Is the Indian state too big, or too small? That seems a silly question to be asking, as the Centre struggles with a ballooning fiscal deficit; as a populist consensus takes hold of our politics, and entitlements expand massively; and as the government tightens its vice-like control over public-sector companies. The statism of the 1970s is back, bringing the stagflation of the 1970s with it, so how can the Indian state be anything but too big?
It is certainly true that, in India, the government is too big, if by “big” you mean “bloated”. Almost literally bloated — the Indian state eats all the wrong things, and is big in all the wrong places. Most obviously, it runs the worst airline most of us will ever fly. It is trying to nationalise the entire foodgrain trade. Oh, and it is in the throes of working out the largest expansion of its bureaucracy in history, to create a new lot of people to check up on the people we already have — pretty much the definition of red tape.
And it is also true that India’s government is too big, if by “big” you mean “visible”. It is too intrusive. To start a business, you have to jump though an unimaginable number of bureaucratic hoops, which effectively limits the size of the formal economy. People shudder at the thought of getting a passport, a driving licence, a gas connection, a pension.
But it is still the case that the state is smaller and less effective than we need it to be. This should not surprise anyone. States do not shrink as countries develop. Government expenditure in developed countries is at least 40 per cent of GDP, and in most cases around 50 per cent; in India it is estimated at being 27 per cent — and is probably considerably less, depending on the size of the informal and untaxed economy.
The smallness of India’s state hurts its citizens in measurable ways. There are not enough policemen, for example, only 130 per 100,000 people. (The UN norm is 220, so we are around 600,000 short, according to former home secretary G K Pillai.) Those 130 strike the 100,000, therefore, as overworked, arrogant and quite literally laws unto themselves.
Nor is India’s state underweight at any one level in particular. Both low functions and high suffer. There are not enough garbage trucks. There are not enough public hospitals. There are not enough diplomats. There are not enough medicines in dispensaries. There are not enough economic administrators.
But what matters most to our political economy right now is that there are not enough regulators.
The biggest political issues of the recent past for urban voters are essentially questions of regulation. Who was watching over the infrastructure built for the Commonwealth Games? Who allowed the questionable 2G licensing process to go through? Who determines whether power plants have enough coal to supply your neighbourhood? Who allows your flights to be delayed for six hours because pilots have not been trained to deal with fog? Who is supposed to determine how much traffic there is on your arterial road, what its route is, and how wide it is?
Variations on such regulatory themes – essentially questions of state incapacity – have taken over our national and local politics. This is unfortunate, but understandable. In most states with mature regulatory architecture, it has been created haphazardly, through trial and error — the weight of history keeps the regulatory system independent, not the excellence of its design. In India, for example, the stature that the Election Commission has attained is thanks to its history, and to one or two particularly pugnacious CECs, not because it has been designed as more autonomous or more powerful than other bodies. Few of India’s regulators have a comparable institutional memory of autonomy.
Must Indians be resigned, therefore, to enduring a lengthy period of poor regulation, warped politics, less-than-satisfactory outcomes — and an ineffectual state? It appears so. Unless, that is, two conditions are met.
The first is that we start thinking about regulation not as an afterthought, but as one of the primary pillars of the state. What, after all, are the first words that every half-awake schoolkid learns in Civics class? “All states are divided into three parts,” the legislative, the executive and the judiciary. Except it’s now actually four parts. The seventeenth-century Enlightenment theorists who developed the tripartite theory of government were looking at regimes dealing with markedly less complex problems.
Emancipating the regulatory function of the state from being imagined as an adjunct to the others is an important part of independence. At present, regulatory tribunals are viewed as unwarranted intrusions by the executive into the judicial sphere; the lack of direct accountability to legislatures of most regulatory institutions is ignored; and many regulators answer directly to the executive. This is inefficient and unsustainable — but will not change till we start thinking of regulation as an independent, co-equal, and indispensible aspect of a modern state.
The second requirement is that we plan the independence not just of institutions, but of people. You can make a regulatory organisation as autonomous on paper as is imaginable, but will fail unless you ensure its members have incentives to stay independent, too. There’s currently much comment about former RBI deputy governor Shyamala Gopinath joining board of the National Stock Exchange. Yet Ms Gopinath’s new job is hardly unusual. Unfortunately, former regulators frequently join those they were regulating. And, similarly, many new regulators are IAS officers pronouncing on policies that they themselves had helped draft.
This explains why too few nominally independent regulatory agencies take on government decisions, or the actions of possible future employers. India needs to create an environment in which the deep sectoral knowledge that is required to be a good regulator can be both created and rewarded outside of the government as well as of private sector — a “third place”, as the Starbucks CEO says, of coffee shops which are neither home nor work. Until then, regulatory failure will continue to hamper the effectiveness of the state and warp our politics.
The government will continue to grow, as is inevitable in an increasingly complex economy. But space outside government – think tanks, academia, sectoral research institutions – must grow too. Otherwise, India’s state will always be stuck being both too big and too small.
