Why Governments Must Not Turn To Global Consulting Agencies For Advice

Relevance: GS2 - Government policies and interventions for development in various sectors and issues arising out of their design and implementation.

(Source: The Hindu, 08/02/2023)

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Why in the news?

• This article discusses the trend of countries relying on global consultation agencies for advice regarding achieving targets or implementing programmes and the potential consequences for national interests and effective governance.
• Outsourcing of government consulting to global firms has become a prevalent trend in India and the world.

Are governments turning away from global consulting firms?

• In 2016, Germany established a public sector consulting firm.
• Australian government agencies are reviewing contracts with PwC after a controversy over the firm’s activities in the country.
• China has accused multinational consulting firms of indulging in corporate espionage on behalf of their non-Chinese clients and has imposed restrictions on them.
• In 2017, the government of Denmark concluded that its ability to govern had been adversely affected by the transfer of responsibility for its public sector IT to outside agencies.
  • Consequently, it established an in-house public sector body.

How did they emerge?

• The “new public management” (NPM) school of thought has dominated governance and policymaking since the late 1980s.
• It legitimized the presence of global consulting firms by prioritizing values such as “efficiency”, “market competition” and “business-like models”.
• The bureaucratic red tape and Weberian rules-based system were thought to be incapable of efficiency.
• In India, the consultancy model was further legitimized by features of India’s governance such as weak state capacity, corruption, and the technical expertise demanded by the increasingly complex policy environment.
• Therefore, the specialist consultant became a necessary complement to the generalist bureaucrat.
• As a result “outsourcing” became a legitimate option.

What are the concerns associated with governments relying on global consulting agencies?

Flawed outsourcing trends in India

• Human resources development in India suffers from a lack of independent rule-making, trend identification, and policy execution.
• Public sector units and government departments have become increasingly reliant on global consulting firms.
• Qualifying conditions set by public sector and government departments such as a very high annual turnover threshold, a high number of full-time employees, and a large number of offices in India and outside India make it nearly impossible for local Indian companies to qualify.
• Such conditions could lead to a threat of detrimental outcomes for the nation.

Global consulting firms: a double-edged sword

• Although global consulting firms offer advantages such as expertise, influence, and advice, this can be impaired by a lack of neutrality and accountability.
• India does not have any regulations that compel firms to disclose their affiliations and clients.
• As a result, reports prepared by such firms are sometimes cut and pasted from previous reports, which undermines their value.

Lack of accountability and conflict of interest

• The government officials who are responsible for hiring such firms are not generally held accountable for any flawed advice or negative consequences that may be provided by the firms.
• Other potential conflicts of interest occur when consultancies influence policies to benefit their private sector clients.
• Increased reliance on external consulting firms leads to the establishment of a parallel new bureaucracy made up of non-state, private employees.

The unmeasured cost of outsourcing

• The financial and strategic costs of outsourcing government consulting are often underestimated.
• Governments opt to employ global consulting firms on large and expensive contracts instead of building internal capacity and improving processes.
• This can lead to missed opportunities and ineffective policy implementation as the bureaucracy is not trained to handle such projects.

Siloed functioning

• It cannot be stated that consultancies are incapable of giving good advice to the government.
• However, senior functionaries in the administration often work in their respective silos, as a result of which they are unable to extract the full value from the contracted engagement.
• This results in deployed personnel being used as glorified assistants or to prepare technical presentations, which is a form of underemployment.

Demotivation of officials

• Consultants doing the job of the State reduces the state’s responsibilities towards its citizens.
• When the government “outsources” even its routine functions, in the name of efficiency, it disincentivizes the State from focusing on the true problem of skilling i.e recruitment and training.
• This can create a culture of disenchantment and demotivation in which the system believes the “consultant” is more capable of delivering core public goods than the State.
• This is a vicious cycle that could lead to the hollowing out of the state.

Examples of global consulting firms being employed by the government

• The Union Ministry of Agriculture and Farmer Welfare is using the World Economic Forum to design the digitalization of the agricultural landscape using AGRISTACK.
• The Union Ministry of Agriculture and Farmer Welfare has used Grant Thornton to develop 10,000 Farmer Producer Organisations but the programme is failing.
• Punjab has hired the Boston Consulting Group to diversify agriculture while ignoring the state-level expertise.
• Similarly, the previous government of Punjab had engaged J-PAL to reduce groundwater withdrawal.
• The Uttar Pradesh government has hired Deloitte to develop a roadmap to develop the state’s economy into a trillion-dollar economy within five years (growth of over 30% per annum).
• Philanthropists and donor organizations like the Bill and Melinda Gates Foundation have been accused of influencing policy and contributing resources with a pre-defined agenda.

What needs to be done?

• It is necessary to develop a shift in mindset i.e. the government should be viewed as a value creator rather than an inefficient extractor.
  • A sustainable solution is to build capacities in government organizations supported by local firms using local ideas.
• To ensure accountability and transparency, senior civil servants should disclose any family members employed by multinational advisory firms annually.
  • Such information should be made public if these firms are being considered for engagement by their departments.
• High-value consulting contracts must be audited by the Comptroller and Auditor General (CAG) or other appropriate agencies to assess their outcomes.
• The Niti Aayog must become the flagbearer of such an approach and encourage governments and public sector agencies to contract indigenous expertise.

Conclusion

• The trend of outsourcing government consulting to global firms in India raises significant concerns about accountability, neutrality, and long-term policy impact.
• They can play a legitimate role in a democracy by contributing ideas, innovation, evidence, and expertise to policy-making, especially in the 21st century.
• However, the consultant is only effective in a capable State, therefore the state should focus on building internal capabilities and involving local firms to ensure more effective governance and policy implementation, which could safeguard the nation's interests.

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FAQs

MCQs

Question: Consider the following statements:

1. Aadhaar metadata cannot be stored for more than three months.
2. The state cannot enter into any contract with private corporations for sharing of Aadhaar data.
3. Aadhaar is mandatory for obtaining insurance products.
4. Aadhaar is mandatory for getting benefits funded out of the Consolidated Fund of India.

Which of the statements given above is/are correct? (UPSC CSE 2019)

(a) 1 and 4 only

(b) 2 and 4 only

(c) 3 only

(d) 1, 2 and 3