CONSTITUTION AND CIVIL SERVICES

The Constitution and Civil Services- Part X
While the whole of the Constitution has a bearing, directly or indirectly, on the Civil Service and civil servants in India, Part XIV of the Constitution relates to it most intimately. Unlike many other institutions, like the Planning Commission, the Central Bureau of Investigation (CBI), the Central Vigilance Commission (CVC), the civil service is an institution mandated by the Constitution. While of course it is a successor of the erstwhile Indian Civil Service (ICS) of British India, borrowing not only its procedure, the civil and criminal codes (IPC, CrPC, CPC, etc), hierarchy, philosophy, but even the personnel, the Civil Service of independent India is legally a creation of our Constitution. This is done via Part XIV of the Constitution, which creates the All India Services (AIS), the Central (civil) Services, and the States Civil Services, among others, and also creates the Union Public Service Commission, the State Public Service Commissions and Joint Public Service Commissions, to recruit them. The Part XIV, thus bears, directly upon all civil servants in India. Part XIV is reproduced here because of its special emphasis.
Part XIV Services Under the Union and the States
Chapter I Services
Article 308 InterpretationIn this Part, unless the context otherwise requires, the expression "State" does not include the State of Jammu and Kashmir.
Article 309 Recruitment and conditions of service of persons serving the Union or a StateSubject to the provisions of this Constitution. Acts of the appropriate Legislature may regulate the recruitment, and conditions of service of persons appointed, to public services and posts in connection with the affairs of the Union or of any State:Provided that it shall be competent for the President or such person as he may direct in the case of services and posts in connection with the affairs of the Union, and for the Governor of a State or such person as he may direct in the case of services and posts in connection with the affairs of the State, to make rules regulating the recruitment, and the conditions of service of persons appointed, to such services and posts until provision in that behalf is made by or under an Act of the appropriate Legislature under this article, and any rules so made shall have effect subject to the provisions of any such Act.
Article 310 Tenure of office of persons serving the Union or a State(1) Except as expressly provided by this Constitution, every person who is a member of a defence service or of a civil service of the Union or of an all-India service or holds any post connected with defence or any civil post under the Union holds office during the pleasure of the President, and every person who is a member of a civil service of a State or holds any civil post under a State holds office during the pleasure of the Governor of the State.(2) Notwithstanding that a person holding a civil post under the Union or a State holds office during the pleasure of the President or, as the case may be, of the Governor of the State, any contract under which a person, not being a member of a defence service or of an all-India service or of a civil service of the Union or a State, is appointed under this Constitution to hold such a post may, if the President or the Governor, as the case may be, deems it necessary in order to secure the services of a person having special qualifications, provide for the payment to him of compensation, if before the expiration of an agreed period that post is abolished or he is, for reasons not connected with any misconduct on his part, required to vacate that post.
Article 311 Dismissal, removal or reduction in rank of persons employed in civil capacities under the Union or a State(1) No person who is a member of a civil service of the Union or an all-India service or a civil service of a State or holds a civil post under the Union or a State shall be dismissed or removed by an authority subordinate to that by which he was appointed.(2) No such person as aforesaid shall be dismissed or removed or reduced in rank except after an inquiry in which he has been informed of the charges against him and given a reasonable opportunity of being heard in respect of those charges:Provided that where it is proposed after such inquiry, to impose upon him any such penalty, such penalty may be imposed on the basis of the evidence adduced during such inquiry and it shall not be necessary to give such person any opportunity of making representation on the penalty proposed:Provided further that this clause shall not apply -(a) where a person is dismissed or removed or reduced in rank on the ground of conduct which has led to his conviction of a criminal charge; or(b) where the authority empowered to dismiss or remove a person or to reduce him in rank is satisfied that for some reason, to be recorded by that authority in writing, it is not reasonably practicable to hold such inquiry; or(c) where the President or the Governor, as the case may be, is satisfied that in the interest of the security of the State it is not expedient to hold such inquiry.(3) If, in respect of any such person as aforesaid, a question arises whether it is reasonably practicable to hold such inquiry as is referred to in clause (2), the decision thereon of the authority empowered to dismiss or remove such person or to reduce him in rank shall be final.
Article 312 All-India services(1) Notwithstanding anything in Chapter VI of Part VI or Part XI, if the Council of States has declared by resolution supported by not less than two-thirds of the members present and voting that it is necessary or expedient in the national interest so to do, Parliament may by law provide for the creation of one or more all-India services (including an all-India judicial service) common to the Union and the States, and, subject to the other provisions of this Chapter, regulate the recruitment, and the conditions of service of persons appointed, to any such service.(2) The services known at the commencement of this Constitution as the Indian Administrative Service and the Indian Police Service shall be deemed to be services created by Parliament under this article.(3) The all-India judicial service referred to in clause (1) shall not include any post inferior to that of a district judge as defined in article 236.(4) The law providing for the creation of the all-India judicial service aforesaid may contain such provisions for the amendment of Chapter VI of Part VI as may be necessary for giving effect to the provisions of that law and no such law shall be deemed to be an amendment of this Constitution for the purposes of article 368.
Article 312A Power of Parliament to vary or revoke conditions of service of officers of certain services(1) Parliament may by law -(a) vary or revoke, whether prospectively or retrospectively, the conditions of service as respects remuneration, leave and pension and the rights as respects disciplinary matters of persons who, having been appointed by the Secretary of State or Secretary of State in Council to a civil service of the Crown in India before the commencement of this Constitution, continue on and after the commencement of the Constitution (Twenty-eighth Amendment) Act, 1972, to serve under the Government of India or of a State in any service or post;(b) vary or revoke, whether prospectively or retrospectively, the conditions of service as respects pension of persons who, having been appointed by the Secretary of State or Secretary of State in Council to a civil service of the Crown in India before the commencement of this Constitution, retired or otherwise ceased to be in service at any time before the commencement of the Constitution (Twenty-eighth Amendment) Act, 1972:Provided that in the case of any such person who is holding or has held the office of the Chief Justice or other Judge of the Supreme Court or a High Court, the Comptroller and Auditor-General of India, the Chairman or other member of the Union or a State Public Service Commission or the Chief Election Commissioner, nothing in sub-clause (a) or sub-clause (b) shall be construed as empowering Parliament to vary or revoke, after his appointment to such post, the conditions of his service to his disadvantage except in so far as such conditions of service are applicable to him by reason of his being a person appointed by the Secretary of State or Secretary of State in Council to a civil service of the Crown in India.(2) Except to the extent provided for by Parliament by law under this article, nothing in this article shall affect the power of any legislature or other authority under any other provision of this Constitution to regulate the conditions of service of persons referred to in clause (1).(3) Neither the Supreme Court nor any other court shall have jurisdiction in -(a) any dispute arising out of any provision of, or any endorsement on, any covenant, agreement or other similar instrument which was entered into or executed by any person referred to in clause (1), or arising out of any letter issued to such person, in relation to his appointment to any civil service of the Crown in India or his continuance in service under the Government of the Dominion of India or a Province thereof;(b) any dispute in respect of any right, liability or obligation under article 314 as originally enacted.(4) The provisions of this article shall have effect notwithstanding anything in article 314 as originally enacted or in any other provision of this Constitution.
Article 313 Transitional provisionsUntil other provision is made in this behalf under this Constitution, all the laws in force immediately before the commencement of this Constitution and applicable to any public service or any post which continues to exist after the commencement of this Constitution, as an all-India service or as service or post under the Union or a State shall continue in force so far as consistent with the provisions of this Constitution.
Article 314 Provision for protection of existing officers of certain services{...}
Chapter II Public Service Commissions
Article 315 Public Service Commissions for the Union and for the States(1) Subject to the provisions of this article, there shall be a Public Service Commission for the Union and a Public Service Commission for each State.(2) Two or more States may agree that there shall be one Public Service Commission for that group of States, and if a resolution to that effect is passed by the House or, where there are two Houses, by each House of the Legislature of each of those States, Parliament may by law provide for the appointment of a Joint State Public Service Commission (referred to in this Chapter as Joint Commission) to serve the needs of those States.(3) Any such law as aforesaid may contain such incidental and consequential provisions as may be necessary or desirable for giving effect to the purposes of the law.(4) The Public Service Commission for the Union, if requested so to do by the Governor of a State, may, with the approval of the President, agree to serve all or any of the needs of the State.(5) References in this Constitution to the Union Public Service Commission or a State Public Service Commission shall, unless the context otherwise requires, be construed as references to the Commission serving the needs of the Union or, as the case may be, the State as respects the particular matter in question.
Article 316 Appointment and term of office of members(1) The Chairman and other members of a Public Service Commission shall be appointed, in the case of the Union Commission or a Joint Commission, by the President, and in the case of a State Commission, by the Governor of the State: Provided that as nearly as may be one-half of the members of every Public Service Commission shall be persons who at the dates of their respective appointments have held office for at least ten years either under the Government of India or under the Government of a State, and in computing the said period of ten years any period before the commencement of this Constitution during which a person has held office under theCrown in India or under the Government of an Indian State shall be included.(1A) If the office of the Chairman of the Commission becomes vacant or if any such Chairman if by reason of absence or for any other reason unable to perform the duties of his office, those duties shall, until some person appointed under clause (1) to the vacant office has entered on the duties thereof or, as the case may be, until the Chairman has resumed his duties, be performed by such one of the other members of the Commission as the President, in the case of the Union Commission or a Joint Commission, and the Governor of the State in the case of a State Commission, may appoint for the purpose.(2) A member of a Public Service Commission shall hold office for a term of six years from the date on which he enters upon his office or until he attains, in the case of the Union Commission, the age of sixty-five years, and in the case of a State Commission or a Joint Commission, the age of sixty-two years, whichever is earlier: Provided that -(a) a member of a Public Service Commission may, by writing under his hand addressed, in the case of the Union Commission or a Joint Commission, to the President, and in the case of a State Commission, to the Governor of the State, resign his office;(b) a member of a Public Service Commission may be removed from his office in the manner provided in clause (1) or clause (3) of article 317.(3) A person who holds office as a member of a Public Service Commission shall, on the expiration of his term of office, be ineligible for re-appointment to that office.
Article 317 Removal and suspension of a member of a Public Service Commission(1) Subject to the provisions of clause (3), the Chairman or any other member of a Public Service Commission shall only be removed from his office by order of the President on the ground of misbehaviour after the Supreme Court, on reference being made to it by the President, has, on inquiry held in accordance with the procedure prescribed in that behalf under article 145, reported that the Chairman or such other member, as the case may be, ought on any such ground to be removed.(2) The President, in the case of the Union Commission or a Joint Commission, and the Governor in the case of a State Commission, may suspend from office the Chairman or any other member of the Commission in respect of whom a reference has been made to the Supreme Court under clause (1) until the President has passed orders on receipt of the report of the Supreme Court on such reference.(3) Notwithstanding anything in clause (1), the President may by order remove from office the Chairman or any other member of a Public Service Commission if the Chairman or such other member, as the case may be, -(a) is adjudged an insolvent; or(b) engages during his term of office in any paid employment outside the duties of his office; or(c) is, in the opinion of the President, unfit to continue in office by reason of infirmity of mind or body.(4) If the Chairman or any other member of a Public Service Commission is or becomes in any way concerned or interested in any contract or agreement made by or on behalf of the Government of India or the Government of a State or participates in any way in the profit thereof or in any benefit or emolument arising therefrom otherwise than as a member and in common with the other members of an incorporated company, he shall, for the purposes of clause (1), be deemed to be guilty of misbehaviour.
Article 318 Power to make regulations as to conditions of service of members and staff of the CommissionIn the case of the Union Commission or a Joint Commission, the President and, in the case of a State Commission, the Governor of the State may by regulations -(a) determine the number of members of the Commission and their conditions of service; and(b) make provision with respect to the number of members of the staff of the Commission and their conditions of service:Provided that the conditions of service of a member of a Public Service Commission shall not be varied to his disadvantage after his appointment.
Article 319 Prohibition as to the holding of offices by members of Commission on ceasing to be such membersOn ceasing to hold office -(a) the Chairman of the Union Public Service Commission shall be ineligible for further employment either under the Government of India or under the Government of a State;(b) the Chairman of a State Public Service Commission shall be eligible for appointment as the Chairman or any other member of the Union Public Service Commission or as the Chairman of any other State Public Service Commission, but not for any other employment either under the Government of India or under the Government of a State;(c) a member other than the Chairman of the Union Public Service Commission shall be eligible for appointment as the Chairman of the Union Public Service Commission or as the Chairman of a State Public Service Commission, but not for any other employment either under the Government of India or under the Government of a State;(d) a member other than the Chairman of a State Public Service Commission shall be eligible for appointment as the Chairman or any other member of the Union Public Service Commission or as the Chairman of that or any other State Public Service Commission, but not for any other employment either under the Government of India or under the Government of a State.
Article 320 Functions of Public Service Commissions(1) It shall be the duty of the Union and the State Public Service Commissions to conduct examinations for appointment to the services of the Union and the services of the State respectively.(2) It shall also be the duty of the Union Public Service Commission, if requested by any two or more States so to do, to assist those States in framing and operating schemes of joint recruitment for any services for which candidates possessing special qualifications are required.(3) The Union Public Service Commission or the State Public Service Commission, as the case may be, shall be consulted -(a) on all matters relating to methods of recruitment to civil services and for civil posts;(b) on the principles to be followed in making appointments to civil services and posts and in making promotions and transfers from one service to another and on the suitability of candidates for such appointments, promotions or transfers;(c) on all disciplinary matters affecting a person serving under the Government of India or the Government of a State in a civil capacity, including memorials or petitions relating to such matters;(d) on any claim by or in respect of a person who is serving or has served under the Government of India or the Government of a State or under the Crown in India or under the Government of an Indian State, in a civil capacity, that any costs incurred by him in defending legal proceedings instituted against him in respect of acts done or purporting to be done in the execution of his duty should be paid out of the Consolidated Fund of India, or, as the case may be, out of the Consolidated Fund of the State;(e) on any claim for the award of a pension in respect of injuries sustained by a person while serving under the Government of India or the Government of a State or under the Crown in India or under the Government of an Indian State, in a civil capacity, and any question as to the amount of any such award,and it shall be the duty of a Public Service Commission to advise on any matter so referred to them and on any other matter which the President, or, as the case may be, the Governor of the State, may refer to them:Provided that the President as respects the all-India services and also as respects other services and posts in connection with the affairs of the Union, and the Governor, as respects other services and posts in connection with the affairs of a State, may make regulations specifying the matters in which either generally, or in any particular class of case or in any particular circumstances, it shall not be necessary for a Public Service Commission to be consulted.(4) Nothing in clause (3) shall require a Public Service Commission to be consulted as respects the manner in which any provision referred to in clause (4) of article 16 may be made or as respects the manner in which effect may be given to the provisions of article 335.(5) All regulations made under the proviso the clause (3) by the President or the Governor of a State shall be laid for not less than fourteen days before each House of Parliament or the House or each House of the Legislature of the State, as the case may be, as soon as possible after they are made, and shall be subject to such modifications, whether by way of repeal or amendment, as both Houses of Parliament or the House or both Houses of the Legislature of the State may make during the session in which they are so laid.
Article 321 Power to extend functions of Public Service CommissionsAn Act made by Parliament or, as the case may be, the Legislature of a State may provide for the exercise of additional functions by the Union Public Service Commission or the State Public Service Commission as respects the services of the Union or the State and also as respects the services of any local authority or other body corporate constituted by law or of any public institution.
Article 322 Expenses of Public Service CommissionsThe expenses of the Union or a State Public Service Commission, including any salaries, allowances and pensions payable to or in respect of the members or staff of the Commission, shall be charged on the Consolidated Fund of India, as the case may be, the Consolidated Fund of the State.
Article 323 Reports of Public Service Commissions(1) It shall be the duty of the Union Commission to present annually to the President a report as to the work done by the Commission and on receipt of such report the President shall cause a copy thereof together with a memorandum explaining, as respects the cases, if any, where the advice of the Commission was not accepted, the reasons for such non-acceptance to be laid before each House of Parliament.(2) It shall be the duty of a State Commission to present annually to the Governor of the State a report as to the work done by the Commission, and it shall be the duty of a Joint Commission to present annually to the Governor of each of the States the needs of which are served by the Joint Commission a report as to the work done by the Commission in relation to that State, and in either case the Governor, shall, on receipt of such report, cause a copy thereof together with a memorandum explaining, as respects the cases, if any, where the advice ofthe Commission was not accepted, the reasons for such non-acceptance to be laid before the Legislature of the State.
Part XIVA Tribunals
Article 323A Administrative tribunals(1) Parliament may, by law, provide for the adjudication or trial by administrative tribunals of disputes and complaints with respect to recruitment and conditions of service of persons appointed to public services and posts in connection with the affairs of the Union or of any State or of any local or other authority within the territory of India or under the control of the Government of India or of any corporation owned or controlled by the Government.(2) A law made under clause (1) may -(a) provide for the establishment of an administrative tribunal for the Union and a separate administrative tribunal for each State or for two or more States;(b) specify the jurisdiction, powers (including the power to punish for contempt) and authority which may be exercised by each of the said tribunals;(c) provide for the procedure (including provisions as to limitation and rules of evidence) to be followed by the said tribunals;(d) exclude the jurisdiction of all courts, except the jurisdiction of the Supreme Court under article 136, with respect to the disputes or complaints referred to in clause (1);(e) provide for the transfer to each such administrative tribunal of any cases pending before any court or other authority immediately before the establishment of such tribunal as would have been within the jurisdiction of such tribunal if the causes of action on which such suits or proceedings are based had arisen after such establishment;(f) repeal or amend any order made by the President under clause (3) of article 371D;(g) contain such supplemental, incidental and consequential provisions (including provisions as to fees) as Parliament may deem necessary for the effective functioning of, and for the speedy disposal of cases by, and the enforcement of the orders of, such tribunals.(3) The provisions of this article shall have effect notwithstanding anything in any other provision of this Constitution or in any other law for the time being in force.
Article 323B Tribunals for other matters(1) The appropriate Legislature may, by law, provide for the adjudication or trial by tribunals of any disputes, complaints, or offences with respect to all or any of the matters specified in clause (2) with respect to which such Legislature has power to make laws.(2) The matters referred to in clause (1) are the following, namely: -(a) levy, assessment, collection and enforcement of any tax;(b) foreign exchange, import and export across customs frontiers;(c) industrial and labour disputes;(d) land reforms by way of acquisition by the State of any estate as defined in article 31A or of any rights therein or the extinguishment or modification of any such rights or by way of ceiling on agricultural land or in any other way;(e) ceiling on urban property;(f) elections to either House of Parliament or the House or either House of the Legislature of a State, but excluding the matters referred to in article 329 and article 329A;(g) production, procurement, supply and distribution of food-stuffs (including edible oilseeds and oils) and such othergoods as the President may, by public notification, declare to be essential goods for the purpose of this article and control of prices of such goods;(h) rent, its regulation and control and tenancy issues including the right, title and interest of landlords and tenants;(i) offences against laws with respect to any of the matters specified in sub-clauses (a) to (h) and fees in respect of any of those matters;(j) any matter incidental to any of the matters specified in sub-clauses (a) to (i).(3) A law made under clause (1) may -(a) provide for the establishment of a hierarchy of tribunals;(b) specify the jurisdiction, powers (including the power to punish for contempt) and authority which may be exercised by each of the said tribunals;(c) provide for the procedure (including provisions as to limitation and rules of evidence) to be followed by the said tribunals;(d) exclude the jurisdiction of all courts, except the jurisdiction of the Supreme Court under article 136, with respect to all or any of the matters falling within the jurisdiction of the said tribunals;(e) provide for the transfer to each such tribunal of any cases pending before any court or any other authority immediately before the establishment of such tribunal as would have been within the jurisdiction of such tribunal if the causes of action on which such suits or proceedings are based had arisen after such establishment;(f) contain such supplemental, incidental and consequential provisions (including provisions as to fees) as the appropriate Legislature may deem necessary for the effective functioning of, and for the speedy disposal of cases by, and the enforcement of the orders of, such tribunals.(4) The provisions of this article shall have effect notwithstanding anything in any other provision of this Constitution or in any other law for the time being in force.Explanation: In this article, "appropriate Legislature", in relation to any matter, means Parliament or, as the case may be, a State Legislature competent to make laws with respect to such matter in accordance with the provisions.

BOOK REVIEW OF HERBERT SIMON'S ADMINISTRATIVE BEHAVIOUR

Review
Book Review of Administrative Behavior
Herbert Simon’s book, Administrative Behavior, relies on Barnard and advances the science of administration. Simon identified some of the problems in administrative study before 1947 (the year when the book was written): lack of "adequate linguistic and conceptual tools for realistically and significantly describing even a simple administrative organization--- describing it, that is, in a way that will provide the basis for scientific analysis of the effectiveness of its structure and operation". Simon used Bernard’s earlier work as framework, and developed more relevant concepts and a more precise vocabulary: " before we can establish any immutable ‘principles’ of administration, we must be able to describe, in words, exactly how an administrative organization looks and exactly how it works… I have attempted to construct a vocabulary which will permit such description." I consider this as the biggest achievement of the book Administrative Behavior.
Simon remarked that "it is not possible to build an adequate theory of human behavior unless we have an appropriate unit of analysis". A noticeable character of Simon’s book is that he uses decision premises, instead of the whole decision, as the unit of his analysis. The book shows how organizations can be understood in terms of their decision process, and the analysis of administrative behavior in each chapter can be finalized on decision premises: how behavior is influenced by decision premises, how the premises in turn can be modified by the behavior, and how organization structure (given the organization objectives) can influence the decision premises of individuals within it so that decisions carried out by individuals will be consistent with the organization objectives. For this methodology (using decision premises as the unit of analysis), I’m not sure whether it is the best way to carry out a study on organization, as I think the decision premises and the organization structure are two interactive processes. This approach might hide the ultimate factors behind human decision making, but it is certainly a consistent one in Simon’s approach: as long as the decision maker is "bounded rational", what else can be a better tool than "decision premises" to analyze the decision-making process, once all relevant economical, law, psychological, and sociological factors are umbrellaed under the term "decision premises" ?
In terms of the content for the science of administration, Simon’s book provides numerous and important contributions (for e.g., the psychology of administrative behavior, the role of authority, the criterion of efficiency, loyalties and organization identification, reorganization, etc). Among them, "bounded rationality", "communication", and "authority" triggered my interests most.
Simon made it clear from the very beginning of the book that "The central concern of administrative theory is with the boundary between the rational and the nonrational aspects of human social behavior" (xxviii). He defined the principle of bounded rationality as follows: "The capacity of the human mind for formulating and solving complex problems is very small compared with the size of the problems whose solution is required for objectively rational behavior in the real word". Thus, he replaced the maximizing goal of choice with the goal of satisficing. This contrasts with our standard economic textbook in which rational economic agents will always be able to make the utility-maximizing choice. With this view of "satisfice", the choice problem under bounded rationality need detailed analysis of psychology. This, to some extent, embodies why organization theory is a inter-discipline science involving economics, politics, law, psychology and sociology, but I don’t see how the much-psychologically- oriented saticficing approach can be formally modeled by the author. I’m more convinced by another school which interprets "bounded rationality" as meaning that all complex contracts are unavoidably incomplete (this is the perspective taken by transaction cost economist toward "bounded rationality", and I’ll talk more about this perspective in Review 2).
Simon defines an "organization" as a "complex pattern of communication and relationships in a group of human beings" (such pattern is called by sociologist as "role system"). This pattern is of the flavor of "Nash equilibrium": it provides each member much of the information and many of the assumptions, goals, and attitudes that enter into his decision, and also provides him a set of stable and comprehensible expectations as to what the other members of the group are doing and how they will react to what he says and does. Such pattern can be changed once beliefs and attitudes are modified by changing the flow of communication. Simon points out that "organization is important…because, by structuring communications, it determines the environment of information in which decisions are taken". It’s not hard to see the importance of communication to an organization, in which it serves the roles far more than "coordination". (For the simplest case, when the communication is used to deliberately influence the behavior of group members in desired direction, it involves some measure of authority). The informational or strategic role of communication can never be overemphasized, especially when we take organization as a system of decision-making in a cooperative game, where knowing what other people expect you to think is more crucial than in a competitive game. Strategically, communication can help to attain such lower-order requirements of common knowledge.
Simon’s analysis on communication (Chapter VIII) is kind of "too simple". He introduced the nature, functions, and forms of communication, and concluded, "in every case the state of mind of the recipient, his attitudes and motivations, must be the basic factors in determining the design of communication." But why? And how? Simon didn’t explore further. In our class discussion, we talked about several aspects of communication which are ignored by Simon, for instance, the distortion of information in communication. Here, I’ll add something more.
First, I take communication within an organization as a game in which informed party move first. After all, it’s the party who possess the information decides whether/what information to communicate with other members of the organization. The purpose of communication is to modify the decision premises of other members of organization, so the difference between personal goal and "organization goal" (I’ll use the term "organization goal" as in Simon’s book) will induce the informed party to initiate a non-optimal communication. Here, the model of strategic communication (Crawford and Sobel, 1982) fits in quite well. In their model, the better-informed party (S) sends a possibly noisy signal to a receiver (R), who then takes an action that determines the welfare of both. Crawford and Sobel showed the Bayesian Nash equilibrium signaling always takes a strikingly simple form, in which S partitions the support of the (scalar) variable that represents his private information and introduces noise into his signal by reporting, in effect, only which element of the partition his observation actually lies in. Crawford and Sobel also show that R’s equilibrium expected utility rises when agents’ preferences become more similar: since R bases his choice on rational expectations, equilibrium signaling is more informative when agents’ preference are more similar. Adopting this model and some other economic theory, we will see two results which can complement Simon’s analysis: 1) when residual rights are in the hands of some members of the organization but not in the hands of some other members, these other members’ personal objective might not be the same as organization objective, and this will inevitably creates distortion (Simon didn’t explain why personal objective can differ from organization objective); 2), the importance of organization loyalties and identification is that they can align preference, which can induce efficient and productive communication to increase total utility of the firm. Simon defined "identification" as the "process whereby the individual substitutes organizational objectives for his own aims as the value-indices which determine his organizational decisions". Simon explained identification’s role purely from the psychological view (the psychological environment of decisions) while we can actually argue how identification can make communication more efficient using Crawford and Sobel model. Thus, identification is necessary for an organization both psychologically and economically.
In analysis thus far, I’ve considered communication in a one shot game; however, in practice, communication is a continuous process ----- it is a repeated cooperative game. Maybe in such repeated game, the psychological elements will become more important. More analysis is needed here, and is beyond the scope of this review.
In the analysis of communications, I pointed out having residual rights vs. not influences the motivations of communication. This leads to some attention to "power" and "authority". In Simon’s book, a special form of formal communication can occur through the channel of "authority", which "deliberately influence the behavior of group members". Simon realized there are two aspects of "authority", and for good reasons (as he stated on page 130), he studied authority mainly from the aspect of "area of acceptance" of the subordinates rather than the "power relations" from the superior. Simon went through topics like distinction between influence and authority, the sanctions and limits of authority, the hierarchy of authority and the use of authority. However, Simon didn’t explain where authority comes from: how/why some members of the organization hold the position of authority (this is understandable, as Simon didn’t study authority in terms of the sanctions of the superior)? From economics textbook, I know authority can come with the ownership of an asset (the rights to claim residuals). For e.g., if we view a firm as a set of feasible production plans presided by its owner ("owner" and "manager" are not differentiated here) who buys and sells inputs and outputs in a spot market, we can then imagine that authority over assets can translate into the authority over people: an employee will tend to act in the interest of his boss, since doing so will put him in a better position with his boss later. This is easy to understand particularly when what we talk about are tangible assets (like machines, inventories, location, client lists, etc.). Such ideas can also be generalized to intangible assets such as goodwill. For the argument above, the involvement of some non-human assets are essential. In the absence of non-human assets (for e.g., in an organization where the dominant assets are human capital), I’m not sure what authority or control mean and where they come from, in absence of slavery. This is particularly problematic if we follow Simon’s perspective on authority: why should an employee accept his employer’s influence, when the employer’s profit comes mainly from the employee’s human capital? Such aspect of authority ignored by Simon is especially of interest to today’s organization researchers, as human capital is of great importance to new economy, and so is their control. (Sorry I’m quite loose here: I make no distinction between ownership and control, and for top management, I don’t differentiate their authority with their control power. By "power", I am talking about the "control over valuable resources over and above that determined through explicit contract in a competitive market", as in Rajan and Zingales (1998). I’ll go back to these issues in Review 2.)
In conclusion, I think Simon’s book provides a start point for administration science, as he developed a set of concepts and structure to approach and analyze the organization problem. As his book was written half a century ago, his book unavoidably can not serve as a complete handbook to study administrative problems today, and the author obviously sacrificed the "depth" for the "width" of coverage. However, this book well serves the role as a "beginner’s guide" to me. It helped me grasp some basic ideas about administrative, familiarized me with the "working vocabulary" in organization study, and constructed some "blueprint" of the organization theory in my mind. After all, this book better prepared me to learn Professor Sunder’s book "Theory of Accounting and Control".

PUBLIC ADMINISTRATION-BUDGET GLOSSARY

BUDGET GLOSSARY
The government's annual budget exercise is no different from the way we all manage our household budgets. The only difference: the former's intimidating jargon. Team ET simplifies the important budget items for its readers in a five-part series. We have, however, departed from the usual way glossaries are presented, in alphabetical order, to a flow-type format wherein terms are explained as the reader would encounter them in the budget. Read on
ON the budget day, the finance minister tables 10-12 documents. Of these, the main and most important document is the Annual Financial Statement.
ANNUAL FINANCIAL STATEMENT: Article 112 of the constitution requires the government to present to the Parliament a statement of estimated receipts and expenditure in respect of every financial year, April 1 to March 31. This statement is the annual financial statement. The annual financial statement is usually a white 10-page document. It is divided into three parts, Consolidated Fund, Contingency Fund and Public Account. For each of these funds the government has to present a statement of receipts and expenditure.
CONSOLIDATED FUND: This is the most important of all the government funds. All revenues raised by the government, money borrowed and receipts from loans given by the government flow into the consolidated fund of India. All government expenditure is made from this fund, except for exceptional items met from the Contingency Fund or the Public Account. Importantly, no money can be withdrawn from this fund without Parliament's approval.
CONTINGENCY FUND: As the name suggests, any urgent or unforeseen expenditure is met from this fund. The Rs 500-crore fund is at the disposal of the President. Any expenditure incurred from this fund requires a subsequent approval from Parliament and the amount withdrawn is returned to the fund from the consolidated fund.
PUBLIC ACCOUNT: This fund is to account for flows for those transactions where the government is merely acting as a banker. For instance, provident funds, small savings and so on. These funds do not belong to the government. They have to be paid back at some time to their rightful owners. Because of this nature of the fund, expenditure from it are not required to be approved by Parliament.
For each of these funds the government has to present a statement of receipts and expenditure. It is important to note that all money flowing into these funds is called receipts, the funds received, and not revenue. Revenue in budget context has a specific meaning. The Constitution requires that the budget has to distinguish between receipts and expenditure on revenue account from other expenditure. So all receipts in, say consolidated fund, are split into Revenue Budget (revenue account) and Capital Budget (capital account), which includes nonrevenue receipts and expenditure. For understanding these budgets - Revenue and Capital - it is important to understand revenue receipts, revenue expenditure, capital receipts and capital expenditure.
REVENUE RECEIPT/EXPENDITURE: All receipts and expenditure that in general do not entail sale or creation of assets are included under the revenue account. On the receipts side, taxes would be the most important revenue receipt. On the expenditure side, anything that does not result in creation of assets is treated as revenue expenditure. Salaries, subsidies and interest payments are good examples of revenue expenditure.
CAPITAL RECEIPT/EXPENDITURE: All receipts and expenditure that liquidate or create an asset would in general be under capital account. For instance, if the government sells shares (disinvests) in public sector companies, like it did in the case of Maruti, it is in effect selling an asset. The receipts from the sale would go under capital account. On the other hand, if the government gives someone a loan from which it expects to receive interest, that expenditure would go under the capital account. In respect of all the funds the government has to prepare a Revenue Budget (detailing revenue receipts and revenue expenditure) and a capital budget (capital receipts and capital expenditure). Contingency Fund is clearly not that important. Public Account is important in that it gives a view of select savings and how they are being used, but not that relevant from a budget perspective. The consolidated fund is the key to the budget. We will take that up in the next part.
CORPORATION TAX: Tax on profits of companies.
TAXES ON INCOME OTHER THAN CORPORATION TAX: Income tax paid by non-corporate assesses, individuals, for instance.
FRINGE BENEFIT TAX (FBT): The taxation of perquisites — or fringe benefits — provided by an employer to his employees, in addition to the cash salary or wages paid, is fringe benefit tax. It was introduced in the 2005-06 budget. The government felt that many companies were disguising perquisites such as club facilities as ordinary business expenses, which escaped taxation altogether. Employers have to now pay a tax (FBT) on a percentage of the expense incurred on such perquisites.
SECURITIES TRANSACTION TAX (STT): Sale of any asset (shares, property etc) results in loss or profit. Depending on the time the asset is held, such profits and losses are categorised as long term or short term capital gain/loss. In the 2004-05 budget, the government abolished long-term capital gains tax on shares (tax on profits made on sale of shares held for more than a year) and replaced it STT. It is a kind of turnover tax where the investor has to pay a small tax on the total consideration paid/received in a share transaction.
BANKING CASH TRANSACTION TAX (BCTT): Introduced in the 2005-06 budget, BCTT is a small tax on cash withdrawal from bank exceeding a particular amount in a single day. The basic idea is to curb the black economy and generate a record of big cash transactions.
CUSTOMS: Taxes imposed on imports. While revenue is an important consideration, customs duties may also be levied to protect the domestic industry or sector (agriculture, for one), in retaliation against measures by other countries etc.
UNION EXCISE DUTY: Duties imposed on goods manufactured in the country.
SERVICE TAX: It is a tax on services rendered. Telephone bill, for instance, attracts a service tax. While on taxes, let us take a look at an important classification: direct tax and indirect tax, which finds wide mention in the budget.
DIRECT TAX: Traditionally, these are taxes where the burden of tax falls on the person on whom it is levied. These are largely taxes on income or wealth. Income tax (on corporates and individuals), FBT, STT and BCTT are direct taxes.
INDIRECT TAX: In the case of indirect taxes the incidence of tax is usually not on the person who pays the tax. These are largely taxes on expenditure and include Customs, excise and service tax.
Indirect taxes are considered regressive, the burden on the rich and the poor is alike. That is why governments strive to raise a higher proportion of taxes through direct taxes. Moving on, we come to the next important receipt item in the revenue account, non-tax revenue.
NON-TAX REVENUE: The most important receipts under this head are interest payments (received on loans given by the government to states, railways and others) and dividends and profits received from public sector companies.
Various services provided by the government — general services such as police and defence, social and community services such as medical services, and economic services such as power and railways — also yield revenue for the government. Though Railways are a separate department, all its receipts and expenditure are routed through the consolidated fund.
GRANTS-IN-AID AND CONTRIBUTIONS: The third receipt item in the revenue account is relatively small grants-in-aid and contributions. These are in the nature of pure transfers to the government without any repayment obligation.
We now look at the disbursements section of the Revenue Account of the consolidated fund. It lists all the revenue expenditures of the government. These include expense incurred on organs of state such as Parliament, judiciary and elections. A substantial amount goes into administering fiscal services such as tax collection. The biggest item is interest payment on loans taken by the government. Defence and other services such as police also get a sizeable share. Having looked at receipts and expenditure on revenue account we come to an important item, the difference between the two, the revenue deficit.
REVENUE DEFICIT: The excess of disbursements over receipts on revenue account is called revenue deficit. This is an important control indicator. All expenditure on revenue account should ideally be met from receipts on revenue account; the revenue deficit should be zero. When revenue disbursement exceeds receipts, the government would have to borrow. Such borrowing is considered regressive as it is for consumption and not for creating assets. It results in a greater proportion of revenue receipts going towards interest payment and eventually, a debt trap. The FRBM Act, which we will take up later, requires the government to reduce fiscal deficit to zero by 2008-09.
RECEIPTS in the capital account of the consolidated fund are grouped under three broad heads — public debt, recoveries of loans and advances, and miscellaneous receipts.
PUBLIC DEBT: In normal accounting, debt is a stock, to be measured at a point of time, while borrowing and repayment during a year are flows, to be measured over a period of time. In Budget parlance, however, you'll find public debt receipts and public debt disbursals. These are respectively borrowings and repayments during the year. The difference between the two is the net accretion to the public debt.
Public debt can be split into two heads, internal debt (money borrowed within the country) and external debt (funds borrowed from non-Indian sources).
The internal debt comprises of treasury Bills, market stabilisation scheme, ways and means advance, and securities against small savings.
TREASURY BILL (T-BILLS): These are bonds (debt securities) with maturity of less than a year. These are issued to meet short-term mismatches in receipts and expenditure. Bonds of longer maturity are called dated securities.
MARKET STABILISATION SCHEME (MSS): The scheme was launched in April 2004 to strengthen Reserve Bank of India's (RBI) ability to conduct exchange rate and monetary management. The RBI mops up excess liquidity, created, for instance when the central bank buys up huge quantities of dollar inflows to prevent undesirably fast appreciation of the rupee, by selling its stock of government securities to banks. When the RBI began to run short of of government securities that had been issued to meet the government's borrowing requirement, the MSS was launched. These securities are issued not to meet the government's expenditure but to provide the RBI with a stock of securities with which to intervene in the market for managing liquidity.
WAYS AND MEANS ADVANCE (WMA): One of the many roles of the RBI is to serve as banker for both the Central and State governments. In this capacity, the RBI provides temporary support to tide over mismatches in their receipts and payments in the form of ways and means advances.
SECURITIES AGAINST SMALL SAVINGS: The government meets a small part of its loan requirement by appropriating small savings collection by issuing securities to the fund.
MISCELLANEOUS RECEIPTS: These are primarily receipts from disinvesment in public sector undertakings. The capital account receipts of the consolidated fund — public debt, recoveries of loans and advances, and miscellaneous receipts — and revenue receipts make up the total receipts of the consolidated fund.
We now take up the disbursements on capital account from the consolidated fund. The first part deals with capital expenditure incurred on the various services — general services, social services and, economic services. Some of the biggest expenditure items under these heads are defence services, investment in agricultural financial institutions and capital to railways. The second part takes up the public debt (repayments of loans) and various loans made by the government.
The consolidated fund has certain disbursements "charged" to the fund. These are obligations that have to be met in any case and, therefore, do not have to be voted by the Lok Sabha. These include interest payments and certain expenditure such as emoluments of the President, salary and allowances of speaker, deputy chairman of the Rajya Sabha, and allowances and pensions of Supreme Court judges. Parliament and so on. This concludes the discussion on consolidated fund. We now move on to the other budget documents, which give a more detailed presentation of the consolidated fund.
BUDGET AT A GLANCE: This is obviously a snap shot of the budget, for an easy understanding. Nonetheless, it introduces some new concepts. While receipts are broken down into revenue and capital, unlike the consolidated fund, it shows the centre's net tax revenues. This is because a decent part of the gross tax revenue, as decided by the relevant Finance Commission, flows to the state governments.
Budget at a glance also segments expenditure into plan and non-plan expenditure, instead of splitting into revenue and capital. Each of these is then split into revenue account and capital account. Before discussing plan and non-plan expenditure it is important to discuss the concept of the central plan.
CENTRAL PLAN: Central or annual plans are essentially the five year plans broken down into five annual instalments. Through these annual plans the government achieves the objectives of the Five-Year Plans. The funding of the central plan is split almost evenly between government support (from the budget) and internal and extra budgetary resources of public enterprises. The government's support to the central plan is called the budget support.
PLAN EXPENDITURE: This is essentially the Budget support to the central plan and the central assistance to state and Union territory plans. Like all Budget heads, this is also split into revenue and capital components.
NON-PLAN EXPENDITURE: This is largely the revenue expenditure of the government. The biggest item of expenditure are interest payments, subsidies, salaries, defence and pension. The capital component of the non-plan expenditure is relatively small with the largest allocation going to defence.
It is important to note that the entire defence expenditure is non-plan expenditure. We will now take up the various deficits and the components of plan and non-plan expenditure. In the Budget at a Glance, the plan and the non-plan expenditure make up the total government expenditure. This brings us to the concept of deficit.
FISCAL DEFICIT: When the government's non-borrowed receipts (revenue receipts plus loan repayments received by the government plus miscellaneous capital receipts, primarily disinvestment proceeds) fall short of its entire expenditure, it has to borrow money from the public to meet the shortfall. The excess of total expenditure over total nonborrowed receipts is called the fiscal deficit.
PRIMARY DEFICIT: The revenue expenditure includes interest payments on government's earlier borrowings. The primary deficit is the fiscal deficit less interest payments. A shrinking primary deficit would indicate progress towards fiscal health.
We had already discussed revenue deficit earlier. The Budget document also mentions the deficit as a percentage of the GDP. This is to facilitate comparison and also get a proper perspective. In ab- SALAM solute terms, the fiscal deficit may be large, but if it is small compared to the size of the economy then it is not such a bad thing. Prudent fiscal management requires that government does not borrow to consume, in the normal course. That brings us to the FRBM Act.
FRBM ACT: Enacted in 2003, the Fiscal Responsibility and Budget Management Act requires the elimination of revenue deficit by 2008-09. This means that from 2008-09, the government will have to meet all its revenue expenditure from its revenue receipts. Any borrowing would then only be to meet capital expenditure — repayment of loans, lending and fresh investment. The Act also mandates a 3% limit on the fiscal deficit after 2008-09. This is a reasonable limit that allows significant-cant leverage to the government to build capacities in the economy without compromising fiscal stability. It is important to note that since the entire Budget is at current market prices the deficits are also calculated with reference to GDP at current market prices.
RESOURCES TRANSFERRED TO THE STATES We now look at the resources transferred to the states. As mentioned earlier, a part of the central government's gross tax collections goes to state governments. In the Budget 2007-08 the states were to receive nearly 27% of the gross tax collections.
The Centre also transfers substantial funds to states by way of support to their plans. These are largely in the nature of grants. Centre also gives large grants to states for managing centrally sponsored schemes. Interestingly, the government counts small savings transfers to state governments, which are in the nature of borrowings, as resources transferred to states. Before March 31, 1999, the Centre used to borrow net accretions to small savings (public provident fund, national saving scheme, etc) and lend them to the states. From April 1, 1999, states started receiving 75% of net small savings collections directly; the balance was invested in special Central Government securities during 1999-2000 to 2001-2002. The sums received in the National Small Savings Fund on redemption of special securities are being reinvested in special central government securities. From April 2002, the entire net collections under small saving schemes in each State & UT (with legislature) are advanced to the concerned State/UT government as investment in its special securities.
It seems many states are actually not keen on small savings funds as the cost of these borrowings works out higher than what they can get from the market. We now find the Centre is being forced to mop-up some small savings mobilisation (Rs 5750 crore Budgeted in 2007-08) through special securities as state governments are not taking the entire mobilisation.
This completes the discussion on Budget at a Glance. The expenditure and receipts Budget take up the respective heads in greater detail. We will now take up terms that require some discussion for a clearer understanding of the Budget.
VALUE-ADDED TAX (VAT) AND GST: VAT helps avoid cascading of taxes (tax being levied upon a price that includes one or more elements of tax) as a product passes through different stages of production/value addition. The tax is based on the difference between the value of the output and the value of the inputs used to produce it. The aim is to tax a firm only for the value added by it to the inputs it is using for manufacturing its output and not the entire input cost. VAT brings in transparency to commodity taxation: right now, only the final tax paid by the consumer is apparent to her, while with value added tax generalised to a goods and services tax (GST) that subsumes both central and state level taxation, the entire element of tax borne by a good (or a service) would be represented by the GST paid on it. A GST of 20% might seem high, but it would be about half the actual incidence of tax in most goods at present.
BHARAT NIRMAN: Bharat Nirman is the current UPA government’s ambitious programme for building infrastructure, especially in rural India. It has six components - irrigation, roads, water supply, housing, rural electrification and rural telecom connectivity. In each of these areas, the government has set targets that are to be achieved by the year 2009, within four years of its launch.
CESS: This is an additional levy on the basic tax liability. Governments resort to cesses for meeting specific expenditure. For instance, both corporate and individual income is at present subject to an education cess of 2%. In the last Budget the government had imposed an another 1% cess ‘Secondary and higher education cess on income tax’ to finance secondary and higher education.
COUNTERVAILING DUTIES (CVD) : Countervailing duty is a tax imposed on imports, over and above the basic import duty. CVD is at par with the excise duty paid by the domestic manufacturers of similar goods. This ensures a level playing field between imported goods and locally produced ones. An exemption from CVD places domestic industry at disadvantage and over long run discourages investments in affected sectors.
EXPORT DUTY: This is a tax levied on exports. In most instances the object is not revenue but to discourage exports of certain items. In the last Budget, for instance, the government imposed an export duty of Rs 300 per metric tonne on export of iron ores and concentrates and Rs 2,000 per metric tonne on export of chrome ores and concentrates.
FINANCE BILL: The proposals of government for levy of new taxes, modification of the existing tax structure or continuance of the existing tax structure beyond the period approved by Parliament are submitted to Parliament through this bill. It is the key document as far as taxes are concerned.
FINANCIAL INCLUSION: Financial inclusion is universalising access to basic financial services (to have a bank account, timely and adequate credit) at an affordable cost. Exclusion from financial services imposes costs on those excluded; these are typically the disadvantaged and low income group. Exclusion forces them into informal arrangements such as borrowing from local money lenders, etc at high rates. Financial inclusion remain a serious issue in India. The government has proposed a no-frills account to provide cheap banking.
MINIMUM ALTERNATE TAX (MAT): This tax on corporate profits was introduced in 1996-97 and has been modified since. If the tax payable by a company is less than 10% of its book profits, after availing of all eligible deductions, then 10% of book profits is the minimum tax payable. Book profits are profits calculated as per the Companies Act, while profits as per the Income Tax Act could be significantly lower, thanks to various exemptions and depreciation.
PASS-THROUGH STATUS: A pass through status helps avoid double taxation. Mutual funds, for instance, enjoy pass through status. The income earned by the funds is tax-free. Since mutual funds’ income is distributed to unit holders, who are in turn taxed on their income from such investments, any taxation of mutual funds would amount to double taxation. Essentially, it means that the income is merely passing through the MFs and, therefore, should not be taxed. The government allows VC funds in some sectors pass-through status to encourage investments in start-ups.
SUBVENTION: The term subvention finds a mention in almost every Budget. It refers to a grant of money in aid or support, mostly by the government. In the Indian context, for instance, the government sometimes asks institutions to provide loans to farmers at below market rates. The loss is usually made good through subventions.
SURCHARGE: As the name suggests, this is an additional charge or tax. A surcharge of 10% on a tax rate of 30% effectively raises the combined tax burden to 33%. In the case of individuals earning a taxable salary of more than Rs 10 lakh a surcharge of 10% is levied on income in excess of Rs 10 lakh. Corporate income is levied a flat surcharge of 10% in the case of domestic companies and 2.5% for foreign companies. Companies with revenue less than Rs 1 crore do not have to pay this surcharge.