For Modi govt’s ill-thought-out policies, civil servants haven’t been blamed enough

Illustration for representation | ThePrint

Ministers in the Narendra Modi government naturally face the blame for bad policy decisions, as they are the ones approving them. But there’s another group that conveniently escapes rightful blame despite mooting those ill-thought-out policies in the first place: bureaucrats.

Under the Modi government, there have been numerous instances of economic ideas being mooted, approved, and then quickly withdrawn or left in limbo. In many cases, it came down to the nitty-gritty of implementation, which is the realm of the bureaucrat.

Modi’s ‘Minimum Government, Maximum Governance’ slogan was meant to reduce bureaucratic discretion. Unfortunately, the reality has been the opposite. The bureaucracy is back in control—and how. This is increasingly evident from the decisions being made.

Bureaucratic shortsightedness

In 2015, the government announced the Sovereign Gold Bond (SGB) scheme. The idea was to reduce India’s gold physical imports while also providing the government with a cheaper source of borrowing. The bureaucrats in charge of the finance ministry thought it would be a good idea to bet on the future price of gold while also paying interest to gold bond holders.

Then they had the brainwave of making gold bonds even more attractive by hiking the import duty on physical gold. What all of this meant was that imports remained high because buying gold is a sort of cultural fixation for many Indians, while the government’s liabilities on these bonds soared.

The scheme’s design had all the hallmarks of bureaucratic shortsightedness. Eventually, by 2024-25, the government decided these bonds were too expensive and stopped issuing them.

In another example, in 2019, Finance Minister Nirmala Sitharaman, in her first budget speech, announced a radical idea—a foreign currency-denominated sovereign bond. She proposed that the government would take on some of its borrowing in foreign currency bonds. The backlash was immediate and brutal, with both Modi supporters and critics jumping down the government’s throat.

Soon after, the Prime Minister’s Office called for a review, and the idea quietly died. The way things have unfolded since then has only reinforced why borrowing in foreign currencies is a bad idea.

The rupee-dollar exchange rate in 2019 was around Rs 72 per dollar. It is currently Rs 86.78. This means every dollar borrowed would have required a lot more rupees to repay.

Bureaucrat chokehold, bungled GST

For those of us reporting on the finance ministry at the time, it was clear that the sovereign overseas bond decision was driven by bureaucrats in the ministry. At least one of them was later punished with an undesirable posting.

Sitharaman had just taken over the ministry and wasn’t deeply involved in every decision during her first budget—which remains her second-longest by duration. Things have, of course, changed since then, with seven more budgets under her belt. But at the time, bureaucrats ruled the roost in the finance ministry.

Then there is the bureaucratic chokehold over the Goods and Services Tax (GST) system. Even with all its complications, GST is still preferable to the pre-GST regime. However, many of these complications exist because of officials in the Central Board of Indirect Taxes and Customs.

Take the absolute chaos surrounding GST on food items. The latest controversy? Whether a donut should be taxed at 18 percent or 5 percent—a question that went all the way to the Bombay High Court.

Only a bureaucrat could devise a tax ambiguity so convoluted that thousands of crores hang in the balance, requiring the second-highest court in the land to step in.

While Arun Jaitley and Narendra Modi overcame the political hurdles to make GST a reality, its implementation was left to bureaucrats—and they bungled it. GST can’t and shouldn’t be undone, but hopefully, those currently reviewing the system have a less nitpicky mindset.

Capitulation to civil servants

Yet another example of a policy overshadowed by backlash was the July 2024 decision to remove the indexation benefit on capital gains from real estate sales. Following major blowback from both supporters and critics, Sitharaman announced that indexation would still apply to properties purchased before 2001. Soon after, the government rolled back the announcement entirely.

With technical changes like this, it’s natural for the minister to rely on bureaucrats to get the details right. While the buck stops with her, it passes through several hands that also deserve blame.

And it’s not just the finance ministry where officials have dropped the ball. For example, recall the IT and commerce ministries’ disastrous and thankfully short-lived idea in 2023—restricting laptop and electronics imports unless they came from licensed companies.

This was the third time both supporters and critics of the Modi government joined hands to lambast a policy. There are surely many more bureaucratic blunders that have flown below the blame radar, or where ministers have taken all the heat.

From promising to rein in the bureaucracy to appointing bureaucrats to significant Cabinet posts and regulatory roles, the Modi government’s capitulation to civil servants is complete. But if they are going to be given increasing power, they should also face their share of accountability.

TCA Sharad Raghavan is Deputy Editor – Economy at ThePrint. He tweets @SharadRaghavan. Views are personal.

(Edited by Prashant)