Somasekhar Sundaresan: Where smooth governance is masked failure

Falling in line without an attempt to stand up for principle within the framework of law is a trait of obedient regimes
 Jerry Brown, the governor of California, has picked up the gauntlet thrown by US President-elect Donald Trump’s proposed policies that would underplay the reality of climate change. Referring to federal budget cuts for earth-monitoring satellite programmes, he is quoted as having said: “If Trump turns off the satellites, California will launch its own satellite… We’ve got the scientists, we’ve got the lawyers, and we’re ready to fight.” 


A few pointers are relevant here. First, a stand-off between the Centre and a state is not unique for India. Second, such a stand-off is not a bad thing. There may be short-term pain and awkwardness about two government instrumentalities not seeing eye to eye. However, inter-institutional tension is the stuff that checks and balances in governance is all about. Falling in line without any attempt at standing up for principle within the framework of law is a trait of obedient regimes. And obedience without reason is not healthy for a democracy.


Take the case of regulators in India. The laws that govern regulators contain a ubiquitous provision that enables the government to issue directions to regulators on what to do on matters of policy. In such provisions, what constitutes a matter of policy is the prerogative of the government. This sole provision is adequate to keep regulators in check and to ensure they are never out of line with the thinking of the government in power. The effect of such a provision is that the regulator would never be formally told what to do — a verbal indication is adequate to make the regulator fall in line.


Few regulatory chairmen have had the spine to ask the government to issue a formal direction using the power to issue such a direction. More importantly, few regulatory governance boards have had the courage to stand up and be counted if they were to disagree with the government. There is one known example of the capital market regulator taking such a position — when it came to regulating unit-linked insurance plans offered by insurance companies. According to the capital market regulator, these plans were mutual fund schemes in addition to being insurance schemes and therefore, would need dual regulation. The government was forced to take a stance. The then finance minister first asked the two regulators to fight it out in court. When it got unseemly, a Presidential Ordinance was brought in to override the objections of the capital market regulator.


With demonetisation, one is not yet sure of how events turned on November 8. The central board of the Reserve Bank of India (RBI) is required to make a recommendation to the government to change the denomination of currency. Public records available so far suggest that the central board of the RBI indeed made such a recommendation. That the proposed demonetisation was a closely-guarded secret until just before it was announced, is also well known. The central board of the RBI would have met just a few hours, if not minutes, before the announcement. One does not know what information members of the RBI central board sought to put their signatures in endorsement. Who proposed the measure with what supporting material, and whether it was satisfactory to all the directors are unclear. 


Chances are that the directors endorsed the measure unanimously. Chances are that if they had had a different view, the government could have issued them a policy directive to make the recommendation. Whether the government used its power to direct the RBI is not known. If it did, the notifications ought to have said so. They do not. Perhaps no one in the RBI’s central board was at all alarmed enough to think of the side effects of demonetisation, or capacity constraints in executing the outlawing of 85 per cent of the floating currency, or the technical ability of the banking system to cope with the burden that was to be unleashed on it without notice. That is the power of having the right to dictate terms. The power never has to be formally used.


However, any attempt at reforming the regulatory system to bring in accountability for regulatory action is usually attacked as interference with regulatory autonomy. For example, there is no performance appraisal for any of the senior management — even at the level of the governing boards of the regulators. It is another matter that regulators mandate appraisal of board effectiveness and intra-board self-appraisal among peers within the boards that govern the institutions regulated by the regulator.


On the federal structure in India, too, we have some parallels with the US political system. The “Delhi government” — a euphemism of sorts, since it is not a conventional state government (more like a municipal government without even policing powers) — often wants to creatively create and handle jurisdiction, armed with a massive mandate in the elections. Almost every step from the Delhi government is tripped by a sole bureaucrat appointed by the central government. The constitutional dispute is in the courts.


The story is no different with the corporate sector. Regulations that deal with corporate governance err on the side of being overly concerned with composition of the boards rather than effectiveness of their functioning. But that is a story for some other column.


This column was published Without Contempt in the Business Standard editions dated December 21, 2016 

Conflating objectives to imagined outcomes

By Somasekhar Sundaresan

Never before has the national anthem been debated so much. Indian society is abuzz with arguments for and against the Supreme Court’s ruling that the national anthem must be played in every movie hall with the doors of the hall being shut to avoid insult to the forced rendition of the anthem. But this column will not add to the verbiage on the merits (or the lack of it) of the judgement.

Instead, the anthem judgement brings to the fore the human propensity to assume human reaction to legislative instruments. Every arm of the State – the legislature, the executive and the judiciary – is guilty of blundering with mis-reading outcomes. The merits of the objective sought to be achieved is often conflated and projected as the legitimately anticipated outcome. 

The legislature (Parliament and State Assemblies that make law) as well as the executive (central and state governments that use delegated powers to make law) routinely mis-read potential outcomes when making law. Specificity in defining the objective is itself a tall ask. They rely primarily on intuition. The near absence of pre-legislative consultation makes matters worse. The measurement of intended outcomes is made difficult right from the time the law is written. 

However, the judiciary, which legislates, particularly when dealing with public interest litigation, too makes the same mistakes, although limited pre-legislative consultation takes place. Any member of society can call upon the judiciary to write law, often citing the reluctance or failure of the legislature and the executive to work on solutions. Despite growing reluctance, a lot of law gets written in this space. The parties before the court air their views about the measures the court must adopt, and eventually un-elected judges make policy choices. The consultation may be only with those before the court who are interested in defining the problem and the solution, but yet, severe capacity constraints make it hard for judges to take measures that deliver intended outcomes.

To write law, one would need to hone the capacity to think through a defined problem statement, and then choose from competing policy choices to structure a solution. The comparison of competing potential legislative measures and weighing it against the potential benefits of each measure, is not a matter of judicial skill or training. It is a matter of administrative training and policy choice skill. However, in this department, all three arms of the Indian State can display quite a serious degree of inadequacy. Worse, without articulation of intended outcomes, the measurement of the efficacy of the law becomes highly suspect.

Take the example of the environmental entry charge imposed on vehicles entering the National Capital Region comprising Delhi and its surroundings. The stated objective of the law was to curb air pollution in Delhi. It was believed that a substantial chunk of the pollution came from vehicles. It was felt that imposing a charge on entry of vehicles into Delhi would create disincentives to ply via Delhi and thereby curb pollution. This was fully judge-made law that later came to be adopted by the executive formally. This year, Delhi has faced its worst air pollution crisis. The thick haze is attributed to multiple factors – this time newer factors are being guessed – ranging from burning of farmland waste to fireworks after the Diwali festival. No one wondered how the law imposing a charge on entry of vehicles into Delhi, fundamentally driven by the intended (if not promised) outcome of curbing air pollution had not met its stated objective.

The death penalty is an easy example in legislature-made law failing to deliver promised outcomes. When the gruesome Nirbhaya assault case was discovered in December 2012, people took to the streets demanding action. As is the wont, instead of looking at how to better enforce existing laws, we ended up writing new law – partly as a measure of placating the mob with the demand for law being satisfied and to ensure that the demand for bloodshed was made redundant. Definitions of sexual assault were changed. Punishment was bumped up to bring in the death penalty. In August 2013, the gruesome Shakti Mills sexual assault was discovered. No one wondered how the new law, fundamentally driven by the outcome of the crime, had not met its stated objective.

On the executive side, demonetization is the live and classic example of the stated objective being conflated into the potential outcome. If the seriousness of the purpose for which a law is proposed were adequate to justify any ineffective measure, there would be no need to debate the measure. If the need for spirit of patriotism were lofty enough, the law-maker would hope that there need be no debate on whether the measure is successful. Whether singing the anthem before a movie starts would achieve the outpouring of love for the nation would then become secondary. Whether black money would actually be curtailed by demonetization would become secondary. So long as it is intended to hurt black money, supporters of the measure would not want a debate on the efficacy of the measure. In much the same way, the efficacy of an entry charge on vehicles plying into Delhi, would ostensibly curtail air pollution in Delhi.

This column was published Without Contempt in the Business Standard edition dated December 7, 2016