Bimal Jalan, former Governor of the Reserve Bank of India, discusses India's institutions and the challenges they face with Sanjiv Shankaran. Edited excerpts from the interview:
On India's institutional framework: There are some extremely important distinctions. One, there are the institutions of the state, which are permanent. They are Parliament, the executive and the judiciary. That is the Constitutional design.
Second, there are the government institutions. Take ministries. They are institutions from the public point of view.
In the third category are institutions that are autonomous. There are rules of the game that can be decided by the government. Policy can be decided by the government. The implementation is the autonomous responsibility of government institutions. For example, the Election Commission, or EC. People [who head it] are appointed by the government. The EC is not accountable to the home ministry. Conducting of elections is the duty of the EC.
When we talk about institutions, [we must] distinguish between the layers. One is institutions of the state, they differ from the government. It is open to all to enter the civil services or the judiciary. With this structural paradigm in place, we are very fortunate that our institutions of the state are responsible, accountable and are really responsive to the law and to rights. That is the greatest strength of India.
On big issues, we did very well. On delivery issues, which are controlled by ministries, we have done very badly. The main institutional private-public dichotomy is where ministerial decisions [are taken] or administrative autonomy is not there. It is all in the hands of whoever happens to be the minister. If you take the Food Corporation of India, who decides who should be the chairperson? [The Food Minister]
On financial sector institutions: What you are regulating is delivery of service by others. There are trade-offs. It is a complex issue. People go by trust. The regulator's job is to ensure public interest is protected.
Fortunately for us, over a period of time conventions have developed ensuring a harmonious relationship between the different organs. Through the finance ministry, all regulatory organs are accountable to Parliament.
In all democracies, the government has the responsibility. Fortunately, over a period of time, I can say from my experience, the relationship is very good. There may be differences from time to time, but they are resolved. This is a positive thing about India. Having worked with a large number of ministers, [I can say] that when there is a national issue of importance, the government rises to the occasion.
On current challenges: The problem essentially has emerged in the last 20 years. We have passed the antidefection law. It says if you have been elected on a party ticket, you cannot defect. It was a good thing in those days. [But] see the unintended consequences. We have generated a situation where we cannot have a government without coalitions. [There are] parties with five or six members [in the government]. There is no collective responsibility. You have given an incentive for fragmentation. It is one of the worst things that could have happened. We have substituted British imperialism with the imperialism of ministers.
We have to give great importance to two priorities. One, Central ministers will [continue to] decide policy, will bring about macroeconomic growth along with stability. They will appoint executives, but there has to be a clear division of responsibility between policy makers and implementers. Every decision should be subject to the Right to Information Act.
On change: It can only happen if you make some political reforms. You make anti-defection law applicable to all parties that join the government. If they defect, they go for elections.