Learn the right lesson from FDA and FAA actions
Given the renewed emphasis on controlling the fiscal deficit, it is tempting to think India’s government is way too large. That, however, is a fallacy since, if the government looks too large, it is only in relation to its ability to garner revenues—were GST to be introduced and tax revenues rise by another couple of percentage points of GDP, the size of government could rise by that much without causing a problem in terms of a higher fiscal deficit. Indeed, if you look at the size of government—in terms of what it spends as a proportion of GDP—the Indian one is quite modest. The World Bank’s World Development Indicators, for instance, points out that government spending as a proportion of GDP was 28.9% for world in 2011—25.2% for the US and 43.7% for the UK—as compared to just 15.3% for India.
Needless to say, the size of government-spending—on social security, for instance—has to be related to the capacity to tax. But what’s also required is a minimum size of government for it to be effective. Indeed, the spate of recent setbacks due to foreign regulators—various Indian pharmaceuticals firms finding their plants being put on the US FDA blacklist or the downgrading of Indian aviation safety by the US FAA—is testimony to this. Take the US FDA. It has over 10,000 employees versus the Indian drug regulator’s 1,500 or so inspectors to oversee 10,500 manufacturing sites and several lakh chemist outlets. If anywhere between 25% and 40% of Indian medicines are reckoned to be spurious, the exceptionally low number of drug inspectors has to be a big reason. Or take Sebi which is often pilloried when compared to the US SEC whose track record in prosecuting fraudsters is unparalleled—apart from the vastly superior funding, SEC has 4,000 employees versus Sebi’s 600. Similarly, when it comes to law and order, or medical personnel, there is little doubt that India is understaffed.
Indeed, rightsizing is also required if India hopes to be able to collect more taxes. Which is why, in May last year, when the Cabinet approved the cadre restructuring of the Central Board of Direct Taxes (CBDT), the selling proposition was a net additional revenue of R25,756 crore in that year compared to an expenditure of R450 crore in creating 20,751 additional posts. In the Central Board of Excise and Customs, a similar justification was given for creating an additional 18,067 posts to take the department's strength to 84,875. Right-sizing government, though, has to be accompanied by the right type of government—merely increasing the number of employees is of little use. India’s head-to-tail ratio, for instance, is all wrong with just 3% of the government workforce being in Group A versus 89% in Group C and D.