I have an op-ed in Indian Express with Lant Pritchett on three challenges of India's development experience - managing equitable growth, revitalizing a 'flailing' state, and unlocking the potential of states. A longer version is below.
In the euphoria
surrounding the election results, it is tempting to avoid facing up to the
harsh realities of making development happen. Even for those who characterize
the election as “the dawn after the dusk before” in the new light of day India’s
development challenges remain essentially the same. These challenges were not
overcome by an election, nor can be overcome by doing more of the same, even if
effectively, but by doing things differently.
There are, and have
been for some time, three central tensions of India’s development experience.
The first tension is to sustain a development model which generates rapid
economic growth but also creates jobs and produces equitably shared benefits. The second tension is to deliver effective
governance with a “flailing state”. The third tension is to manage national
cohesion in a vast and diverse country - where there are as many India’s as there
are Indians. None of these three existential tensions of modern India have
changed with the electoral results. Let’s examine each.
India needs a dynamic
growth strategy, one that goes beyond unproductive dichotomies that pits growth
against redistribution, rural against urban, and small against big. The ongoing
growth versus redistribution debate, reflected in the recent acrimonious battle
between two distinguished pairs of economists, obscures more than it
illuminates. This dualism, which pitches one world-view against another
ostensibly opposing one, is a gross simplification.
India is far from alone
in having gone through this debate. In its initial World Development Reports
(WDRs), the World Bank proposed a “two-and-half legged stool” strategy for economic
growth – policies for creation of productive labor demand supported by those
for development of human capital, and underpinned by a system of “half-a-leg”
of a basic safety net. However, with time, the WDRs and global discourse have gravitated
towards a single-leg strategy of redistribution, revolving around social
transfers, best exemplified by the Latin American Conditional Cash Transfer
(CCT) programs.
India, especially over
the past decade, has been an enthusiastic adopter of this single-legged stool strategy.
The employment guarantee program and food security legislation are totemic
illustrations. In this context, it is important to bear in mind that even in
Latin America, as in East Asia, the vast majority of people emerged out of
poverty not through transfers but through earned incomes from productive jobs
created.
We therefore argue in
favor of a development strategy that combines economic growth with productivity.
This requires the replacement of the prevailing model of static redistribution of products that revolves
around handing out dole with redistribution
of productivity that creates the conditions for increased economic growth. This
redistribution would equip all Indians, especially the poor, with skills that
enhance their productive potential. In other words, India’s development agenda
should be framed around economic growth which is underpinned by re-distribution
of productivity.
Such redistribution of
productivity requires public policies that can enable access to a basic set of essential
goods and services for all Indians, irrespective of their economic station. A
recent McKinsey report indicates that nearly 650 million Indians are income
deprived and need support to access these essential goods and services. This would
enable them to develop certain core human resource competencies that are necessary
to access opportunities in the modern economy. It will also ensure the ultimate
objective of a dignified life for all Indians.
Needless to say, this
productivity agenda has to be complemented with the more widely discussed
reforms to release infrastructure constraints, deregulation to improve the ease
of doing business, removing labor market rigidities, deepening and broadening
of the financial markets, and so on. Pro-market and pro-poor need not be
contradictory.
Second, the achievement
of all development objectives is closely dependent on a state which is
effective in the implementation of its core functions. The weak state
capability is an obstacle to the achievement of all the ambitions of an
“aspirational” India. This weakness is reflected in issues as wide-ranging as
the abysmal student learning levels in public schools to the intermittent and poor
quality of electricity and water supply and their persistently high
distribution losses. It contributes as much to perpetuating the pervasive
harassment of citizens approaching the government for statutory services, as to
fuelling the large-scale corruption that arises from failure to design and
manage contracts with private parties that protect public interest.
This has in recent
years resulted in a steady erosion of the commitment of the middle-class to
public provision of services. The perception of a weak state and the resultant
feeling that governments cannot get the basics done has spawned three trends.
One, the belief that government institutions cannot deliver good quality
services – education, health care etc – has led people to vote with their feet
to private service providers. Two, the belief that public services are so
irretrievably damaged have led to the belief that cash or benefits transfers is
more effective. Finally, the deep disengagement of those entrusted with the
responsibility of delivering these services, not only in their role as
providers but also as users, has depleted any incentive to improve performance.
Restoration of state
capability is not easy, given its close interaction with political and civil
society dynamics.
The commonest causes for
degeneration in state capability include politicization of bureaucratic
processes, administrative indiscipline, erosion of accountability in the
discharge of official responsibilities, weakened supervision and monitoring,
and ubiquitous corruption. Any meaningful effort at restoration has to address
these failures. The role of state governments is central to success in
improving capability of the Indian state.
Finally, on social
cohesion, its religious and linguistic dimensions have, rightly so, received
much attention. However, a more functionally important dimension revolves
around the role of Indian states in its federal structure.
It is now well
acknowledged that most of the dynamism of the Indian economy over the past
decade has come from its states. Even as New Delhi slowed down, many
progressive states aggressively pushed reforms, invested in infrastructure, and
courted private investments. These state economies, many as large as
medium-sized countries, did not go through anything like the weakness
experienced by the national economy. Astute observers and investors no longer
see a “one India”, but prefer to look at the country as “many Indias”. A new
government with an ambitious growth target would want the engines of its growth
at full throttle.
Indeed the Prime
Minister has recently acknowledged that “India’s progress lies in the progress
if states”, and affirmed that issues raised by the states will be considered on
“priority”. This calls for the central government to step back from dictating
to states and let them chart their varying natural growth trajectories. The
most sustainable strategy to promote national economic growth is for the
central government to facilitate, not micro-manage, state’s unlock their
development potential.
The most egregious
example of such shepherding is in the role of the Planning Commission. The
one-size-fits-all norms and components of all national programs impose stifling
and highly inefficient restrictions on states. The annual state plans for each
program is made in a routine manner without consideration for the widely
varying requirements of states. The result is lack of state ownership and
routine, at best, efforts at implementation.
It is time to move
beyond this and embrace an approach that allows states enough design and
operational flexibility in these programs. The central government should
clearly outline the objectives and broad implementation guidelines and leave it
to the state governments to prepare detailed plans that meet their
requirements. The state Chief Ministers should be encouraged to lead its design
and implementation as his or her government’s program. When state governments
have the resources and the freedom to address their development problems, it is
most likely to generate accountability and effectiveness, both missing from the
current paradigm.
