The eBay Republic of India

An important feature of, and the reason for, the success of the post 1990 economic policy was the broad political consensus underlying it. Despite opposition from a few political parties successive governments followed the nature and direction of economic reforms.

Now, not only has the consensus been decisively disrupted, but the manner in which the debates are being conducted—be it on the allocation of resources or the foreign direct investment in retail—suggest that we are heading for a pretty anarchic and absurd economic policy formulations.

Notwithstanding the results of the recent auction of the revoked 2G licenses, Auctionomics could soon become the national economic policy of India. With every other form of allocation and allotment—be it allocation of spectrum or allotment of mines—having been assessed to have caused national losses of staggering proportion, this is the only way out.

And this will no longer be about natural resources alone. As and when the government decides to divest its stake in companies, the same issue will crop up. If, for instance, after a public offering under a government divestment programme, the markets gain momentum, all hell will break loose on how the family jewels were sold at a pittance and how much these could have fetched had they been sold in the right market at the right moment. If private institutions make the mistake of buying into these government companies, estimates of how much the country lost and private companies gained will come from every nook and cranny.

With auctions emerging as the new found panacea for all economic ills—from corruption to inadequate resource mobilization—it may be necessary to effect some enabling statutory changes in the executive as well as policymaking structure. Institutionally speaking, it is imperative to have a formal exclusive alliance with an auction site: eBay Inc. being the market leader, is the natural choice. In the spirit of making India the first auction republic in the world, the preamble of the Constitution of India, will have to be suitably amended as follows:

We, the people of India, having solemnly resolved to constitute India into a sovereign auction republic and to secure, through auctions, to all its citizens: justice, social, economic and political; liberty, of thought, expression, belief, faith and worship; equality, of status and of opportunity.

Once it is enshrined as a principle in the Constitution, it becomes imperative that the leadership of the country and its executive are selected on the basis of the same principle.

So, come 2014, the president of India (we are lucky to have a former finance minister who understands auctions as the president) should put under the hammer the 545 Lok Sabha seats. The highest bidder for the seat will be declared elected to the Lok Sabha.

This can be done in two ways; one is that parties can put up candidates and bidders will bid for them to be selected for the Lok Sabha. This may seem absurd but it is not vastly different from what is actually happening today. Electoral funding and contributions by companies may not be seat-based but is similar in selection and eventually election.

Alternatively, bidders can just bid for a particular Lok Sabha seat and put whosoever they want, subject to the fit and proper criteria carried out by the Election Commission of India. It is quite possible that an unintentional consequence will be that the country will have better educated parliamentarians/legislators and the proportion of lawmakers with criminal records may actually come down.

Ideally, the first option should be a transitional arrangement and once the system of auctioning is perfected, the second auction can be put in place. This system will make it completely impersonal.

Of course, these are bare skeletal details, and a lot of detailed work will have to be done. For instance, a proper regulatory structure has to be made whether one can bid for more than one seat. How, for instance, will the reserve price be fixed for each seat. Will it vary according to the profile of the constituency? For instance, can south Mumbai be priced at the same level as the north Bhiwandi or not?

There are plenty of questions. What are the premia to be charged for developed constituencies vis-a-vis the underdeveloped ones? Or the profile of the constituency. What happens if a particular constituency doesn’t get the reserve price bid? Can the owner of a seat change the incumbent midway into the life of Parliament?

Taking the logic further, in stage 2, bidding should happen for the council of ministers; and from there, we should put on the block the post of the prime minister. All this will ensure a very transparent political system.

PS: Paul Milgrom who has done fundamental work on the theory and practice of auctions should be the natural choice for the post of the chief auction adviser which can replace the position of the chief economic adviser.

Haseeb A. Drabu is an economist, and writes on monetary and macroeconomic matters from the perspective of policy and practice. To read Haseeb A. Drabu’s earlier columns,go to www.livemint.com/methodandmanner-