India, April 26 -- In the iconic BBC TV series, Yes, Prime Minister, Sir Humphrey Appleby once remarked, "We mustn't let daylight in upon magic (episode: 'The Smoke Screen')." It was not only a defence of discretion, the abiding trait on which he thrived, but also a justification of something deeper and close to his heart. Institutions work best when their inner workings are not examined too closely. Without credible institutions, rules lose force and contracts lose meaning. If one looks around in India and globally today, there is a growing sense that what we once accepted about institutions - their credibility and public legitimacy - has been eroding and not without reason. The shift has not come as a shock. It has been gradual, almost undramatic. It has accumulated over time - one compromised appointment at a time, one overlooked violation, until it was there for all to see. The question is whether the damage is reversible and, if so, how? But first, has the disregard for institutions always been so? Or was there, at some earlier point, a greater degree of adherence, even if only to the appearance of rules? One is tempted to think that even when rules were bent, there was some reluctance to be seen as abandoning them altogether. There was, in that sense, a veneer of compliance. People may not have followed the spirit of the law, but they cared about how it looked. There was a sense that ignoring rules openly could carry a cost, if not always in punishment, then at least in reputation. What seems to have changed is the willingness to maintain even that veneer. The embarrassment that once accompanied overt disregard for rules appears to have faded in large part. And with it, comes a new equilibrium -- where might becomes the new right. Regulatory institutions prosper on a combination of performance and perception, and both depend critically on the quality of appointments. Take the Election Commission of India (ECI). The manner in which commissioners, including the chair, are selected has long been a point of quiet unease. When the executive plays a decisive role in choosing those who exercise oversight, the arrangement depends as much on restraint as on design. Economists formalise this as the "principal-agent problem", a situation in which the incentives of the principal (the one who delegates authority) and the agent (the one who exercises it) do not naturally align. In a corporate setting, shareholders, as principals, attempt to get managers to maximise firm value, while managers may pursue objectives of their own. The two need not coincide. Principals can, in theory, replace underperforming managers, but the transaction costs of doing so - in terms of information, time, and money - are often prohibitive. In India, most appointments to regulatory institutions are, in large part, post-retirement. This is true of the ECI, the Telecom Regulatory Authority of India (TRAI), the Securities and Exchange Board of India, and the Reserve Bank of India. The embedded incentive is well understood: The chair is unlikely to bite the hand that feeds. Attempts to broaden the selection mechanism have been partial and, in some respects, reversible. The first chairperson of TRAI, retired high court judge SS Sodhi, was removed after two years in office, and the tenure of the chair was subsequently reduced from five years to three. The signal to anyone considering independence in the exercise of their functions is not difficult to read. Institutions endure, but their character is shaped by those who lead them, and those leaders are shaped by the circumstances of their appointment. Characterised in this form, the question of appointments acquires particular significance. It is useful, by way of contrast, to consider domains in which performance is immediately and publicly observable. In sport, the margin between competence and excellence is visible in real time. Nepotism may create opportunity, but it is unlikely to sustain it. A top cricketer's child may become a professional cricketer and play league but will have to prove himself/herself to receive a Test cap. This is not a comment on their ability; they may just be skilled and showcase it some day. It is an illustration of a domain in which outcomes are visible and where the scoreboard is indifferent to lineage. There are, of course, spaces where this will not hold as resolutely. Just imagine the above lineage setting, but in Bollywood instead of cricket - the pathway for the child would almost certainly have looked different. In regulatory appointments there is no scoreboard and thus other considerations tend to fill the space. In other words, the space for discretion is larger. If this were a domestic narrative, it might be easier to contain. At the global level, the World Trade Organisation (WTO) offers a parallel illustration. WTO was never a perfect system, but it functioned because major participants broadly operated within its rules - if not always in spirit, then at least in form. That balance is strained, if not broken. When large economies can disable dispute settlement mechanisms, selectively invoke tariff measures, and walk away from negotiations without consequence, the consequences are predictable. Other participants adjust their behaviour accordingly and the incentive to comply diminishes. Over time, the system becomes less binding and more contingent on power. What we observe domestically in the form of institutional drift, is mirrored internationally in the weakening of the rules-based order. The Fourteenth Ministerial Conference of WTO in Yaounde that concluded on March 30 without a declaration because the US arrived to dictate terms is a stark reminder that when you are large enough, there is no cost to be paid for non-compliance. While rules constrain, those with the power to ignore them eventually do. This brings us back to the earlier question. How does one move towards credible rules and credible leadership? The answer is not entirely elusive. Transparent appointment processes, fixed and non-renewable tenures, greater separation between those who appoint and those who are appointed, and clearer lines of accountability are all part of the solution. None of this is conceptually difficult. What is difficult is the willingness to adopt these measures when they constrain those currently in power. Institutions cannot design themselves and rules do not get enforced automatically. The quality of both depends on whether those who operate within them are willing to accept constraint as a principle, not merely as a convenience. Sir Humphrey launched a defence of the idea that institutions work best when their inner workings are not examined too closely. The instinct to preserve the appearance of order dominated the discipline to uphold substance. Today, my guess is that we would settle for appearance alone; in other words, for form without the substance. That we cannot reliably secure even that is perhaps the most candid measure of where we stand. Long ago, Mirza Ghalib wrote, "Hum ko maloom hai jannat ki haqeeqat lekin, Dil ke khush rakhne ko Ghalib yeh khayal achha hai." (We know well enough the truth of paradise. But the thought, Ghalib concedes, is a pleasant way to keep the heart content.)...