The Hindu : Rewarding failures

Online edition of India's National Newspaper
Tuesday, May 06, 2003

Opinion

Opinion - Leader Page Articles

Rewarding failures

By N. Vittal

Probably the time has come for us to review our policies which were planned with good intentions but have led to counterproductive results.

THE PATH to hell, it is said, is paved with good intentions. It is more than 55 years since we got Independence. All these years, the Government has been adopting many policies with the best of intentions. But if we look back and analyse them, we find that most of these policies have been remarkable failures. There have been very few cases where our policies have succeeded.

What is the secret of this consistent record of failure? An analysis will show that we have been in effect making policies, which, in spite of the ostensible high purposes, encourage and reward failure. This is a common feature of practically all our policies.

Let us, for example, consider the basic national objective of keeping a check on population growth. Since Independence, we have been following a series of policies for checking population growth, but what is the net result? When it comes to the delimitation of constituencies or distribution of Government of India funds, population becomes a positive criterion. As a result, we find that States which are considered to have consistently failed in good governance such as the BIMARU States (Bihar, Madhya Pradesh, Rajasthan and Uttar Pradesh) walk away with a larger chunk of the Central Government assistance. This feature is also seen in the Finance Commission's efforts at distributing funds.

Consider for instance, the issue of delimitation of constituencies. It is remarkable that at least status quo has been maintained for the present, when the time has come for delimitation of constituencies for elections to the State Assemblies and Parliament.

Nevertheless, if the arithmetic of population and the standard principles adopted for delimitation of constituencies have to have their way, the States which were poor in controlling the population growth would have walked away with a larger share of seats. It is not just with respect to population control that our policies have had a counterproductive effect, resulting in failure. Take for example the concept of balanced regional growth. I have worked as an officer in the advanced State of Gujarat.

During the days of the permit licence raj, one of the constant challenges that we faced was in getting industrial licences approved for Gujarat when the entire policy seemed, in the name of balanced regional growth, to force the entrepreneurs to go to States such as Uttar Pradesh and Bihar, which did not have the basic economic parameters required for attracting investment.

Or consider for a change, our approach to the small-scale industries. In the United States, we find that even companies which are started in a garage become multi-million-dollar industries within a few years. Bill Gates and Steve Jobs come readily to mind. In our country, we have imported the concept of our varnasharama dharma and casteism in economics too. We have, therefore, divided the entire industrial scene into a series of `castes' called tiny, cottage, small-scale, medium, large industries, NRI, non-NRI, MRTP, non-MRTP industries and so on. This factor, combined with our policy of observation for small-scale industries, has created a situation where, with the exception of a few, they are not making efforts to grow into large industries. On the other hand, they try to remain perpetually within the monetary limits fixed by the Government for being classified as small-scale industries. The idealism of encouraging the small entrepreneur has ultimately resulted in a policy, which, in effect, discourages growth and success and rewards failures and stunts growth. We have created industrial bonsais. The concept of reservation for just ensuring some element of justice has prevailed in other areas also.

The net result is that more and more people and regions are encouraged to claim that they are backward and not forward. We have created a vested interest in backwardness, poverty and failure.

If we reward failures like this, why should we think that we will succeed at all? This concept of rewarding failures pervades practically every policy of ours, and results in lop-sidedness. The Sick Industry Company Act (SICA) for instance. This concept was borrowed from Germany, where, when the capital of an industry is wiped out, it becomes the property of the creditors. It is designed to ensure that the creditors get their money back.

But the result was that the Bureau of Industrial and Financial Reconstruction (BIFR), which was set up under SICA, was soon dubbed the `bureau of industrial funeral rites'. This ultimately encouraged unscrupulous elements to brazenly loot public funds, resulting in non-performing assets to the extent of Rs.1,00,000 crores in the banking sector.

We do not stop with rewarding failures at this level. There is widespread tax evasion in the country. The parallel economy constitutes 40 per cent of the GDP. And what do we do? We reward the tax-evaders by charging them under VDIS 30 per cent duty — 10 per cent less than what was charged for those who were honest enough to have declared their income when the prevailing rates were 40 per cent of the income earned. One can go on multiplying the instances in which our policies have led to totally counterproductive results and ended up rewarding failure rather than success.

Why is this so? It is because we have forgotten the basic element of good management, which Peter Drucker recommends. Drucker says that we should build on strength. Instead of building on strength, our policies are built on weaknesses. We reward weakness with reservation, we reward backwardness with preferential treatments, we reward failing States with more generosity of funds. This tradition seems to continue.

It is not as if all our policies have been a failure. We have had remarkable success in some areas. The green revolution, the white revolution, information technology, space, missile technology and atomic energy come readily to mind. We succeeded in these areas because we encouraged the requisite factors for success; merit, right technology and right priority on strategy. But these are more of an exception than a rule. It is said that human beings are rational but they will do the reasonable thing only after trying everything else. Perhaps, in our country we are fast reaching such a stage where, for instance, in some States there is not enough money available even to pay the regular salary to the Government servants. Reducing Government expenditure will now make sense to the bureaucrats. Probably the time has come for us to review our policies which were planned with good intentions but have led to counterproductive results. If we could identify the areas where we are in effect rewarding failure or weakness, and adopt a u-turn, perhaps we would have taken the first step towards building a more developed and better India.

(The writer is a former Central Vigilance Commissioner.)

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