Source: Ideas and Institutions | Issue #45
Analysis
2024 Versus 2019: The Economic Issues
Now that voting for the latest round of state elections has concluded, the parties will look to quickly shift gears to focus on the general elections, which are four months away. While all the parties will try and convince the voters that they are better than their competitors, for the incumbents—the BJP and its allies—it is also about convincing that they have performed well enough for the voters not to prefer a change simply for the sake of change.
This begs the question of how this performance is measured. This is up to the voters to decide. They determine the criteria on which to evaluate the candidates and parties, and then evaluate them using information from the sources they trust, applying the forms of reasoning they prefer, and allocating varying levels of cognitive resources to their decision. As they do so, the candidates and parties may try to persuade them on what the important issues are and why they are on the right side of these issues.
Those interested in predicting or explaining election results can analyze the conditions in which the elections are happening, public opinion on the issues, and electoral strategies of the parties and candidates, to construct a narrative. There are, broadly put, the economic issues, cultural issues, and security issues. And then there are factors like organizational capabilities and practical judgment of leaders that may affect the ability of parties to persuade the voters.
Consider the economic issues. Economic performance is often included in narratives on electoral outcomes in India. At one level, this performance may relate to the GDP per capita, employment generation, inflation, and other macroeconomic measures. However, since the counterfactual performance—could the economy have done better?—and the attribution of causes to the government’s actions—to what extent was the performance on the account of government’s decisions?—are typically open to interpretation, it is partly a matter of persuasion how this performance shapes the electoral outcome. At another level, economic performance relates to the experience of the government’s taxation and expenditure decisions. It is much easier for the voters to tell whether the government had anything to do with the direct effects of such decisions, even though there may be a contest for credit (or blame) attribution between different levels of government.
What were the conditions under which the 2019 elections were held? If we take the national accounts statistics seriously—there are several respected economists who do not since the new GDP series was launched—we can argue that even though the economy had been slowing down after 2016–17, there was a good rise in GDP per capita between 2014–15 and 2018–19. The average increase in GDP per capita at constant prices was 6.1 percent, while during the preceding five years, it had been 5 percent. Inflation had been low and stable, with consumer price inflation averaging around 4.5 percent and remaining within the targeted 2–6 percent band for most of the months. In the preceding 5 years (2009-14), inflation had averaged around 10 percent.
In a previous issue of this newsletter, we had discussed how the changing patterns of welfare spending by the union government might be having electoral consequences, especially in the general elections. The union government has prioritized schemes under which cash and basic goods and amenities such as housing, toilets, bank accounts, cooking gas, electricity, and piped water are given. All these are private goods that are mostly enjoyed by the beneficiaries and their families, albeit some of them have positive effects on others—for instance, to the extent the use of cooking gas reduces the use of firewood, it has an impact on emissions. Such private goods allow the government to easily get credit, especially since making direct benefit transfers as the default mode of delivery for cash and these goods and amenities has made it easy to communicate where the benefit is coming from. The union government has also leveraged its resources by mobilizing funds from state governments, public sector enterprises, and private sector corporations for schemes for which the union government gets much of the credit.
What are the expected conditions in which the 2024 elections will be held? Four months is a long time, and a lot can happen before the election. With the latest data release for the July to September quarter, the average growth in the last two quarters has been 7.7 percent. We can expect the growth this year to be around 7 percent, which would translate to a growth in GDP per capita of around 6 percent. Between 2019–20 and 2022–23, GDP per capita at constant prices grew at 2.5 percent. If we assume growth in GDP per capita to be 6 percent for this year, the average for the last year would be about 3.2 percent. While the main reason for this low growth is that in 2020, there was a sharp decline in GDP on account of the lockdown imposed in response to the pandemic, even in 2019–20, GDP per capita grew at only 2.8 percent. The economy was in a slowdown well before the pandemic hit. Also, as we argued in a previous issue of this newsletter, the available data suggests that the government’s push to improve manufacturing in India has not delivered much success so far.
The average consumer price inflation between May 2019 and October 2023 was 5.8 percent. Since the pandemic hit, there has been considerable volatility in the inflation rate, with inflation crossing 6 percent in many months. Even in 2019–20, inflation rate had breached the 6 percent mark from December 2019 to February 2020. Again, since many countries have seen a rise in inflation, it can be argued that the pandemic and the policy responses to it may have led to this.
Between 2014 and 2019, there was a large increase in cooking gas connections, electricity connections, bank accounts, subsidized housing, toilets, and so on. Just before the 2019 elections, the government also increased its contribution toward the government officials’ pensions under the national pension system from 10 percent to 14 percent, changing the economics of the contributory pension system in the process. Many such steps were taken for various interest groups.
What is the incremental rise in benefits received from the government since the 2019 elections? One part of the story is stagnation or decline. When the PM-Kisan Samman Nidhi scheme started in December 2018, the cash transfer under the scheme was INR 6000 per year. Even now the amount is the same, which means that in real terms, the transfer has fallen by about 25 percent. In the quarter in which the elections were held in 2019 (April–July), more than 66.3 million families received these cash transfers. By the same quarter in 2021, this number had reached 105 million but has not grown since. In the April–July quarter of 2023, the number of beneficiaries was 96 million. Similarly, as the World Bank’s Global Findex Database shows that the percentage of population with savings accounts rose from 53 percent in 2014 to 80 percent in 2017, it fell to 78 percent in 2021. Further, between October 2017 and March 2019, about 26.2 million households were electrified under the Saubhagya scheme. Since then, only about 1.9 million more households have been electrified, suggesting that the push in 2017–18 and 2018–19 came close to achieving saturation on this measure. Under the Pradhan Mantri Ujjwala Scheme, about 72.3 million cooking gas connections were given between 2016–17 and 2018–19, and around 26 million more connections have been given in the 4.5 years since then.
The story that emerges is that a considerable effort was made on these schemes before the 2019 elections, and prima facie, they seem to have borne fruit in terms of improving the headline numbers, albeit more evidence is required to evaluate their impact. However, this success means that since 2019, the improvements have not been as dramatic as they were between 2014 and 2019. A similar pattern can be seen in the shift to direct transfers. Between 2013–14 and 2018–19, the number of those who received direct cash transfers increased from 108 million to 590 million, and the number of those who received direct transfer of in-kind benefits rose from 0 to 706 million. In 2022–23, the number of direct transfers in cash and in kind was 723 million and 937 million, respectively. These numbers were higher in 2020–21 and 2021–22, on account of the pandemic responses. If we assume that the improvements before April 2019 were factored into the votes in the 2019 elections, one wonders about the impact this relatively small incremental improvement will have on the 2024 elections.
Another part of the story is that the government has taken new initiatives and expanded existing schemes. Two big examples are piped water and food subsidy. Since the launch of the Jal Jeevan Mission in August 2019, about 104.6 million households have been given piped water connections under the scheme. This is about two-thirds of the scheme’s target and represents a huge leap in the number of connections. However, for this to translate into goodwill among the voters, what matters is that there is a reasonable amount of water supply coming through the pipes. As some reports suggest, this has been more difficult to ensure than just creating the connections. Further, the Pradhan Mantri Garib Kalyan Anna Yojana, under which 5 kilograms of free food grains are given to poor households, has now been extended until 2028. This major expansion of food subsidy was launched during the nationwide lockdown in the early days of the Covid-19 pandemic in April 2020.
This is just a partial description of the economic conditions in which the 2024 general elections will take place, as there are many other aspects of economic performance. In the next four months, it will be up to the parties and candidates to persuade the voters. For instance, the BJP would try to argue, with some justification, that the crisis of inflation in the Indian economy has been less pronounced than in many other countries, including those in our neighborhood. The BJP would also try to defend the decision to impose a lockdown for such a long period, which led to a decline in output. The opposition will look to blame the BJP government for the problems. Since the performance on measures like GDP per capita has been worse than it was during the previous tenure, the situation might present an opportunity for the opposition and a challenge for the ruling party. There is also an open question whether the direct benefits given by the government since 2019 add up to a significant improvement from the voter’s perspective. There is room for interpretation and judgment; and therefore, there are possibilities of persuasion. In the next four months, we will also see new announcements from the government and promises from the opposition parties. All this will be considered along with the cultural and security issues. Overall, one can argue that the economic conditions are such that the 2024 election would be a toughly fought one.
—By Suyash Rai
Review
State Capability in India
In the discourse on economic development, the notion of state capacity stands as a critical element, especially in emerging economies like India. This perspective is rooted in institutionalist theories of economic growth, as propounded by Douglas North and others. Francis Fukuyama, in a broader context, has highlighted an often-neglected aspect in the literature on state capacity: the state’s role as a “power deploying institution,” rather than just a guardian of the rule of law and democratic accountability.
The Indian scholarship has commendably studied this aspect of the state. Scholars have explored the nature of the state as a power-wielding entity with diverse objectives. For instance, Devesh Kapur questions why the Indian state exhibits varied performance across different areas. Lant Pritchett has described India as a “flailing state” in his study of state capabilities. Meanwhile, Milan Vaishnav and others have identified critical issues like personnel management that affect state efficiency. The Indian state itself has acknowledged these challenges, with the Second Administrative Reforms Commission producing extensive reports on various aspects of governance reform.
In their book, State Capability in India (2022), T.V. Somanathan and Gulzar Natarajan—both senior bureaucrats—offer a unique perspective on these issues, looking at them inside out. The authors delve into the nature of the Indian state and its capacity-related challenges, distinguishing between “capability” and “capacity” to emphasize qualitative aspects of governance.
The book comprehensively analyzes the Indian state’s ability to design, execute, and deliver policies, underscoring challenges in bureaucratic design, policy implementation, and the influence of political and administrative decisions. It is a detailed, voluminous work, chockablock with axioms, examples, and insights. While the book covers a gamut of issues ranging from personnel management within the civil services and paralysis in decision-making to ideas for procurement design, in this review, I cover four themes in the book that in my opinion speak most directly to the existing literature on Indian state capacity.
Policymaking Versus Execution
Central to the framework adopted in the book is the distinction between policymaking and implementation or execution. The authors argue that a capable state not only executes actions but also ensures that the right policies are chosen and effectively implemented within political constraints.
The book argues that while India has a robust intellectual and bureaucratic framework for policy development, marked by comprehensive planning and detailed strategies, the execution stage often falls short. This discrepancy is attributed to multiple factors including bureaucratic red tape, a lack of coordination among various governmental agencies, and the challenge of translating policy directives into actionable steps on the ground. The book also touches upon the impact of socioeconomic diversity in India, making policy implementation a challenging task due to varying needs across different states and communities.
The authors argue that for effective policy implementation, a paradigm shift is needed in the bureaucratic approach, moving from a purely regulatory mindset to one that is facilitative and outcome-oriented.
Addressing the critical implementation deficit in India, the book delves into the nuances of execution challenges, moving beyond stereotypes like politicization and corruption. It highlights the impact of these challenges on outcomes such as education, health, and infrastructure, underlining the need for a holistic approach to policy implementation that considers political acceptability, administrative feasibility, and technical robustness.
The book illustrates the multi-faceted nature of execution challenges in India, using examples like irrigation projects to show how misaligned incentives and operational complexities lead to gaps between planned outcomes and actual impact. It advocates for a redefinition of contract terms to focus on outcomes rather than just construction, emphasizing the need for engagement among contractors, officials, and beneficiaries.
The book suggests that successful implementation requires aligning goals across different levels, equipping agents with necessary resources, measuring performance credibly, and having the power to reward or penalize based on performance. It also notes the disempowerment felt by frontline managers due to overburdening, under-resourcing, and limited influence on program design.
Design and Effectiveness of Indian Civil Services
Another important aspect of the book is its assessment of the effectiveness of the Indian civil services. In order to do this, it employs four criteria, also used by K.P. Krishnan and T.V. Somanathan (2017), including preserving India’s constitutional order, impartial rule of law implementation, faithful policy translation and implementation, and promoting economic development. The analysis reveals successes in upholding constitutional values but challenges in law enforcement and economic development facilitation.
The book critically examines the design of the Indian civil services, rooted in the British colonial administrative system, which was primarily designed for control rather than development. It points out that while the structure served the purpose of maintaining law and order, it is less equipped to handle the complex demands of a modern, developing economy.
In this context, the book discusses the argument that lateral entry into the civil services is necessary to enable it to cope better with a modern economy. The concept of lateral entry into the Indian bureaucracy is often presented as a reformative measure to infuse new talent and specialized knowledge into the civil service. The authors examine the potential benefits of lateral entry, such as bringing in domain expertise, fostering innovation, and breaking the monotony of traditional bureaucratic practices. However, the book highlights the challenges associated with lateral entry, including concerns about the integration of external professionals into the existing bureaucratic culture, potential conflicts with career bureaucrats, and the risk of politicization. It underscores the need for a well-thought-out framework to ensure that lateral entry enhances, rather than disrupts, the functioning of the civil service.
Size of the State
There’s a common belief that the Indian government, at both the state and central levels, is excessively large and inefficient. The authors argue that this perception is partly due to the dramatic increase in the number of ministries and departments over the years. The role of the government has expanded significantly, moving beyond basic regulatory functions to developmental and economic responsibilities. This expansion has not been matched with an increase in resources or professional expertise, leading to strained capacities, particularly in higher administrative tiers.
Government sector employment has declined, with a significant portion of government jobs being temporary or outsourced to the private sector. The total sanctioned strength of the central government has remained largely unchanged over the years, even as the economy grew. The limited personnel face numerous resource constraints. For example, field inspectors lack mobility logistics and often don’t receive timely reimbursement for travel allowances. Basic office requirements like stationery are also in short supply.
The authors make the case that despite the proliferation of administrative units, the structure of the district-level bureaucracy has remained the same for decades. This stagnation occurs alongside a dramatic increase in government responsibilities and the scale of resources managed at the district level. While some parts of the government, such as the Ordnance Factory Board and Indian Railways, might be overstaffed, the book argues that the general belief of an overall bloated and inefficient government is questionable.
Analysis of Decision-Making Paralysis
One chapter in the book is dedicated to analyzing the paralysis in decision-making within the Indian bureaucracy. This is attributed to risk-averse attitudes, fear of scrutiny, and a lack of decision-making autonomy at various administrative levels. At the same time, the authors highlight the role of other institutions within and without the Indian state that have partly contributed to decision-making paralysis. The book offers a critical examination of the role of the Indian judiciary in decision-making paralysis. Courts often delve into the merits of executive action rather than limiting their scope to procedural fairness, increasing the chance of successful challenges to regulatory or administrative orders. In addition, the book argues that the principles underpinning administrative action are frequently altered without cogent references to past decisions, causing legal uncertainty. To add to this, the Supreme Court has a history of reversing its own decisions, further adding to this uncertainty. The high volume of cases and the common issuance of interim stays prolong final judgments, often stalling executive actions for years.
Lastly, public interest litigations have led to many beneficial judgments but have also seen the judiciary legislating in areas like environment and social justice. Examples include the Supreme Court’s orders on fireworks during Diwali, sale of BS-6 vehicles, amendments to the SC/ST Act, and regulations on domestic violence cases.
The book also discusses the impact of the Right to Information (RTI) Act on decision-making. The RTI Act, enacted in 2005, greatly increased transparency in government operations but also had unintended consequences on the decision-making process. The inclusion of deliberative processes in the scope of the act led to more cautious internal communication within the government, hindering the free exchange of ideas and suggestions. This transformation into a more formal decision-making process was further compounded by the trend of activist audits and media trials. The authors suggest that the expansiveness of the RTI Act, especially regarding deliberative information, contrasts with practices in developed countries and international organizations, where such internal communications are often protected under “executive privilege.” This aspect, the authors argue, merits a dispassionate review considering the act’s impact on effective governance.
Conclusion
Though this review does not address it directly, the book also proposes solutions on many issues such as the ones relating to fixing public procurement, limiting post-retirement sinecures for government officials, early- and mid-career training, optimizing between generalist and specialized domain expertise, performance assessment, and lateral entry, among others. These sections contain many workman-like proposals for improvements that are deserving of consideration and debate.
Overall, the book presents a comprehensive and nuanced analysis of the Indian bureaucratic system—its historical context, contemporary challenges, and the paths for reform. It offers invaluable insights into the complexities of policy implementation in one of the world’s largest democracies.
—By Anirudh Burman