The State of India

The malevolent state

Yesterday I sat through a 2-hour session on the Indian state. The speaker meticulously laid out the history of its failures, its pervasive interest in encroaching upon our freedoms and the whimsical way it designs public policy. The nub of the argument wasn’t new to me but there was a refreshing candour in the way the speaker waded in and painted the state as malevolent. It was both enlightening and entertaining. That aside the other point he emphasized on was how the state continues its relentless march on distorting markets and choices despite the ‘reforms’ that we initiated in 1991. In fact, he referred to the post 1991 liberalisation story as a fable we have been sold. Yes, it was that kind of a session.

The primary example of the post 1991 state overreach he argued was the ever-growing number of regulators and how their incentives were badly designed leading to terrible outcomes. To step back a bit, let’s ask why is a regulator needed? There are broadly two reasons. First, there are sectors that need deep technical expertise and creation of guidelines on an ongoing basis. Lawmakers can’t be expected to be experts in every area, so they legislate to create an independent entity, or, a regulator, that does this on their behalf. Second, there are sectors that have market failures inherent in them. Take information asymmetry in finance or healthcare, pollution as a negative externality or allocation of common or public goods like coal, gas or spectrum; they all need state intervention to address the failure. The regulator steps in for the state.

But the state should be extremely reluctant to create a new regulator. Why? The lawmaker has been elected by the citizens to legislate. They must know the law they are drafting. The lawmaker is answerable to the people; the regulator isn’t. That isn’t the only problem. The responsibilities of a regulator include making guidelines or policies, implementing them, checking for adherence among the players and acting as quasi-judicial body to resolve disputes. This dissolution of the lines between legislature, executive and judiciary leads to extremely high concentration of power in an unelected entity. The regulator drafts a rule, investigates the adherence to the rule and acts as the judge to dispense punishment for non-adherence. Simply put, it is too powerful.

Post 1991, regulators have proliferated in India. Almost one a year on average. Contrast this with fairly straitjacketed powers given to regulators in the U.S. or that the last regulator created there was in 1974. This proliferation of regulators has led to unprecedented levels of state encroachment in key sectors. Like the speaker mentioned, even appointments of senior staff has to be cleared by them. The outcomes aren’t a surprise – myopic policies that have crippled sectors, a regimen of fines and penalties, accusations of biases and high-handedness.

The speaker’s polemic on the state concluded with two assertions that seemed counterintuitive to a lot of us. One, a weak state is good for its citizens. It is forced to involve more stakeholders in decision making and it listens more than it does. Second, be extremely sceptical about the motives of the state. Question them, guard your freedom and push back on any signs of encroachment by being involved in policymaking process.

Sarkar as mai-baap

Over the past couple of months, I have had the chance to be involved with a diverse cohort and be exposed to their worldview on policies, economics and ethics. This has been a learning experience and it forced me to question a lot of priors that I held. One of the things, however, that intrigued me was the touching faith a lot of them have on the state as a tool to solve problems that don’t stem from any kind of market failure. The reflexive instinct among many was to tax more, create a government department or regulator or give something for free. This despite our long experience of governmental failures and other examples from around the world.

A bit of personal background is in order here to put things in perspective. I grew up in what was once considered one of the most backward states in India (it still is). Within that state, I grew up in a district that used to be commonly in news for starvation deaths. There was no railhead (there isn’t still), newspapers used to arrive a couple of days late and the town of about 15,000 had two schools and, very importantly for me, a cinema hall. I give you this background to ward off any criticism of being an elite removed from reality of India. I have seen the state up, close and personal. I have benefitted from it tremendously and I still believe that shouldn’t blind me from its various perfidies.

Anyway, at the end of session, I asked the speaker about this. Why, despite evidence all around us, we have such touching faith in the state solving all our problems? The speaker had two points. One, we have not made a strong intellectual case for the limited role of state across our curriculum and public discourses. Second, the founding fathers of modern India were men and women of high intellectual and personal integrity. We ceded autonomy to them (almost replaced the colonial power with them) and we continue to believe in the ‘great man’ theory of politics.

While I agree with him on this, I think this only partly answers the question. Afterall, a similar sentiment exists and has gained strength outside India too. What explains it? This requires a deeper introspection into the nature of state, the economic and political arguments between left and right and between capitalism and socialism. We will pick that up for some other day.

Lastly,

You must have all seen the disturbing scenes of scores of our fellow citizens braving odds and walking long distances back home. Their other option was to die of starvation in a locked down big city. It is blot on how the state planned this shutdown and it should weigh on our conscience. I hope you are doing your best to help them. There are some stellar organisations working in this space.

This also reminds me of great scene from the film Anari (1959) written by Inder Raj Anand. The film stars Raj Kapoor playing the role of a poor, educated man desperately looking for a job and Motilal (one of our finest actors) in the role of a rich industrialist. The scene has Motilal dropping his wallet and Raj Kapoor picking it up and returning it. Motilal thanks Kapoor and seeing that he’s starving takes him to a high-end restaurant for a meal. At the restaurant, Kapoor simply can’t comprehend the excess, the wealth and the glitz around him and asks Motilal – “yeh kaun hain?’ (who are these people)

Motilal replies – “yeh woh hain jinhen batua mila tha, magar unhone lautaya nahin” (not the exact translation – these are folks who won life’s lottery but didn’t share it with others).  

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