'India's real deep state is unaccountable bureaucrats': Surjit Bhalla on what's wrong with the system

Economist and former International Monetary Fund (IMF) Executive Director for India Surjit Bhalla has blamed the lack of accountability in the country's bureaucracy for holding back economic reforms. He argues that senior bureaucrats make key policy decisions without being answerable to either the public or the market.

In a podcast conversation with ANI's Smita Prakash, Bhalla said the "deep state" in India should not be viewed as a conspiracy but as a system where powerful decision-makers operate without transparent accountability.

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'Deep State Is About Decisions Without Accountability'

The eminent economist has blamed four groups for the problems in the Indian economy. These groups are: government, industrialists, Congress, and the deep state. 

Explaining what he meant by the "deep state", Bhalla said it was not a hidden conspiracy but a structural problem.

"The deep state involves a conspiracy, some people or groups there. Not everybody in the deep state is in the government. In my formulation of the deep state, it is not a conspiracy. It is people who make decisions and are not held answerable," he said.

Drawing a contrast with politicians and industrialists, Bhalla argued that elected representatives can be voted out while business leaders remain accountable to markets and company boards.

"So, who do you think is not answerable to either the politicians or the market? The babus, senior babus," he said.

The noted economist said India needed a serious discussion on how major policy decisions are taken "without transparency", adding that the tradition of preparing the Union Budget in secrecy was outdated.

"We are in 2026. Which country formulates economic policies in secret? The world is completely open. The world is completely transparent. And you are making policy in secret," he said.

Bhalla has also served as a part-time member of Prime Minister Narendra Modi's Economic Advisory Council.

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'Bureaucrats Are Rewarded For Being Wrong'

The economist argued that the current administrative structure lacks accountability because decision-makers rarely face consequences for poor policies.

"The senior bureaucracy in India lays a lot of premium on being wrong," he said, adding that bureaucrats remain in office regardless of the outcomes of their decisions.

Suggesting reforms, he said greater accountability could be introduced if decision-makers within the government could also be removed for poor performance.

"So all I'm wanting is that there be accountability for decisions, whether made by a politician, whether made by an industrialist, or whether made by a bureaucrat. And we know for the other two categories (government and industrialists), there is some semblance of accountability. In this case, there isn't."

Responding to concerns that greater transparency during the Budget-making process could encourage speculation or insider trading, Bhalla dismissed the argument.

"When has there not been an insider trading? When has there not been financial speculation?... We are now in 2026," he said, arguing that the secrecy model was inherited from the colonial-era Indian Civil Service and no longer suited a modern economy.

Lateral Entry's Failure

Bhalla also questioned why attempts by successive governments to induct outside talent into the bureaucracy through lateral entry had failed.

"What both Manmohan Singh and Prime Minister Modi have tried to do is bring in outside talent (lateral entry). How come it didn't work? Who stopped it? Whose interest is it in not having outside talent? Once you answer that question, everything falls in place," he said.

Asked whether lateral entrants find it difficult to function within the bureaucracy, Bhalla replied, "Yeah. Or we don't have much lateral entry."

Cites 1991 Reforms

Recalling his own experience as a member of the Economic Advisory Council to the Prime Minister, Bhalla acknowledged facing resistance to some of his proposals. "Well, yes. So, let's just settle it that way," he said.

He cited the 1991 economic reforms to argue that transformative changes often came from outside the traditional bureaucracy.

"If somebody asks you the biggest economic reform in India... it is the 1991 liberalisation reform. Who was the decision-maker at that time who brought about the reforms? Montek Singh Ahluwalia. Was he a member of the IAS?" he said.

Bhalla argued that bureaucrats are discouraged from taking bold decisions because the system rewards caution over innovation. "We don't have an incentive system for them to innovate or take risks. They are rewarded for not taking risks. That's the core element of what I think is wrong with the administration of the Indian economy."