Page 208 - ES 2020-21_Volume-1-2 [28-01-21]

Process Reforms: Enabling decision-making under uncertainty 191

Table 5: Petition rate and Success rate of the direct taxes (in per cent)

Court/ Tribunal Petition rate Success Rate

Supreme Court 87 27
High Court 83 13

ITAT 88* 27
Source: Economic Survey 2017-18 calculations
Note: *Provisonal Estimates

SOLVING FOR DISCRETION

6.26 From the above discussion, it should be clear that there is no substitute for active supervision
and discretion. Specifically, ex-ante regulation cannot substitute for ex-post supervision; in fact,
more ex-ante regulation only serves to dilute the quality of ex-post supervision by fostering
opaque discretion. So, how can supervisors be kept accountable while giving them discretion?
We explore three possible ways:

(a) Strengthen ex-ante accountability

6.27 The property rights literature based on incomplete contracts argues for the strengthening of
governance in institutions by vesting more power in boards and then holding them accountable
ex-ante. Instead of relying too much on ex-post audits, which anyway suffer from hindsight bias,
ex-ante accountability needs to be entrusted with the boards of institutions. In most common
law countries, there is a case law derived doctrine of Buisness Judgment Rule. The rule states
that boards are presumed to act in good faith and protects companies from frivolous lawsuits by
assuming that, unless proved otherwise, management is acting in the interests of shareholders.
It exists in India as well, however not exactly codified in the same language. But there is a great
deal of apprehension that it is not taken into account in audits and post-facto investigations.
(b) Bring transparency in the decision-making process

6.28 The second way towards effective supervision is to incorporate transparency into the
decision-making process. Transparency, apart from having intrinsic value, is appreciated because
it promotes trust in public institutions and makes market efficient. The discretion in the system
needs to be balanced with the transparency in decision making.

6.29 The benefits of transparency can be seen from the recent reform in public procurement.
The Government in 2016 had set up a dedicated e-market known as Government e Marketplace
(GeM) for different goods & services procured or sold by Government/PSUs. Anecdotal
evidence suggests that prior to GeM, government procurement prices were much higher than the
prices prevailing in the market and there were constant complaints about inefficiency and rent
seeking. As the GeM website mentions, use of this e-marketplace has resulted in a substantial
reduction in prices in comparison to the tender, rate contract and direct purchase rates that were
used previously. The average prices on GeM are lower by atleast 15-20 per cent than previously,
and in some cases even upto 56 per cent.