India is firing on just 10 per cent of the engines, says economist Karthik Muralidharan

The single biggest thing holding India back is weak delivery of essential services


Interview/ Karthik Muralidharan, economist

It is unusual for an economist to make heads turn for his theories and philosophies rather than his politics or insider revelations. But that is exactly what Karthik Muralidharan seems to have achieved with his just-released book Accelerating India’s Development. The reviews have ranged from ‘outstanding’ to ‘essential reading’. THE WEEK caught up with this Tata Chancellor’s Professor of economics at the University of California, San Diego. Excerpts from an interview:

Q/ What is your theory about development and where India is going wrong?

A/ The grand debate in development has been about growth. [Economists] J.N. Bhagwati and Arvind Panagariya will say that if you manage to get faster economic growth, everything else will follow. On the other hand, Amartya Sen and Jean Dreze will say that the purpose of development is to improve human life and therefore things like health and education should be a priority.

Now my point of departure in this debate is to say that at some level they are both correct. Because more growth helps human development, more human development helps growth. Then it becomes a fight about what you should focus on. The growthwallahs will say we need to do capital expenditure. The developmentwallahs will say we need to focus on the social sector. This is fundamentally a fight for budget allocation. But if you look at how inefficient the government is in the delivery system, then it doesn’t matter what you’re spending on, you’re spending it very badly.

Q/ You say our delivery system is flawed; the government says it has tided over this situation by using digital as a means of last-mile delivery.

A/ The modern welfare state initially had limited democracy, with voting rights only to white property-owning men. And that demographic wanted capital expenditure because they benefitted from the appreciation of capex. I gave this context because what makes India unique in human history is that we are the only country with universal democracy from day one. It is a great moral triumph, because it gives the marginalised citizens a voice in governance.

But the problem is that it expands the demands on the state before the state has the capacity to meet those demands. Because these other welfare states happened after they reached middle income status. The US, for instance, did food stamps for the poor at a GDP per capita of $18,000 (adjusted to 2011) while India did PDS at a GDP per capita of $1,200.

But what that means is that given the limited public finances of the welfare state, the lack of programmes at an early stage means that we have chronically underinvested in our governance systems. Because these systems only pay off in the long term, the political incentive to invest in governance is always important but never urgent, say, compared with a short-term scheme that appeal to the voters.

The current government has not expanded any of the major welfare schemes but has focused more on tightening and cleaning up delivery. And I think they have managed to do that very well in welfare programmes where you can dis-intermediate these layers. The unfinished agenda now is the service delivery that is mediated through humans. So, if you look at education, if you look at health, you can’t digitise away the intermediary. That requires a much deeper, sophisticated thinking on governance.

Q/ Whenever we have a very strong Central government, sentiments against over-centralisation pop up.

A/ We need to not focus too much on who has control but on what is good for citizens. There are costs and benefits of both that we have to balance. The benefit of centralisation is that sometimes you get economies of scale, better national coordination, better expertise and lower transaction costs. But if you over-centralise, you have to accommodate more variation across the country with the same policy. For example, Kerala’s needs are very different from Bihar’s.

Second problem is not about Centre to state, but state to local. The bigger over-centralisation in India is not from Delhi to state governments, but from state to local. The reason I am not sympathetic to chief ministers who complain about over-centralising is that they are the most guilty of over-centralising. So like [the late economist] Dr Raja Chelliah famously said, everybody wants decentralisation up to their level, but nobody wants to let go of power below that. So the important point is, go back to first principles of federalism and look at what is in the citizens’ interest.

There are aspects of governance where we need more centralisation, but there are other aspects where we need much less. India is the most over-centralised country in the world. One reason was the fear that local elites will not allow education of underprivileged groups or gender rights. So they over-centralised because of the Ambedkar-Nehruvian vision of a modernising state that will overcome the biases and prejudices of traditional society. They never trusted local governments. Unfortunately, that has not worked. If you want effective service delivery, you have to decentralise more.

But now, the good news after 75 years of independence is that people are a lot more educated and a lot more aware that they are able to resist if there is too much local elite capture. So that is why on service delivery we need a lot more decentralisation. But the action needed is not so much centre to state, but state to local.

Q/ What would be the two fundamental changes that India needs to do to speed up growth?

A/ The single biggest thing holding India back right now is the weak delivery of essential services. At one level, we have a very good system, macro fundamentals are good, growth rate is good, but there is very uneven growth. The top 10 per cent is driving growth by high incomes and good jobs. The next 30 to 40 per cent are migrant workers from rural to urban areas who are being sustained by the demand created by the top 10 per cent. Then you’ve got the bottom 50 per cent who are completely left out because rural stagnation is very real.

At one level, this model has delivered a certain amount, but we can’t accelerate growth to 8, 9 or 10 per cent unless you are firing on all engines. Right now, you are firing on only 10 per cent of the engines. The bottom 50 per cent is not participating actively in the growth process because they don’t have the health, the education and the skills required to participate. Services used by the poor, for the most part, are incredibly weak. The key sectors we need to focus on are education and skills, health and nutrition, and police and public safety. Safety is a fundamental determinant of female labour force participation.

Accelerating India’s Development: A State-led Roadmap for Effective Governance

By Karthik Muralidharan

Published by Penguin Viking

Price Rs1,299 (hardbound); pages 812