be fixed in India? Recently
I visited the corporate headquarters of Infosys in Bangalore. The experience
was beyond my expectations. The sprawling campus with the thousands of
young employees, tons of computer facilities, cafes, coffee stalls, and
state-of-the-art gym resembled an American Ivy League university. But
the secret of Infosys' success is not just these big things, but, as Forbes
magazine noted, its "fanatic attention to detail". This has
enabled it to become the company of choice at all levels.
Last year, it received 1.83 lakh applications
for 3,000 jobs. This is no surprise, given that Infosys has created 2,000
millionaires. Even the women who do the sweeping can come in very early
in the morning so that they can go back home to get their children ready
for school.
Popular writers often naively equate economic
liberalisation with the withdrawal of government. But government regulation
is an essential prerequisite for the functioning of markets. From street
vendors to the functioning of the foreign exchange market, there is need
for regulation. The US economy is highly regulated. Its success lies in
having cleaned up the regulatory system relentlessly, plugging holes and
punishing the corrupt.
There is no reason why it should be so hard
to pay income tax, lodge a complaint about electricity bills and get a
new passport as it is in India. The market in itself cannot solve these
problems. For these to change we have to work through the nuts and bolts
of our system of governance.
(The author is professor of economics at Cornell
University.)
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