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Weak public institutions behind India’s low state capacity

LiveMint logoLiveMint 14-05-2017 Milan Vaishnav

If the dizzying transformation of the Chinese economy has been the defining story of economic development in the last three-and-a-half decades, economic changes in India—while considerably less dramatic—have also been transformative. However, India’s recent success masks deep underlying challenges whose import will only multiply in the foreseeable future. While it has been argued that in many ways India’s improved economic performance has been despite, not because of, the state—epitomized by epigrams such as “India grows at night while the government sleeps”—continued welfare gains, better distributional outcomes, and the resilience and sustainability of rapid economic growth are in considerable doubt in the absence of better-performing public institutions.

To get a sense of the looming challenges, consider this. In the two decades after the onset of economic liberalization, India added 364 million people to its population—more than the stock at the time of independence, which itself was accumulated over millennia. India’s democratic success and this “demographic dividend” mean that tens of millions of young people will be joining India’s workforce with aspirations that previous generations could not even dream of, but without the jobs commensurate with their skills and aspirations. The ranks of those who live in India’s urban cities and townships are rising at a rapid clip, so swiftly that even the government’s own agencies have difficulty in adequately measuring India’s changing demographics.

A booming population and growing economy are stressing natural resources, and contestation over land, energy and water is only going to become more severe. If the pessimistic predictions of the effects of climate change on India come to pass, the prognosis is even grimmer. With about a million people entering the working-age population every month—a group that will be increasingly urban, interconnected and informed—providing capable and responsive governance to manage these new expectations will be no mean task.

Even a casual observer of the Indian state would be struck by its limitations. The most obvious manifestation of this is its relatively small size. Contrary to popular belief, the Indian state is one of the smallest among major nations on a per capita basis. While India’s population increased from 846 million to 1.2 billion between 1991 and 2011, total public sector employment actually decreased from 19.1 million to 17.9 million. Over this period, the absolute size of the elite Indian Administrative Service (IAS) dropped by 10%; by 2010, the total strength of the IAS and the Indian Police Service (IPS) was less than 11,000 while the vacancy rate stood at 28%. In foreign affairs, the strength of the Indian diplomatic corps is less than that of Sweden’s. India’s judicial system presently has a backlog of more than 31 million cases. Government estimates suggest that as many as 10% of all cases have been pending for a decade or more.

But while the state might be undermanned in terms of adequate personnel, it is most certainly as over-bureaucratized as it is under-staffed. Consider, for example, the well-known indicators compiled by the World Bank that capture the ease of doing business in nearly every country in the world. According to the 2016 edition of the “Doing Business” indicators, India ranks 130th out of 189 countries in the overall ease of doing business, 155th in ease of starting a business, 178th in enforcing contracts, and 183rd in getting a construction permit—a sad testimony to the state of a country that is a member of the Group of 20 (G-20) and aspires to be a global power.

Unfortunately, all this makes it painfully evident that India is struggling to perform even the most basic functions of a sovereign state. While much of the attention on the manifold shortcomings of the Indian state has focused on high levels of corruption and venality in public life, an equally compelling limitation is the lack of competence, both at the policy design and formulation level, and the even larger challenge in effectively implementing these policies.

This “state capacity”—the ability of the state to effectively design and implement public policies—varies greatly across India. The Indian state is not failing but is seen to be only too often “flailing”. It can successfully manage highly complex tasks, but fails in executing relatively simple ones. On the one hand, India can organize elections for 850 million eligible voters, conduct a census for 1.2 billion people, and run a highly effective space programme. Yet, on the other hand, its record in providing basic public services, from health to education and water to sanitation, ranges from modest to dismal. The persistence of a stubborn Maoist insurgency and the sporadic resurgence of communal violence in certain pockets speak to its patchy law and order prowess, while chronic power shortages are a stark testimony to the quality of its regulatory institutions.

The underlying institutional weaknesses of public institutions in India stand in contrast to relatively dynamic private and civil society organizations. According to a 2012 government report, India was home to 144,000 registered non-profit societies as of 1970; by 2008, that number had grown by a factor of nearly eight (1.14 million). In 1957, fewer than 30,000 companies with a paid-up capital of barely Rs1,000 crore were operational in India. Fast-forward to 2014, and India boasts of nearly 950,000 firms with a paid-up capital of Rs21 trillion. Undoubtedly, the expansion and growth of India’s private sector and vibrant civil society will substitute for some of the shortcomings of the public sector in the foreseeable future. Nevertheless, there is a wide range of core functions, from regulation to security, from social inclusion to public goods provision, where the state is—and will be—indispensable. This is particularly true for India’s vulnerable population—such as its 265 million-odd poor or members of historically marginalized minority groups—who rely on public assistance to meet their most basic needs. These vulnerable populations, unlike India’s middle and upper classes, do not have a viable “exit” option from the public sector and its myriad deficiencies.

The story is not uniformly negative, however, and bright spots do exist. Compared to its developing country peers—not to mention several advanced democracies—India’s highly respected elections body consistently delivers high-quality polls, especially in more recent years. The Reserve Bank of India (RBI), which does face internal capacity issues, not to mention a spate of newfound external challenges, has emerged as a highly credible voice on issues of monetary policy, banking and finance. Even from within the ranks of the much-beleaguered bureaucracy, one can identify talent that is comparable to the best anywhere in the world.

The challenge for policymakers is to take whatever “pockets of efficiency” do exist, to borrow a term from the sociologist Peter Evans, and find ways of expanding their coverage. There are a number of low-cost, relatively easy-to-implement policy solutions that can do just this. For instance, removing the ease with which politicians can interfere in the postings and transfers of IAS officers can go a long way towards improving performance. If the Supreme Court were to insist on strict limits on courts granting adjournments, it would reduce delays in trial proceedings. Not all fixes are so easy; indeed, many require revisiting first principles of legal and institutional design. There is no magic wand, for instance, that can be waved to get the Central Bureau of Investigation’s house in order.

In India, to borrow a phrase from former minister and noted journalist Arun Shourie, when all is said and done, much more is usually said than done. However, the silver lining is that there are ongoing experiments which, if they bear fruit, can be the basis for a new push to reform India’s public institutions. Technocratic solutions, while they have their place, also have their limitations. Active coalitions are required to underpin institutional stability, and change will emerge from coalitional shifts. For effective institutions to emerge, there will have to be a political consensus around what it takes to build such a state. Is there a possibility of such a consensus? Historically, it is difficult to build high-capacity states without a commitment to raising one’s tax-to-gross domestic product (GDP) ratio. After adjusting for its low per capita income, India is not a significant outlier when it comes to tax revenue as a share of its overall economy. Nevertheless, compared to its fellow long-standing democracies, India has consistently under-performed, most notably when one focuses on direct taxation (such as income tax). As such, India is in danger of being locked into a vicious circle: a low-performing state also reduces citizens’ appetite to finance the state. But if citizens do not pay, the capacity constraints will only grow further. It is a sobering lesson of history that the popular appetite for taxation increases only in times of crisis or war—neither of which are outcomes to be wished for.

In the Indian case, these coalitions are likely to emerge from civil society selectively aligning with specific political parties and elements of the bureaucracy. But as India’s challenges mount, the need for institutional reform is vital if the country is to build and sustain an Indian state for the 21st century. It is not a matter of choice, but of survival.

Edited excerpts from the editors’ introduction of a new book Rethinking Public Institutions In India, published with the permission of the publisher, Oxford University Press.

Milan Vaishnav, Pratap Bhanu Mehta and Devesh Kapur are, respectively, senior fellow at the Carnegie Endowment for International Peace, the president and chief executive of the Centre for Policy Research in New Delhi, and director of the Center for the Advanced Study of India and professor at the University of Pennsylvania.

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