Reimagining how the Indian state works

Higher public spending alone is not enough to overcome the myriad problems India faces, argues a new book by Karthik Muralidharan

More than 270 million Indian children go to school every day. Very few children never see the inside of a classroom these days. School enrolment ratios have climbed over the past three decades, though drop-out rates increase in the later years of schooling. The gender gap in school enrolment has also narrowed.

That is the good news. The problem is that too many of these children finish school with minimal skills. The annual survey on the state of Indian education that civil society group Pratham releases every January inevitably makes for grim reading. The latest edition revealed that a quarter of school children between the ages of 14 and 18 struggle to read a Standard II level text in their regional language. More than half in this cohort is unable to do the simple division of a three-digit number with a one-digit number. Three out of four children who can read English fail to explain the meaning of the sentence they read.

Is it merely a question of shovelling more money into the education system through budgetary allocations? The Union and state governments jointly spend ₹7.5 trillion on education every year. There are frequent calls to double this number. Overcoming the myriad problems in areas such as education, health, nutrition, safety, justice and social protection needs more than higher public spending. It requires a re-imagination of how the Indian state works. This is a compelling argument, and the central one in Accelerating India’s Development: A StateLed Roadmap for Effective Governance by Karthik Muralidharan, a professor of economics at the University of California San Diego.

Public systems fail to translate even the best designed policies into effective implementation. Besides authoring a string of influential academic papers, Muralidharan has also worked closely with several state governments to understand how their programmes work on the ground, and what can be done to make them more effective. He has been part of what is called “the credibility revolution” in development economics, or more specifically the use of tools such as randomised control trials to better understand how specific government policies impact outcomes on the ground to establish causality rather than mere correlation.

Muralidharan argues that increasing public spending without improving the efficiency of the Indian state is akin to spending more money on fuel for an antiquated car that needs to be replaced. His twin roles as an academic scholar and a policy advisor ensures that the book offers not just analysis but also specific reform suggestions over a wide range of public policy fronts. The result is a masterclass in development economics. Its multiple insights are accessible to a broader audience because it is not written clannishly for a select few.

There are six areas where India needs to do more work. First, the Indian state has to fix the statistical system so that decisions are taken on the basis of data rather than anecdotes. Second, India needs more government employees while at the same time making them more effective and accountable. Third, the quality of public spending matters; how you spend is as important as how much you spend. Fourth, cash-strapped governments need to collect more taxes as a percentage of gross domestic product. Fifth, service delivery should increasingly be pushed to the local level where administrations have a better sense of citizen needs. Sixth, effective states collaborate with the private sector and civil society to deliver to their citizens.

While laying out this framework, Muralidharan places a stick of dynamite under some misconceptions that are common in India. For example, the Indian state is not overstaffed. A comparable country such as Brazil has seven times more public employees for every thousand citizens. Or: China is much more decentralised than India. More than 65% of all government employees in China work for local governments; only 10% do so in India.

Building state capacity is not an easy task. Muralidharan writes that he looks at the state as an organisation by examining its inner wiring. The role of technology as an overarching tool to fix some of the deficiencies in service delivery is also evident. The question that comes to mind is whether such a managerial approach, while essential, underplays the importance of political economy in its deepest sense.

Embedded in many of the discussions on

state capacity for better governance are two wicked issues. The first is that a wide section of the political class derives its power from a broken state, and hence has little incentive to fix it. The second tricky issue is that state capacity is weakest at the local level. However, these are not politically, financially or administratively empowered to do the job well. They are weak in terms of funds, functions and functionaries. The temptation is then to centralise tasks that actually require decentralisation, driving governance reforms to a level in the federal system that is relatively untouched by local politics. There is an implicit trade-off between the principle of decentralisation against the reality of centralisation, especially when technology reduces transaction costs.

Just as there are many who believe that the

Indian state can give a better deal to citizens if key departments are provided with higher budgetary allocations, there are also those who hope that social indicators will automatically improve as the Indian economy continues on its current growth path. There is some basis for the latter view. Richer countries generally have better indicators of education, health, nutrition, safety and social protection. India’s own social indicators are close to what is predicted by its current levels of income.

Muralidharan shows that if average incomes continue to increase at 6% a year till the centenary of our liberation from colonial rule, infant mortality in India can be expected to fall from 27 per 1000 births today to 13 in 2047. That would still be above China’s current infant mortality rate of 8 per thousand births. Even an acceleration of economic growth will not bring our infant mortality in 2047 below current Chinese levels today. It is much the same with other indicators such as stunting, reading capabilities and numerical skills.

The reforms that Muralidharan has outlined will require more than political imagination. The 1991 reforms were a turning point for the Indian economy. However, most of the macroeconomic changes could be pushed through with a stroke of the pen by the Union government (though this in no way minimises the achievements of the economic reformers of that generation). Fixing the plumbing of the Indian state will entail challenging embedded interest groups at every level. Meanwhile, the elite that could have added its heft to demands for governance reforms has partially opted out through private schools, private healthcare, private transport, private security. The poor have no such option. Accelerating India’s Development is brimming with ideas on how to make the Indian state raise its game in the coming years.

Niranjan Rajadhyaksha is executive director of Artha India Research Advisors.

Fixing the plumbing of the Indian state will entail challenging embedded interest groups at every level