State capacity freed is state capacity built

Lately, there has been renewed interest in India’s lack of state capacity. One hardly need explain the dysfunction arising from this problem to the average Indian citizen. It is as pervasive and embedded as any other social, cultural or economic facet of Indian life. Yet, we continue to chug along and sometimes even manage to surprise ourselves—conducting free and fair elections for hundreds of millions of voters, or providing unique biometric identification to close to a billion people. So, it is not a complete failure. 

Lant Pritchett famously labelled India a flailing state—one where “the head, that is the elite institutions at the national (and in some states) level remain sound and functional but that this head is no longer reliably connected via nerves and sinews to its own limbs.” 

Pritchett’s diagnosis of the Indian malady has been interpreted by many scholars as a problem of institutional manpower and institutional design. There is a new revival of discussions on state capacity to execute plans, and a new focus on redesigning and staffing public institutions. An excellent iteration of this problem with some solutions is in Rethinking Public Institutions In India, co-edited by Devesh Kapur, Pratap Bhanu Mehta and Milan Vaishnav.

This problem of state capacity has an element of truth and urgency. Almost all of India’s governance problems can find links to the lack of manpower in state services. India has only 12-15 judges per million compared to the US’ 110 per million. The immediate goal is to reach the law commission’s 50-judges-per-million recommendation. Similarly, India has about 129 policemen per 100,000 citizens—only Uganda fares worse. In order to meet the UN recommended ratio, India is short of half-a-million policemen. The situation for judges and the police also holds true for firemen, traffic police, garbage collectors, inspectors, engineers, bureaucrats, and so on.

This crisis in state capacity cannot be solved anytime soon. Though India’s population, especially the youth, should be in line for these jobs, there are two major problems. First is the old problem of state budgets. India has a very small tax base, with a minuscule fraction of its citizens paying income tax. There needs to be a reduction in government spending in other areas and an increase in revenue to support the much needed manpower. Second, the Indian workforce is not skilled enough to be recruited for these jobs. Though a million new workers join the workforce each month, it is still difficult to find half-a-million skilled enough to be recruited for the police force or the fire service. Matters are far worse in the case of judges, engineers and regulators. 

Improving state capacity, while an obvious need, will not happen quickly. So, what can be done?

An alternative interpretation of Pritchett’s famous diagnosis is that with flailing limbs, perhaps the head can issue fewer commands, and engage in fewer actions. Essentially, both streamlining and shrinking the ambit of the regulatory state to a size that can actually be effectively enforced. The size of the Indian state in terms of its manpower may be small, but its size in terms of regulation is gigantic, and most of this regulation is either unenforced, or selectively and perniciously enforced.

An example, discussed a few months ago in these pages, is of the archaic posts of salt commissioner and his four deputies, who oftentimes pose problems for businesses, but do not collect enough cess to even cover the wage bill of the organization.

Somasekhar Sundaresan has critiqued the frequent tendency of statutes to criminalize actions without giving any thought to the capacity of the criminal justice system to handle the enforcement of rules. For instance, a cheque bouncing due to insufficient funds is a criminal offence in India. It is unclear why a contractual matter that can be resolved between two parties should impose on the already strained police, prisons and magistrates by criminalizing the offence. 

Similarly, the Telegraph Wires (Unlawful Possession) Act, 1950 makes it a criminal offence for anyone to possess a 2.43mm- to 3.52mm-diameter copper wire. One can scarcely fathom any circumstance where this provision was actually required and now it is particularly unnecessary given that the telegraph service was permanently closed in July 2013. A joint report by the Centre for Civil Society, in collaboration with the National Institute of Public Finance and Policy (NIPFP) and Vidhi Legal Centre, has recommended the repeal of a hundred other such laws. 

Repealing obsolete laws is both obvious and relatively easy, and will free up some state capacity. The government has taken small steps in this direction. But the bigger gains will come from structural reform to streamline the regulatory process. 

Labour regulation is a particularly messy and entangled regulatory system. Currently, there are 44 labour-related statutes enacted by the Central government dealing with welfare, wages, occupational safety and health, social security, and industrial relations. States have their own statutes as well as amendments attached to Central statutes. The result is a system of overlapping and inconsistent rules, making it impossible for most businesses to know, let alone follow, all these laws. There is an opportunity to reduce the burden on the state by streamlining the current labour law system. Service law and tax codes are also obvious areas for reform. A rupee saved is a rupee earned, and state capacity freed is state capacity built. 

Shruti Rajagopalan is an assistant professor of economics at Purchase College, State University of New York, and a fellow at the Classical Liberal Institute, New York University School of Law.

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