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Illustration: Shyamal Banerjee/Mint
Illustration: Shyamal Banerjee/Mint

India’s next challenge: building state capacity

State capacity is a key determinant of the success of market reforms

With the passage of enabling legislation for the goods and services tax (GST) in the Rajya Sabha, the Narendra Modi government’s reforms scorecard looks much better. Since the GST and other reform measures like the insolvency and bankruptcy code will take years of preparatory work, both the centre and the states should set their sights on the next set of challenging reforms.

The discourse on economic reforms, however, operates in a limited bandwidth. The factor market reforms are seen as the appropriate follow-up to the product market reforms. Indeed, the factor market reforms are important. But equally important are the reforms to improve India’s state capacity. Broadly defined as the ability of a government to administer its territory effectively, state capacity determines, in many ways, the success of market reforms. The centre and states can choose to focus on three particular sets of reforms: administrative reforms, police reforms and judicial reforms. While these reforms may seem non-economic in nature, they promise to bring immense economic returns.

There is no dearth of literature on what needs to be done in each case. A number of commissions, committees and court judgements have gone into the nuts and bolts of these reforms. The most comprehensive set of recommendations on administrative reforms was framed by the Second Administrative Reforms Commission headed by M. Veerappa Moily. But not much progress has been made on the 15 reports—the last one is dated April 2009—submitted by the commission.

In Indian state machinery, once a civil servant, always a civil servant. There is no practice of weeding the poor performers out of the system at regular intervals. The number of lateral entrants, as a result of firm opposition by the “insiders", also remains minuscule. And contrary to popular myth, the Indian bureaucracy is not at all bloated and is in need of massive personnel infusion. Lateral entry will help in bridging the deficit of numbers and also provide much-needed expertise in the process of policymaking and execution. Under the current system, it is not a surprise to find someone a secretary in the agriculture ministry one day and finalizing the request for proposal (RFP) for the acquisition of combat aircraft in the defence ministry the next.

As with the bureaucracy, the shortage of police forces too is acute in India. The UN recommends 222 cops per 100,000 population; India’s number is around 140. The situation in many backward states is much worse—Bihar’s cops-to-population ratio is roughly half of India’s average. Add to that the problems of politicization of the force, institutional issues such as non-separation of the investigation arm from the law and order maintenance arm, and the terrible state of stations and equipment. Little wonder the police is in no position to deliver the will of the Indian state in a fair and effective manner.

The Supreme Court stepped in via Prakash Singh vs the Union of India (2006) by giving elaborate orders on moving ahead with police reforms. Progress across the states has been dismal nonetheless.

When Malcolm M. Feeley wrote The Process is the Punishment in 1992, he was talking about the lower criminal court system in New Haven, Connecticut. But he could have well been talking about the entire judicial system in India. The number of pending cases in Indian courts is pegged at a number upwards of 30 million, around two-thirds of which are lying in the district courts. A sizeable number of these cases are pending for more than a decade.

A 1987 report of the Law Commission had noted that India had 10.5 judges per million population—woefully below global standards. It recommended raising this to 50 judges per million population. The commission further added that the time-frame for this urgent task “should not exceed 10 years". The latest data of the law ministry puts the number at 18 judges per million population. This government has made good progress on repealing obsolete laws. The overall battle on judicial reforms—increasing capacity, repealing old laws, incorporating technology (for example, some courts are using video conferencing between courts and prisons to expedite cases), etc.—is long and arduous.

Collectively, the impact of these reforms on India’s gross domestic product may exceed that of the GST. But the GST itself took more than a decade. How long will these three take?

How important is building state capacity in India? Tell us at views@livemint.com

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