THE SIZE OF GOVERNMENT IN INDIA

 The underlying cause of most problems in India is big government and the excessive reliance on the government to solve problems. This dependence allows people to shift responsibility from themselves to the government. A vicious cycle is thus created. Big government creates dependence, which reduces personal responsibility resulting in indiscipline, which then allows the government to get bigger by passing more laws and regulations, which then creates further dependence. And with each cycle, the government keeps getting bigger.

A society in which citizens lack the discipline to respect the rights of others will never prosper. And citizens will never understand the concept of rights as long as the big hand of government controls those rights.

In these blogs, then, I ask a fundamental question: What is the role of a government in the functioning of a nation, and how big should a government be?

I use the word ‘government’ to refer to the institution of government and not to point fingers at any particular government or a political party. I believe very strongly that the role of the government should be limited to protecting the lives, property, and rights of its citizens. Thus the only laws and regulations required should focus on ensuring that people don’t trample the rights of others. Using a sports metaphor, the role of the government should be that of an umpire and not a player.

The history of government in India:

Indians have a deep-rooted romance with their government. People believe passionately that the government exists to solve their problems. It is hard to imagine life in India without the government running things, so trying to convince people that shrinking the size of government can solve a lot of the country’s problems is an incredibly difficult task.

Many will initially repudiate any suggestions on reducing the size of the government because they will find it incredulous that it is possible to make things better by shrinking the institution that runs most things in the country. I realize that some of you might roll your eyes when first confronted with the idea of a small and limited government. You may think I am some right wing neocon anarchist, but I can assure you that I am anything but that.

My analysis of India’s problems is the result of thirty years of careful study of global economies. Also, what I am suggesting is a shrinking of the government–a reduction in the government’s involvement in social and economic issues–and not its elimination.

It is hard to refute evidence and logic. I hope to use both to convince you that the discipline required to make India great will emerge when its citizens take responsibility for their lives and not rely on the government to provide all the answers.

India’s history of big government.

India’s problem of big government is best illustrated by the ‘fight’ against poverty. Since the country’s independence in 1947, a plethora of plans has been put forth by different governments to eliminate poverty. But in the forty-three years from 1947 to 1990, poverty levels stayed stubbornly above 45%. Thousands of crores have been wasted on plans that once seemed intelligent to their well-meaning proponents but in the end never produced the desired results. Despite the overwhelming evidence of their failure, there was little acceptance of the fact that the biggest thing keeping the poor from getting out of poverty were the government programs that were enacted in the name of removing poverty but instead caused more poverty.

But something changed in 1991. A series of economic reforms were initiated that dramatically altered the economic landscape. Surprisingly, these reforms were not more elaborate government programs, but instead, for the first time in Indian history, a plan to reduce the government’s involvement in the economy. The reforms were a series of steps that liberalized and opened the economy, reduced regulatory burden on businesses, and created an atmosphere of entrepreneurship, risk-taking and wealth creation.

 For the first time in the country’s history, the free market was allowed to work its magic.

In the twenty-five years since this liberalization, the poverty rate has dropped from 45% to 12%, real per capita income and personal consumption have increased more than five hundred percent, and standards of living have improved dramatically within just one generation. India went from being a third world country to a leading emerging market. GDP growth which had averaged a meager 3.2% in the 43 years from 1947 to 1990 more than doubled to 6.8% in the 25 years since the introduction of free market economics.

The debate is over now. And free markets won. The poverty rate was cut by 75% just by getting the government out of the way and not as a consequence of fancy government plans concocted by a central planning body.

India learned its lesson that poverty could only be eliminated by growing the economy and creating wealth and not by government programs and handouts. And for the first time, its people started to understand that economic growth comes NOT from the government but from the creativity, ingenuity and hard work of millions of people who use their skill to produce goods and services and then exchange them for the goods and services produced by the skill of others.

It is the invisible hand of the free market that creates economic growth, and the best policy a government can adopt is to get out and stay out of the way.By definition, the government is a net consumer of resources and not a net producer because it runs on money collected from taxing productive resources. The bigger the government, the more resources it consumes, and the more it needs to tax those who produce wealth. So ipso facto the smaller a nation’s government, the lower the tax burden on productive resources and greater that nation’s prosperity.

Ask yourself the following questions:

1)Which institution is the primary source of corruption in the country?

Answer: the government. Most of the corruption happens in transactions which involve someone from the government–police, politicians, bureaucrats, public works officials, etc. There is never need to bribe anyone in private transactions because they are conducted on a voluntary basis with no coercion. Did you ever need to pay a bribe at your local grocery store or the last time you bought something online? Unlikely, because you engaged in a voluntary transaction in which both you and the seller benefited from the exchange. But things are different when the government is involved because almost everything the government does involves power and coercion and it is the asymmetry in authority that creates opportunities for corruption.

Corruption and big government go hand in hand; they feed off each other. So, there is only one way to reduce corruption in India: shrink the size of government. You can talk all you want about stricter laws and enforcement, but the surest way to reduce corruption in India is to reduce the power of the state by reducing its size. ( I discuss how in a later blog )

2)Which institution is responsible for much of the abuse, fraud, and waste in the country?

Answer: the government. A private company would never waste its money, but those in government have no compunction because the money doesn’t belong to them. The government in Delhi has reportedly spent over Rs. 400 crores of taxpayer money to promote itself and its accomplishments over the last year. If they had done such great work it would be obvious and shouldn’t require promotion. The present Central government has spent more than Rs 1,100 crore in two and a half years (from June 1, 2014, to August 31, 2016) on advertisements, according to information provided by the Union Information and Broadcasting Ministry.

Would they spend this money if it were their own? Clearly not.

Currently, there are more than 950 government sponsored schemes in India accounting for about 5.2 percent of the GDP by budget allocation. The government’s own estimates show that in just the two largest subsidy programs, PDS and MNREGA, as much as 40% and 65% of the funds respectively do not get to the people who most need it. Even if the average misallocation in government programs is 30% the total value of the abuse, fraud, and waste is almost Rs. 2.1 lakh crores.

India is still a developing country not because of its people, but because of the waste and fraud of its government.

3) Members of which institution regularly abuse their power?

Answer: the government. Just recently, a Member of Parliament physically assaulted an airline employee in front of hundreds of people. In most other countries the perpetrator of such a crime would be arrested immediately irrespective of his position, but in India, the police did not even file a FIR against him. It was only private agencies like the Pilot’s Association that put up a fight for justice but got no support from any branch of the government. And this behavior is not an aberration, but the norm. It is rare to see politicians or members of the government being arrested for abuse or corruption even though many are openly known to be unethical and corrupt. Corrupt officials are untouchable when in power and even when they are out of power their transgressions are rarely punished because they have an ‘arrangement’ with the government in power to turn a blind eye.

4) Which institution provides the worst service to its customers?

Answer: the government. Most Indians have come to expect poor service from government agencies. Sometimes the poor service is due to incompetence, but often it is a deliberate attempt to use this authority to extract a bribe. Unfortunately, the government has a monopoly on the provision of most public services and private citizens do not have the choice to decline government services, operations or activities and shop elsewhere.

5)Which institution in India has the highest number of millionaires ( crorepatis) per capita?

Answer: the government. The vast majority, almost 80%, of the politicians are crorepatis in a country where less than 0.003% of the population are crorepatis. This discrepancy is damning evidence of the insidious cancer of big government. And these statistics are based on ‘declared’ assets and not actual assets and so are very likely biased downwards. In reality, probably more than 90% of the politicians would be multimillionaires in a country where eighty-five percent of the people struggle to make less that Rs. 10,000 per month. No other institution pays better than politics and government.

The size of government in India:

Much of India’s problems stem from the institution of government. Governments in India have always been large and powerful. The current central government, for example, has 51 ministries with over 75 ministers and ministers of state

Number of Central Ministries in different countries

India has the highest number of Ministries of any country in the world. It has more than twice the number of Ministries as the other BRICS countries and almost four times as many as other developed countries like USA, France, Germany, Sweden, etc. Even African countries like Nigeria and Ghana, which are known for their big bloated governments, have half as many Ministries as India.

Click here to see the complete list of Ministries in India.

Here is an example of the absurdity of big government in India. The central government has a Minister for Industries, AND a separate Minister for Heavy Industry, AND a separate Minister for Micro, Small & Medium Industry, AND different Ministers EACH for the Coal, Steel, Food Processing, Electronic, Renewable Energy, Petroleum and Chemicals and Fertilizer industries.

Essentially, there are 10 Ministries overseeing Industrial Production in India. In comparison, the USA has only one Ministry of Commerce to perform that function.  One would think that with so many Ministries, India would be an industrial powerhouse. The evidence indicates just the opposite. With one Ministry the US has an annual industrial production of $ 3.4 trillion which is six times the $ 580 billion for India.

Adding more ministers and bureaucrats are counterproductive for the reason that the only way they show their relevance is by adding new regulations. But what Industry needs to prosper is not more but less regulation.

In addition to the central government in India, each of the 29 state governments has on average about 45 ministers. Each of them also has a Minister of Industry AND Minster of Heavy Industries AND Minister of Small Industry. And these Ministries have a bevy of bureaucrats, secretaries, and hundreds of support staff.

How much does all this cost the taxpayers? Almost 20% of the national budget is spent on supporting the government machinery. India is not a poor country because of its people. It is a poor country because it is weighed down by a big bloated government that sucks up huge amounts of money for its maintenance.

If both the central and state governments were to reduce the number of ministries by half ( to say 20) it would release enough funds to double public expenditure on both education and health. The choice cannot be clearer: better health and education for the people or more ministers and bureaucrats most of whom don’t add much value and are there simply to enrich themselves and create a more regulatory environment.

So if you still think that the government is the solution to our problems then you have either bought into the falsehood that ‘we the people’ are idiots and need the ‘wise’ folks in government to shepherd us around or, you are ignoring facts and are not ready to face the uncomfortable truth thatTHE GOVERNMENT IS NOT THE SOLUTION TO OUR PROBLEMS– THE GOVERNMENT IS THE PROBLEM

Remember your childhood; growing up without fear of walking around at night, schools that provided real education without need for expensive supplementary tuition, a bearable tax load that left enough money for family vacations, no coercive or retroactive tax terrorism, clean streets and parks, no pollution, and lakes and rivers you could swim in.

Now ask yourselves–If the government were truly an effective institution wouldn’t these things have gotten better over time? The truth is that after 70 years of big government things have gotten worse.

With all the various Ministries, one would think India would be among the top ranked countries in global welfare rankings–after all, these Ministries cost a lot of taxpayer money. But again the facts show just the opposite: India ranks in the bottom decile on almost all global welfare rankings, whether it be standard of living, access to healthcare, ease of doing business, happiness, equality and so on. For example, India has a Ministry of Women Affairs yet ranks 87th out of 140 countries in global gender gap rankings. Apropos that none of the top 10 countries in this ranking has a Ministry of Women Affairs. Clearly, a Ministry is not a prerequisite to addressing women’s concerns–given the evidence it might be a hindrance.

The UK-based Legatum Institute publishes an index which ranks countries by governance. India with its 51 Ministries is ranked 47th on that Index.The average number of Ministries in the top 25 Best Governments in the World is sixteen. The Legatum Index also shows that countries ranked as having the best and smallest governments in the world also receive higher rankings for other lists such as Most Prosperous Countries of the World, the World’s Happiest People, the Most Globally Competitive Countries, the World’s Most Satisfied People, and so on.

The evidence is irrefutable. There is a strong inverse relationship between the size of government, and the quality of governance and the nation’s prosperity. The bigger the government, the worse the governance and lower the level of prosperity in the country.

Thomas Jefferson rightly said,” Most bad government has grown out of big government.”