Author: cprindia

Following the announcement of Budget 2016, CPR faculty analyse it from different aspects:

Sanjaya Baru writes in The Economic Times that ‘the nine pillars of the Modi-Jaitley macroeconomic strategy provide adequate basis for ensuring that India remains the world’s fastest growing large economy during the current fiscal, and hopefully beyond.’
Baru also adds in Mister Jaitley’s Mid-Course Correction that ‘the government has tried hard to maintain a balance between its social commitments and investment in the rural economy, on the one hand, and the ease of doing business and promotion of small and medium enterprise, on the other.’
In Budget 2016: The triumph of centrism, Pratap Bhanu Mehta writes how the budget ‘signals macroeconomic credibility by adhering to fiscal deficit’, while showing a ‘deep consensus on the welfare state’.
Rajiv Kumar says in Jaitley’s Political Budget that the budget bears the hallmark of Modi’s approach of ‘hastening slowly’. It continues with ‘broad based inclusion of, and appeal to, farmers, poor, women, and significant segments of the middle class, including small and medium entrepreneurs.’
Researchers at the Accountability Initiative analyse budget 2016’s commitment to the social sector. While Avani Kapur says in Social sector gets lip service that despite funding commitments to education, health, and sanitation (as key areas), a closer look at the numbers suggest only ‘modest increases’, Yamini Aiyar writes that the rhetoric does not add up to a ‘clear vision and narrative for social policy’ in Social sector investments in 2016 are no different than what they were in 2015.
Kiran Bhatty adds that the budget Evades the Real Issues in the Social Sector through ‘a new conceptualisation for the “social sector” that appears to be focused on skills, employment and entrepreneurship rather than education or even basic health.’

Watch the full video (above) of the panel discussion on ‘Bringing Voters to the Polling Booth: What can we learn from the Banda Model?’ featuring S Y Quraishi, Heera Lal, Rama Lakshmi, and moderated by Rahul Verma.

During the 2019 Lok Sabha elections, Banda’s District Magistrate (DM), Heera Lal, IAS, conceptualised a massive voter mobilisation drive to increase the turnout by over 90%. He undertook various initiatives, coordinated with stakeholders, encouraged his team to share ideas, and applauded team members at every stage. The district administration’s efforts paid rich dividends and the increase in voter turnout in Banda district was substantial, one of the highest in Uttar Pradesh and perhaps in the country, if one accounts for state-level factors.

In this panel discussion, the district magistrate presented details of the measures his administration undertook to increase voter participation.

S Y Quraishi is the former Chief Election Commissioner of India. Heera Lal is IAS and District Magistrate, Banda, Uttar Pradesh. Rama Lakshmi is Opinion Editor of ThePrint. Rahul Verma is a Fellow at CPR.

By Mukta Naik, Sama Khan and Shamindra Nath Roy1

Indian urbanisation is not just mega cities, it is as much in smaller towns, in villages on the urban peripheries, along corridors and in many other transforming spaces across the countryside. This continuum of urbanisation has to confront the binary of governance – where local government actions and central schemes are subject to an urban and rural dichotomy. States have the ability to transcend this schizophrenic approach and must be encouraged to do so. The Union too needs to redesign its central schemes to avoid exacerbating this divide.

Cities are seen as the key drivers of growth and managing urban expansion is a major policy challenge. But, Indian urbanisation is marked not just by expansion but also by the transformation of a large pool of rural areas (Pradhan, 2013). Together these two factors contributed about 40% of urban population growth between 2001 and 2011 census, with an equal contribution coming from natural growth, and the rest from migration. India’s urbanisation is thus as much a story of its large megacities as it is a story of the in-situ transformation of its rural population, not just in the periphery of cities, but also beyond.

Indian urbanisation on the ground – a rurban story?

In India, very large cities co-exist with a dense network of small towns. The six major urban agglomerations – Delhi, Mumbai, Kolkata, Bangalore, Hyderabad and Chennai – constitute about 74 million inhabitants in 2011. They are followed by a series of secondary metropolitan areas, which are state capitals and other big cities, and all these million-plus cities constituted a little under a third – 31% – of the urban population in 2011.2 Some are recent upstarts like Gurugram, but most have been around for some time, as medieval or colonial cities.

While the large cities are commonly regarded as growth engines, urban growth in the past decade is not concentrated in these but actually quite evenly distributed across various urban categories and locations. One-third of fastest growing cities are small towns – 40% of the urban population in 2011 lived in small towns of less than one hundred thousand – and their economic activities are confined to the development of specialized clusters involving cities of various size as well as villages (Swerts et al, 2018).

Not all these towns are administratively ‘urban’ or statutory towns (STs), but they are counted as urban by the census since they are above the demographic and economic threshold of being ‘urban.’3 These settlements are known as census towns (CTs), and together with smaller STs, they bridge the gap between India’s large cities and rural area, as nodes that supply essential goods and services to the hinterland.

While the CTs are administrative villages that are counted as urban, there are many villages that do not cross the census threshold but show visible non-agricultural functions. Together, these new ‘rurban’ spaces are slowly becoming a vital part of India’s settlement hierarchies, and their importance is rising in terms of filling the spacing between the interconnected city systems. They provide two main kinds of crucial linkages between rural and urban, spatial and economic.

Spatial Periphery: While the peripheries of large cities like Delhi, Mumbai or Kolkata are growing at a faster rate than the core cities4 (Sivaramakrishnan et al, 2005), population and built-up growth is happening around smaller cities as well, and across different geographical locations. For example, Mallappuram, which used to be a small municipality of ten thousand people in northern Kerala during census 2001, grew to an urban agglomeration of 1.7 million people by 2011. This growth came from census towns – administered by panchayats – around the city, which constitute 80% of the population of Mallappuram urban agglomeration in 2011.

Spatial Corridor: Rurban areas are also emerging along industrial corridors, combining cities of different sizes and villages between two distinct city clusters, to create an extended urban region. For example, many such settlements connected to textiles and light manufacturing stretch along NH 45, from Bangalore to Salem in southern India. Such spaces blur the inter-urban boundaries while facilitating integration of the rural with urban.

Economic: Economically, non-agricultural activities are spatially diffused, much of it outside the larger cities. In 2005, the share of the districts where largest 50 metropolitan areas are located was only 41% of the total non-farm value added in the country (Swerts et al, 2018). As per the latest Periodic Labour Force Survey (PLFS) 2017-18, about 45.8% of the manufacturing employment in India is rural. In these rurban areas, the economic activity is not just non-farm but also agricultural, with returns from farm, and remittances being invested in services like transport and retail trade. Even in large cities, stringent land-use regulations and urban-density policies can push firms beyond the formal city boundaries. The pace of manufacturing employment growth was fastest (41%) over 1998-2005 in rural areas adjacent to largest metropolitan cities (Vishwanath et al, 2013).

In India, therefore, it may be more accurate to characterise this phenomenon as a rural-urban gradation (Chatterjee et al, 2015) not just in terms of economic indicators like non-farm activities but also in terms of other measures like built-up growth or nightlight intensity. These places are also not very different from smaller towns in terms of consumption levels or investment in private assets like septic tanks or motorized two-wheelers.5 Neatly classifying such settlements as urban or rural biases our understanding of India’s structural transformation and its associated welfare outcomes (Chatterjee et al, 2015).

Dichotomous Governance

Yet, our administrative structure valiantly attempts to govern India’s settlements across clear administrative boundaries of rural and urban. The Constitutional framework of rural and urban governance, introduced by the 73rd and 74th Constitutional Amendment, gram panchayats in the case of villages and municipalities in the case of urban areas, reflects this dichotomy. This is historically evident at both state/local and union government level. Only the statutory towns are administrative urban areas, and are governed by an elected urban local body (ULB) constituted by the Article 243 P & Q of the Constitution, which varies across different sizes and scales like Municipal Corporations, Municipalities or Municipal Councils, and Nagar Panchayats or Transitional Urban areas. The criteria to designate (or declassify) a place as a ULB and categorizing them across different scales is a prerogative of the state governments. These criteria vary across states, from population cut-offs to workforce character, revenue generation capacity, etc. (Joshi et al, 2018). What is recognised as an ULB in one state may not be so in another.

CTs and villages, which constitute the rural-urban gradation, are not designated as administratively urban by the state, and continue to be governed by the appropriate gram panchayat. However, socio-economic changes in these rapidly transforming spaces make them appear quite similar to formal urban areas in terms of economic activities, human capital and the nature of services required by the citizens.

This administrative classification also results in differences in functional domains and financial incentives to the rurban areas and smaller STs. The 11th Schedule of the Constitution places important functions like agriculture, irrigation and housing under the ambit of Panchayats, while the 12th Schedule places urban planning, land use, water supply, roads, bridges, health sanitation and slum improvement under the purview of municipalities. But, the states are not obliged to transfer these functions to local bodies and there is variation across states as to the extent of transfer. This functionally distinct structure of rural and urban means that a panchayat may not be able to pursue policies that respond to the changes happening in its jurisdiction.

At the union government level, where the focus is more on financial incentives and grants for development, there is historically a sharp differentiation between rural and urban, where Union schemes have given preference to rural over urban in centrally sponsored schemes (CSS). For instance, the estimated allocation of Swachh Bharat Mission – Grameen (SBM-G) is Rs. 134,386 crore which is about seven times the support for the urban counterpart, SBM-U. As a result, many states prefer rurbanising places like CTs to remain rural, rather than classifying them as urban, to benefit from the larger budget for rural development (Sivaramakrishnan, 2002, Mukhopadhyay, 2017). Indeed, in 2004, Tamil Nadu switched the classification of over five hundred urban areas to rural, to obtain more funds from the Union (Denis, et. al. 2012).

The Dissonances

Gap in services: Differences in governance across the formal urban (ULBs) and rurban settlements is responsible for the gap in public services like piped sewerage or in-house water connections across them, despite a private demand for these services6. Though these rurban spaces, i.e. the CTs and large villages are very different in economic structure, built-up area and services from other rural settlements, they are not capacitated to meet their changing requirements like drainage, septage management or street lighting, as all of them are governed by the same rural governance structure. Even within the urban periphery, public service provisions like piped sewer falls off sharply once the formal administrative boundary of the core city is crossed7. In most of the cities, it is lower in all settlements around the core city, and falls sharply with increasing distance from the core city.

Resistance to Reclassification: One consequence of this ‘denied urbanization’ (Samanta 2014) is that citizens resist state government proposals to reclassify them to ULBs.8 While there is regional variation, a lot of services, especially sanitation, are individualised due to low provision of public facilities like sewerage network or piped water facilities.9 However, Article 243 X of the Constitution permits the ULBs to collect taxes and duties, as authorized by the state legislature. Hence, the absence of property taxes and higher subsidies in rural areas can drive strong local interest to retain the rural-urban binaries (Mukhopadhyay et al, 2016), as people are often reluctant to pay extra for the services that they already self-provided. The poor provision of public services in smaller towns adds strength to this preference.

Resistance to integration: Concomitantly, in large metropolitan areas, where public services may be the responsibility of a parastatal agency like metro water boards, people prefer to be in smaller municipalities rather than become part of an expanded core city. For example, 18 new municipalities were created around Hyderabad during August 2018 to regulate land development in the city’s peripheries. In course of this process, the government negotiated with the elected representatives of the erstwhile GPs to make them separate ULBs, instead of merging with Hyderabad, where they feared that taxes may be higher.10

Employment: These unequal service provisions across the rural-urban spectrum affect the economic transformation of rurban areas. While some specific labour-intensive manufacturing industries are moving out of the municipal boundary, growth restrictions prevent significant employment growth in such districts (Desmet et al, 2013). In some of these districts, there are concentrated clusters of well-developed household industries, like the carpet and handloom clusters of UP or bidi clusters of West Bengal. These, if integrated to the wider economic geography, can enhance the growth machine and provide substantial local employment.

Transport: This is another issue that falls between two stools. The movement of labour and spatial distribution of jobs in urban peripheries are linked to the availability of multimodal and intermediate public transport like three wheelers, but there are no clear functional domain in the rural governance framework to regulate this.11 As a result, despite having a low cost of operation, these modes are pushed to the fringes rather than becoming an integral part of the public transit system, making it harder for labour to access employment.

Over time, these limitations can have repercussions on the future growth of CTs and large villages12, where large sections of the workforce are only precariously engaged in non-farm jobs as small entrepreneurs or casual workers (Chatterjee et al, 2015; Swerts et al, 2018). Even where necessary factors to provide a more solid non-farm transformation are present, the prevailing functional and fiscal domains can prove to be a bottleneck for such growth. If it were possible to overcome these dichotomies, there could be significant employment growth.

Policy Recommendations

The onus to overcome these rural-urban binaries in the governance framework and integrate a variety of interlinked rural-urban functions is on both the union and federal levels of government.

State
At the state level, the effort should be to make the functional domain flexible, in case of rurban spaces. Even within the prevailing framework of the 11th and 12th schedules, it is possible to make such provisions. For example, the 12th Schedule does not make any distinction between the categories of urban areas like municipal corporations, municipal councils and Nagar panchayats in devolving urban management functions. The language of the Act does not restrict the states from devolving functions from the 11th schedule to ULBs or functions from the 12th schedule to panchayats.13 Using this flexibility, states can transfer functions like permitting building licenses, sub-divisioning and readjusting land for variable uses, or regulating permits and lay-out routes to transport modes, like e-rickshaws, to the rurban areas.

The size-insensitive character of the urban governance framework (Sivaramakrishnan, 2013) can be also be used to functionally empower smaller ULBs or empower panchayats to provide “urban services” so that citizens in CTs and other rurban spaces get desired levels of service and incur an obligation to pay, where appropriate. However, these devolutions should be made with regard to local capacities and political environments.

More co-ordination in land-use and key infrastructure across the rural-urban gradation is necessary, especially in transport, water treatment plants or solid waste management, etc. As most rurban development, especially in the periphery and along corridors, usually follows the trunk routes of transport infrastructure, urban planning needs to happen simultaneously with the expansion of transport networks. The use of spatial data over time can help with this.

There is also a role for mechanisms, some defunct in many states14, like the District Planning Committee (DPC) and Metropolitan Planning Committee (MPC) to institutionally co-ordinate between rural and urban local governments (Sivaramakrishnan, 2013). These, or similar, structures can also enable States to blend funding from various sources to address the needs of rurban spaces.

Union
At the Union level, there is an urgent need to break out of the hardcoded definition of rural and urban. There is wisdom in being cautious about absolute conversions of CTs into STs15 (PIB, 2016). Given the variety of circumstances under which CTs are formed, States would need to deploy a case-specific approach to leverage their urban characteristics.

Designs for central schemes must not impose restrictions by typology of location because services in rurban areas need a fit-for-purpose approach. For example, SBM-Grameen focuses on constructing twin-pit latrines on priority basis in rural areas, but many rurban spaces where the use of septic tanks was already high at the start of the mission, would have been served better by efficient septage and fecal waste treatment management. Therefore, it is avoidable to hard code central scheme interventions by specifying technologies for urban and rural spaces.

At the implementation level, states must have the flexibility to evolve modus vivenda to address rurban needs. For example, given how mobile labour is, states should be able to use funds from the National Urban Livelihoods Mission in a variety of locations, including peripheries and corridors. Similarly, though PMAY avoids some of the pitfalls of hard coding by supporting state and region-centric variations in materials and technology, PMAY-Urban may be more suited for peripheral villages, instead of PMAY-Rural.16

Disassociating schemes from their location is challenged by the existence of separate ministries for rural and urban development, but schemes like SBM that do not come under these can choose to function outside of this binary. For example, the central scheme for working women hostel has transcended this binary and since its inception in 1972-73 has been catering to urban, rural and even semi-urban areas where employment opportunities exist for women under the umbrella of the Ministry of Women and Child Development.

Another approach is to allocate funds from different schemes to fill the gap in key infrastructure and bridge the service vacuum between rural and urban. The Shyama Prasad Mukherji Rurban Mission (SPMRM) is a step in this direction, but its location within the Ministry of Rural Development limits its ability to aid ‘urban’ spaces.

Conclusion

As cities and their associated economic engines are beginning to be viewed, not in isolation, but as connected to their peripheries and as a part of a wider city system throughout South and South-East Asia, this is a good time for the new government to introduce an integrated approach to the urbanisation, bridging the artificial divides of the 11th and 12th schedules. It is time to build mechanisms that can facilitate inter-ministerial interlinkages and it might even be prudent to imagine a single ministry of local governance in the long run. For now, a category-agnostic approach to Central schemes and an architecture that allows States to respond flexibly would enable India to leverage the latent opportunity in rurban spaces.

1 The authors gratefully acknowledge the inputs of Kanhu Charan Pradhan while writing this piece.
2 Only if the core city is taken into account, not the entire urban agglomeration.
3 A census town is a settlement which has a population of 5000 or more, a population density of more than 400 persons/sq.km, and a male main workforce participation of 75% or more. All STs, which constitute an urban local body (ULB), are automatically defined as urban. Unlike India, many countries rely only on a population size to distinguish between rural and urban areas. If only population size was used to identify census towns in India, and villages with more than 5,000 inhabitants were considered urban, the share of the urban population would increase by about 15 percentage points.
4 For example, the growth rate of the core city in the Mumbai metropolitan region is 0.4% while the periphery grew at 3.6%, within 2001-11.
5 NSS 2011-12 consumer expenditure data reveals that a small town consumer spends about 70% of a consumer in million-plus cities. However, their spending pattern is very similar to large cities, with similar amounts being spent on items like conveyance, rent or consumer durables, as in million-plus cities. The share of households which owns a motorized two-wheeler is 28% in these rurban areas, and 27.8% in smaller STs, which has a population of less than 50,000. The share of households with septic tank is 58.8% in rurban areas, while it is 55.7% in smaller towns.
6 The share of households with in-house access to water is 35% in villages, 59% in rurban areas (CTs and large villages) and 62% in smaller STs, which have less than a hundred thousand population.
7 For example, the share of households connected to the piped sewerage network is 86% in the municipal area of Hyderabad, but drops to 50% in the other ULBs and 27% in the all the CTs in the Hyderabad metropolitan (HMDA) area. The share of villages with piped sewer in HMDA is 7%. Interestingly, the outgrowths of HMDA, which are also rural but are contiguous to the core city, have a higher share of piped sewer coverage at 52%.
8 The interests of the state governments to reclassify the CTs or other forms of rurban spaces into ULBs also varies by the shifting growth trajectories across states. While states like Gujarat reclassified 24 CTs to STs within 2001-11, UP chose to not reclassify any of them into formally urban categories.
9 There are a lot of self-provisions of public services like roads, piped connection of water to households in some of the richer peri-urban neighbourhoods of larger cities (Randhawa et al, 2014; Mehta et al, 2015).
10 Accessed from https://timesofindia.indiatimes.com/city/hyderabad/59-new-municipalities…, at 24th April, 2019.
11 The Kolkata city is dominated by yellow taxis and auto-rickshaws, while the periphery is served by a variety of different modes of IPT services like the batter operated e-rickshaws, and diesel-fuelled vehicles like Tata Magic and Piaggio Ape. A lack of regulations at the RTA, police and local levels lead to contestations across there different kinds of services, which leads to operational issues and easy movement in the peripheries, instead of facilitating the services (CPR, 2016).
12 An analysis of the 6th Economic Census (2012-13) data shows only about 20% of the CT population resides in such kind of settlements where the share of manufacturing to total workforce is more than 50%.
13 The ambiguous part of the act has usually led to different responses from the state governments so far. There has been persistent resistance from the state governments to implement the provisions of the act in totality, and issues like water and sanitation management remains the prerogative of parastatal agencies under the control of state governments for a majority of cities. Very few financial and human resources functions have been transferred to municipalities and ULBs remain weak highlighting the unwillingness of the state to relinquish its control over the urban (Nandi and Gamkhar 2013, Ruet and Tawa Lama-Rewal 2009).
14 While MPCs have rarely been set up in most states, they have been only involved into mere consultations while dealing with issues, rather than any active involvement in planning functions (Sivaramakrishnan, 2013).
15 During May 2016, the erstwhile Ministry of Urban Development came out with a notification that asked all the 28 states to take ‘immediate and necessary action’ to convert all the census towns (CTs) into statutory urban local bodies (STs) to promote planned development.
16 An ongoing CPR analysis of the PMAY-U data shows that approximately eighty villages have been included in the projects enlisted under PMAY-Urban, most of which are neighboring larger Urban local bodies.

References

Centre for Policy Research. (2016). Integrating intermediate public transport within transport regulation in a megacity: A Kolkata case study. Working Paper.

Chatterjee, P. (2011). Democracy and economic transformation in India. In Understanding India’s New Political Economy (pp. 33-50). Routledge.

Chatterjee, U., Murgai, R., & Rama, M. (2015). Employment Outcomes along the Rural-Urban Gradation. Economic and Political Weekly, 50(26), 5-10.

Denis, E., Mukhopadhyay, P., & Zérah, M. H. (2012). Subaltern urbanisation in India. Economic and Political Weekly, 47(30), 52-62.

Desmet, K., Ghani, E., O’Connell, S., & Rossi‐Hansberg, E. (2015). The spatial development of India. Journal of Regional Science, 55(1), 10-30.

Joshi, B., & Pradhan, K. C. (2018). Officiating Urbanisation. Working Paper. Centre for Policy Research.

Mehta, L., & Karpouzoglou, T. (2015). Limits of policy and planning in peri-urban waterscapes: the case of Ghaziabad, Delhi, India. Habitat International, 48, 159-168.

Mukhopadhyay, P. (2017). Does Administrative Status Matter for Small Towns in India? In Subaltern urbanisation in India (pp. 443-469). Springer, New Delhi.

Mukhopadhyay, P., Zerah, M. H., Samanta, G., & Maria, A. (2016). Understanding India’s urban frontier: what is behind the emergence of census towns in India? The World Bank.

Nandi, Sangeeta and Shama Gamkhar (2013): “Urban Challenges in India: A Review of Recent Policy Measures,” Habitat International, Vol 39, July, pp 55–61

PIB (2016): “States Asked to Convert 3,784 Urban Areas into Statutory Urban Local Bodies,” Press Information Bureau, Ministry of Housing and Urban Affairs, Government of India.

Pradhan, K. C. (2013). Unacknowledged urbanisation: New census towns of India. Economic and Political Weekly, 43-51.

Randhawa, P., & Marshall, F. (2014). Policy transformations and translations: lessons for sustainable water management in peri-urban Delhi, India. Environment and Planning C: Government and Policy, 32(1), 93-107.

Ruet, Joel and Stéphanie Tawa Lama-Rewal (eds) (2009): Governing India’s Metropolises, New Delhi: Routledge India.

Samanta, Gopa. “The politics of classification and the complexity of governance in census towns.” Economic and Political Weekly 49.22 (2014): 55-62.

Shaw, A. (Ed.). (2007). Indian cities in transition. Orient BlackSwan.

Sivaramakrishnan, K. C. (2013). Revisiting the 74th Constitutional Amendment for better metropolitan governance. Economic and Political Weekly, 86-94.

Sivaramakrishnan, K. C., Kundu, A., & Singh, B. N. (2005). Handbook of urbanization in India: an analysis of trends and processes. Oxford University Press, USA.

Sivaramakrishnan, K.C. (2002). Turning urban, staying rural. The Hindu. Accessed from https://www.thehindu.com/todays-paper/tp-national/tp-tamilnadu/turning-u…, at 26/06/2019.

Swerts, E., Denis, E., & Mukhopadhyay, P. (2018). Diffuse Urbanization and Mega-Urban Regions in India: Between Reluctant and Restrictive Urbanism? In International and Transnational Perspectives on Urban Systems (pp. 237-262). Springer, Singapore.

Vishwanath, T., Lall, S. V., Dowall, D., Lozano-Gracia, N., Sharma, S., & Wang, H. G. (2013). Urbanization beyond municipal boundaries: nurturing metropolitan economies and connecting peri-urban areas in India (No. 75734).

Watch the full video (above) of the webinar on ‘Bridging the Gap Between Theory and Practice: Experiences from India’ featuring Kishan Rana (Professor Emeritus, DiploFounation); Shyam Saran (Former Foreign Secretory & Senior Fellow, CPR); Yamini Aiyar (President and Chief Executive, CPR); and Nayan Chanda (Associate Professor of International Relations, Ashoka University). The webinar was co-organised by The Bridge Project and CPR.

The webinar discussed the role of think tanks, diplomacy, universities and media in bridging the gap between theory and practice in India.

About the Lecture

Making spaces for nature has been one of the accomplishments of Indian democracy most so in the half century since 1969. These executive and legislative measures complement efforts of extensive social movements that have made various dimensions of the environment critical in public life. But few would today demur if told that statist and market led efforts as also community led initiatives often fall far short of the level, extent, scale and depth of the environmental challenges especially so after the pace of economic change quickened over the last four decades. The explosive expansion of the mega city and the ability of market forces to undercut not only protective rings around resources or spaces is matched by other developments. These include environmental emergency in parts of urban India as in acute drought in Bengaluru or floods in Chennai and the pall of smog over north India’s plains.
Despite many bright spots, there are serious doubts if things can simply go on the old way. The ability of movements to halt haphazard and ill-planned development or enable their realignment is also uneven with the cases of Niyamgiri, Silent Valley or Subansiri set against the lure of rapid big infrastructure often with little care for the land or waterscape. Conversely, many issues such as glacier meltdown or oceanic pollution defy environmentalism in only one country.

Yet the green shoots of democratic dialogue and action beckon. Even in the past as in the US or Japan or India itself, the right to a habitable and safe environment was always about much more than making spaces for nature. The latter too matters. A democracy in the 21st century is about peace with nature as much as among ourselves: to begin on that journey needs us to look afresh at the present and trace out footsteps to a better future.

About the Speaker

Professor Rangarajan is a Professor of History and Environmental Studies at Ashoka University, Sonipat, Haryana. He has studied at the Universities of Delhi and Oxford and has taught at Cornell, Jadavpur and Delhi universities and the National Centre for Biological Sciences, Bengaluru. He was Director of the Nehru Memorial Museum and Library 2011-15. His first book Fencing the Forest (1996) as also the most recent co-edited, At Nature’s Edge, have been published by OUP. Other works include India’s Wildlife History (2001) and Nature and Nation (2015). Recent co-edited works include Making Conservation Work (Permanent Black, 2007), Nature without Borders (2014) and Shifting Ground (2014) (latter both by Orient Black Swan). In 2010, he headed the Elephant Task Force of the then Ministry of Environment and Forests.

This public lecture was hosted by the Initiative on Climate, Energy and Environment at the Centre for Policy Research. Watch the Q&A session that followed the lecture here.

India’s move to electrify every village and household in the country has been lauded as a success. Building on decades of targeted programmes and public investments by multiple governments, the country completed 100% village electrification in April 2018; a year after, it has electrified nearly all ‘willing’ households. Despite the time it took to get here, these achievements are important milestones in India’s development trajectory. But does connecting households to the electric grid resolve the electricity access challenge? The answer depends on whether electrons flow through the wires and whether all consumers are served equally and adequately.

For electrons to flow and for there to be power for all, a vital policy issue to be considered is about the role to be played by the Government of India (GoI). Given the concurrent status of electricity, can the sector be a ‘perfect crucible for making effective the cooperative-competitive federalism experiment that is now India’?1

Challenges of Electricity Access

Once connected to the grid, consumers face multiple challenges to stay plugged in and realize the full benefits of electricity services. From the perspective of the poor, there are three key challenges that need to be overcome: unreliable supply, poor consumer service, and unaffordable bills.

Although India has become power surplus, many homes, especially those located in rural and low-income areas, have to bear with intermittent and poor quality supply. While government reports indicate 16-24 hours of supply to all homes, several surveys find lower supply hours, particularly, in the evening hours. Prayas Energy Group’s Electricity Supply Monitoring Initiative found that less than 20% of rural locations receive continuous supply during 5-11 p.m. This pattern of unreliable supply can be explained by an inherent disincentive to serve the poor. While India’s average monthly household electricity consumption is as low as 90 kWh,2 most households consume less than 50 kWh.3 India follows a consumption slab-based tariff system, where initial consumption slabs are charged significantly below the costs. This is one reason why electricity distribution companies (discoms) lose more than 50% of their cost in supplying to low-consumption consumers.4

Metering and billing irregularities are common, particularly in rural areas. The human resources of discoms have declined even as their consumer base has increased, leading to lower frequencies of meter reading and billing. Many discoms raise bills once in two months. In several cases, the first bill after the connection is raised after several months. Accumulated dues are often unaffordable to low-income households and increases the likelihood of payment default and subsequent disconnection. Irregular billing also causes a trust gap between discoms and consumers. A recent survey in Uttar Pradesh finds that consumers who are billed monthly are more likely to pay on time and in full amount; but those who are not billed regularly do not believe that their bill is based on actual consumption and are likely to default on payment.5

A major barrier to electricity access remains the concurrence between economic poverty and energy poverty. At the launch of Saubhagya, seven states (Uttar Pradesh, Bihar, Odisha, Jharkhand, Assam, Rajasthan and Madhya Pradesh) accounted for two-thirds of the un-electrified households in India. These states are home to about two-thirds of India’s population living below the poverty line (BPL). Discoms in these states are already highly indebted, accounting for 42% of accumulated debts of all discoms as on March 2016. Discoms in these seven have higher losses and revenue gaps than national averages. Despite continued state government subvention (or payment to discoms), all these discoms have been consistently running at a loss, accounting for about 47% of the loss in the electricity distribution business. In 2015-16, subventions to discoms amounted to 10% of these seven states’ collective gross fiscal deficit and accounted for 40% of total subvention from all states. The recent push for financial turnaround of discoms through a centrally designed scheme – Ujwal Discom Assurance Yojana (UDAY) – has not achieved the desired results in many states.6 The fiscal space of these states and discoms is cramped by the need to accommodate the electricity subsidy. On the other hand, existing subsidized lifeline tariffs in these states are, ironically, higher than in states with high electricity access.7 Media reports suggest that 3.5 million households in Uttar Pradesh are unwilling to get an electricity connection despite the connection charge waiver and subsidized tariff at 50% of the actual costs.8

The Centre’s Helping Hand​

The responsibility for electrification has been shared by governments at the Centre and states. Successive governments at the Centre have played an important role through sustained policy directives, targeted programmes and financial support. Creation of a dedicated financing agency in 1969 – the Rural Electrification Corporation (REC) – helped boost village electrification in the 1970s and 1980s, when two-thirds of India’s villages were electrified. To address low household electrification, the Centre launched Kutir Jyoti Yojana in 1989, with budgetary allocations to provide single-point light connections to BPL households. Rajiv Gandhi Grameen Vidyuti Karan Yojana, launched in 2005, extended free electricity connections to about 22 million BPL households, in addition to others who paid for their connection; it also electrified more than a million villages by 2014. The last 18,000 villages were electrified under Deen Dayal Upadhyaya Gram Jyoti Yojana, launched in 2015. Between 2017 and 2019, the central government sponsored an aggressive household electrification drive – the Pradhan Mantri Sahaj Bijli Har Ghar Yojana (Saubhagya) – to connect more than 26 million households to the electricity grid. With multiple interventions spread over decades and multiple governments, the Centre’s thrust has been to connect villages and households to the electric grid, through funding the costs of erecting poles and stringing wires.

The state governments, with oversight on electricity distribution, have manoeuvred to keep electrons flowing through the wires. The key to the states’ approach is redistributive welfarism: charging commercial and industrial consumers higher rates to keep electricity affordable for farmers and low-income homes. However, the pattern of electricity provisioning has been intricately shaped by electoral priorities, creating perverse incentives for serving the poor. The result is a low-level equilibrium where the poor are locked into cheap but intermittent, low-quality electricity. Because quality is low, many consumers feel empowered to default on their dues. The forces of inertia have prevailed over reform interventions to rationalize prices and enable cost recovery. Moreover, intermittent supply impacts business competitiveness. A survey conducted in Bihar, Odisha, Rajasthan and Uttar Pradesh suggests that 40% of rural enterprises rely on non-grid electricity sources as grid supply is unreliable and expensive.9

The Centre’s thrust on connecting villages and households to the electricity grid has been realized, but is only a step towards universal access to modern energy. In 2014, a joint initiative between the Centre and the states – 24×7 Power for All – was launched. It had a state-by-state strategy and shared goal to ensure round-the-clock supply to all consumer categories starting from April 2019. Despite a strong political mandate, the goal seems to be far from realized. Achieving universal access to electricity will require addressing problems around reliability, affordability, quality of supply and service that are persistently present across states. The new government at the Centre will need to revive its helping hand to support its state counterparts in dealing with diverse electricity access challenges that are entrenched in state-level political economies.

The Way Forward

The challenges to universal electricity access at the state level and are, in part, beyond an individual state’s capacity to address. Given that the poorest states will have higher costs of universal access, the Centre needs to lend a hand. Simultaneously, the central government will need to steer planning and governance for better coordination and coherence across states. The Centre will thus continue to play a significant role in pursuing the goal of universal electricity access. Towards this, we suggest the following priority actions for the new government.

Beyond Redistributive Welfarism to Productive Power

To achieve universal access, India’s electricity policy needs a paradigm shift from ‘redistributive welfarism’ (that prioritizes subsidized costs for the poor while compromising on the quality of service) to ‘productive power’ (that empowers and enables the poor to pay for better quality service through productive use of electricity).

Last year, the government proposed a set of amendments to the National Tariff Policy (NTP). These were aimed at a shift away from consumer category-wise tariff to a progressive load and consumption-based tariff for all. While this will not address the cross-subsidy burden on large commercial and industrial consumers, it will make electricity affordable to small industries and entrepreneurs that are currently charged a cross-subsidizing tariff.

Implementing these proposed amendments to the NTP in a time-bound and phased manner to make electricity affordable for productive use by the poor will be an important step. Availability of reliable electricity is necessary, but not sufficient to mobilize its productive use. The Centre will also need to develop a broad strategy around ‘productive power’, seeking to promote rural industries and businesses (such as agro-processing and cottage industries) with the required financial and infrastructure support.

Revisiting the Definition of Electrification

The existing definition of electrification, set out in 2004, emphasizes the existence of a basic electricity infrastructure, keeping the focus on grid expansion and household access to the grid. Now that the grid has reached nearly all homes, it is important to revisit the definition, with a focus on ensuring access to reliable and affordable electricity for all.

Holding Discoms Accountable for Performance

Providing productive power requires that discoms are held accountable for performance. While the Electricity Act of 2003 (EAct) has made provisions for standards of performances (SoPs) to be met by the discoms, compliance and monitoring remain low, with significant discrimination across consumer categories. There is a need to implement a stricter legislative mandate for SoP compliance and equal treatment of consumers. Available technologies could be harnessed to monitor discoms’ performance in this regard. The Centre has been promoting smart meters for automation of billing and consumer accountability. These meters can also be used to monitor supply quality and for consumer information. In 2013, the Centre made an attempt to make discoms and the respective state governments accountable by presenting a Model State Electricity Distribution Management Responsibility Bill. Rajasthan is the only state government to have enacted this bill. Some of the provisions of this bill were included in UDAY, but without any legislative mandate. These efforts can serve as a template for developing a framework to hold the discoms accountable for their performance.

Better Consumer Protection

The EAct included provisions for consumer protection. While the institutions for consumer grievance redressal – Consumer Grievance Redressal Forums at discom level and Ombudsman at state level – have been put in place, these avenues remain dysfunctional and often influenced by the discoms.10 There is a need to strengthen these institutions to protect the interests of consumers, hold the discoms accountable, and build trust between the two. This will require raising consumer awareness on the existence of forums for grievance redressal and making these forums accessible to all. Regular analysis of grievance records is required to understand patterns and discoms’ performance. These analyses must be accessible to the public and used to make discoms accountable. The grievance redressal forums need to be redesigned to function independently from the discoms.

Alternative Service Delivery Models

The technological transformation in the sector, led by greater penetration of renewable energy, is likely to cause disruption in the electricity distribution structure. Discoms are likely to lose predictability in business and their significance as instruments of redistributive welfarism.11 There has been resistance to past attempts to restructure the distribution business for efficiency gain – through promotion of franchisees and cooperatives, and separation of carriage and contents. The future uncertainties in electricity distribution necessitate planning for alternative service delivery models to ensure that the poor are not left out. The Centre needs to play the role of a catalyst by steering the planning at the state level, without imposing a single, standard model. Diversity in approaches and models will be crucial to manage state-level economic forces and specific electricity demands.

Strengthening the Rural Distribution Network

While the electricity grid has been extended to all corners of the country, the distribution network in rural areas remains fragile and prone to frequent breakdown. Although rural areas presently have low energy demand, the potential for demand growth is high. Distribution networks will require significant upgrades to meet future demand. As the discoms have little incentive to invest in rural networks and many states lack fiscal capacity, the Centre will be required to continue investing in the rural distribution network, until such time as rural consumers climb onto the virtuous cycle of receiving better service and being willing to pay more for quality. The Centre has been supporting urban distribution network upgrades through successive programmes, such as APDP (2001), APDRP (2002), R-APDRP (2008) and IPDS (2014). Similar interventions are required to upgrade rural distribution and ensure quality supply to consumers based in rural areas.

The Subsidy Conundrum

Even though the key to electricity reform in India is tariff rationalization, there is no doubt that, for the time being, electricity supply to the poor needs to be subsidized. These subsidy needs are concentrated in poorer states with limited fiscal space. In an interesting development, in the proposed amendments to the EAct and NTP, the Centre has proposed to make subsidies a collective responsibility of the central and state governments. This is an important shift away from the earlier model where subsidy was the sole responsibility of the concerned state governments. If implemented, this would allow the subsidy-based approach to electricity to continue, with a shift from a rate payer-based cross-subsidy system to a tax payer-based fiscal subsidy system.

The Centre also seeks to promote direct benefit transfer (DBT) for subsidy payment to ensure better targeting. A reform in the subsidy mechanism, seeking to better target and rationalize subsidy, is an urgent need. But the proposed approaches are not free from limitations. Managing electricity subsidy demands with tax revenue will require the electricity sector to assert its claims for support in competition with several other possible uses of these funds; it will also limit the ability of states and regional political parties to make electoral use of electricity pricing, introducing political uncertainty. In addition, identifying and targeting legitimate subsidy demands to use DBT remains a challenge.12

The Centre’s past guidelines to reduce and eliminate cross-subsidies in a timebound manner and raise revenue from low-paying consumers have been resisted by states. Rather, cross-subsidization and the gap between costs and revenue have gone up in several states. The new government must prioritize the subsidy conundrum and develop a transition plan to gradually reduce subsidies without compromising essential service for the poor. It should consider state-specific political economy forces and must embed a strategy to promote ‘productive power’ to enable the poor to pay. Large-scale adoption of specific tools or solutions should be based only on successful pilot experiments, after careful consideration of the costs and benefits; a strategy to manage the costs to losers from subsidy reform must be included.

Erecting poles and stringing wires across a country like India is an important step. But the work remains complete until high quality reliable power that enhances rural productivity is made available to India’s poor. This must be the agenda, going forward.

Other pieces as part of CPR’s policy document, ‘Policy Challenges – 2019-2024’ can be accessed below:

The Future is Federal: Why Indian Foreign Policy Needs to Leverage its Border States by Nimmi Kurian
Rethinking India’s Approach to International and Domestic Climate Policy by Navroz K Dubash and Lavanya Rajamani
India’s Foreign Policy in an Uncertain World by Shyam Saran
Need for a Comprehensive National Security Strategy by Shyam Saran
A Clarion Call for Just Jobs: Addressing the Nation’s Employment Crisis by Sabina Dewan
Time for Disruptive Foreign and National Security Policies by Bharat Karnad
Multiply Urban ‘Growth Engines’, Encourage Migration to Reboot Economy by Mukta Naik
Schooling is not Learning by Yamini Aiyar
Clearing Our Air of Pollution: A Road Map for the Next Five Years by Santosh Harish, Shibani Ghosh and Navroz K Dubash
Protecting Water while Providing Water to All: Need for Enabling Legislations by Philippe Cullet
Interstate River Water Governance: Shift focus from conflict resolution to enabling cooperation by Srinivas Chokkakula
Managing India-China Relations in a Changing Neighbourhood by Zorawar Daulet Singh
Regulatory Reforms to Address Environmental Non-Compliance by Manju Menon and Kanchi Kohli
1 GoI, Economic Survey 2015-16, Volume I (New Delhi: Department of Economic Affairs, Ministry of Finance, Government of India, 2016), 162.
2 Radhika Khosla and Aditya Chunekar, ‘The journey towards energy savings begins from home’, Mint, 8 June 2018.
3 Ashwini Chitnis, Sripad Dharmadhikary, Shantanu Dixit, Srihari Dukkipati, Ashwin Gambhir, Ann Josey, Sreekumar Nhalur and Ashok Sreenivas, Many Sparks but Little Light: The Rhetoric and Practice of Electricity Sector Reforms in India (Pune: Prayas Energy Group, 2017).
4 Sreekumar Nhalur, Ann Josey and Manabika Mandal, ‘Rural Electrification in India: From “Connections for All” to “Power for All” ’, Economic and Political Weekly 53(45) (2018): 31-37.
5 Karthik Ganesan, Kapardhi Bharadwaj and Kanika Balani, Electricity Consumers and Compliance: Trust, Reciprocity, and Socio-Economic Factors in Uttar Pradesh (New Delhi: Council on Energy, Environment and Water, 2019).
6 Amandeep Kaur and Lekha Chakrabarty, ‘UDAY Power Debt in Retrospect and Prospects: Analyzing the Efficiency Parameters’, NIPFP working paper 244 (New Delhi: National Institute of Public Finance and Policy, 2018).
7 Ashwini K. Swain, ‘In a state of energy poverty’, The Hindu, 11 May 2018.
8 Utpal Bhaskar, ‘UP lowers electrification target, claims all households electrified’, Mint, 31 January 2019.
9 Shalu Agarwal, Nidhi Bali and Johannes Urpelainen, Rural Electrification in India: Customer Behaviour and Demand (Smart Power India & Initiative for Sustainable Energy Policy, 2019).
10 Ashish Khanna, Daljit Singh, Ashwini K. Swain and Mudit Narain, ‘Transforming Electricity Governance in India: Has India’s Power Sector Regulation Enabled Consumers’ Power?’, World Bank policy research working paper 7275 (Washington DC: World Bank, 2016).
11 Navroz K. Dubash, Ashwini K. Swain, and Parth Bhatia, ‘The Disruptive Politics of Renewable Energy’, The India Forum, forthcoming.
12 Ashwini K. Swain, Parth Bhatia and Navroz K. Dubash, ‘Power politics at play,’ The Hindu, 9 October 2018.

Can India Achieve Sustained Fast Growth? The Two Faces of Indian Capitalism
In the last few years, India seemed to have achieved the symbolic goal of growing faster than China (at least according to official statistics) and was frequently hailed as the fastest-growing large economy in the world (Figure 1). The Spring 2019 IMF World Economic Outlook forecast continued optimistic prospects, with a slight acceleration in growth to 7.5% by 2020, even as China and the advanced economies are projected to decelerate.

Figure 1: India overtakes China in the growth stakes

Source: World Bank

Is India’s fast growth sustainable? Recent economic data indicates declining consumption, anaemic private investment, diminished corporate performance, agricultural distress and slowing GDP growth. (Questions have also been raised over the statistical robustness of recent growth.) Rathin Roy, of the Prime Minister’s Economic Advisory Council, has raised the issue of structural problems leading to a ‘middle income trap’, linked to inequality and associated failures in productive employment growth.1 The 2018 Economic Survey also referred to the challenges of productive transformation, human capital and agricultural distress.2

India’s economy holds great potential, but there is a big risk that this will not be translated into reality. Relative to its income level, India has both a highly diversified economy and well-developed organizational capabilities in the business sector. These presage multiple opportunities to upgrade, reinforcing classic forces for ‘convergence’ as the country catches up with those at the technological frontier. These forces are complemented by the (potential) demographic dividend as young cohorts enter the labour force.

However, on current trends, India is en route to the Latin American path, in which episodes of fast growth tend to stall in the long run. Signs of Latin Americanization lie in the consolidation of what has been referred to as ‘oligarchic capitalism’, with its drawbacks of widespread informalization, rising extremes of inequality, and a corporate-financial nexus of bad assets that risks growth and macroeconomic stability.

Our interpretation of a middle income trap in this paper is an essentially political-institutional account, embedded in the nature of the relationship between the state and business and between the state and society. Indian capitalism has two faces: dynamic, competitive and productivity-oriented; and connected, rent-extracting and corrosive politics. Some sectors and companies are more ‘rent-extracting’ than others. But many face both ways. Large Indian companies – such as the Reliance and Adani groups – seem to have both high productivity and high levels of influence. Then, beyond the corporate business sector, there are immense numbers of self-employed, small and medium-sized firms in the informal sector.

These features resonate vividly with characteristics of Latin America capitalism. This can be seen as having three types of enterprise: connected plutocrats with major influence over the state system (such as Carlos Slim in Mexico, and other Mexican billionaires), the rest of the business sector (that struggles with regulation, poor infrastructure and weak skill development), and a very large number of small-scale/informal enterprises (with weak access to formal credit, legal recourse, infrastructure and modern productive support systems). Countries such as Mexico and Brazil had their episodes of fast growth and then got stuck in a mix of low productivity, inefficient social policy, and periodic macroeconomic crisis.

As in Mexico or Brazil, capitalism in India operates in a system that is characterized by both formal rules and less formal deals. ‘Deals’ refer to both broad understandings and particularistic relations between the state and business. But ‘rules’ also matter. Rules can be in tension with deals when the latter aim to subvert the former, but hybrid arrangements – such as when rules are applied in the implementation of deals – are common. Carlos Slim got his big break through the (legal) privatization of Mexico’s telecom company by the then president, Carlos Salinas. Most of Mexico’s other billionaires were also launched then. And this was when Mexico was already significantly richer than India today.

Rules matter when implemented well; they play the essential role of providing credible threats and penalties for unlawful deal-making, in addition to dealing with the array of concerns over standards, safety and protection. But an over-regulated, rule-based economy can crowd out investment and stymie growth. India’s economy has evolved from being a case study in over-regulation to, functionally, a hybrid of rules and deals. Of the business-politics nexus, it can be said that ‘the relationship can no longer be understood as either developmental or crony capitalist: it is both’.3

India’s major growth acceleration occurred in the 2000s. It involved a striking growth in aggregate – and, in particular, private – investment and exports. Both faces of capitalism were manifest. There were significant strides in business capabilities and capitalist institutions. However, even as GDP skyrocketed, India’s growth story was dogged by concerns over high-level corruption and rising inequality. A series of scams over natural resource allocation helped consolidate public anger around entrenched politician-business links, spurring a national anti-corruption movement. An elite coterie of Indians was seen to be pulling the strings of politics and business, and public sentiment rallied around these societal shifts.

While household surveys suggest inequalities are still much lower in India compared to Latin America, there is evidence of continued concentration of wealth and incomes at the top of the distribution. Combining tax data with household survey data, Chancel and Piketty estimate a large increase in the income share of the top 1%, matched by a corresponding decline in the share of the bottom half of the population (Figure 2).4 By this measure, the difference in income growth between the top and the rest of the distribution was even greater than in China and the US – both notorious for their inequality rise (Table 1).

Figure 2: The rising concentration of income in India

Table 1:

A more specific manifestation of growing inequality is the rise in wealth of India’s billionaires, almost all of which is fuelled by business success (Figure 3).

Figure 3: The wealth of India’s top ten billionaires rose rapidly between 2014 and 2018

Source: Forbes.com

A crucial heritage of the period of heady growth has been a dramatic rise in reported non-performing assets (NPAs) in the banking system. NPAs are products, at least in part, of past state-business links, especially between public sector banks and influential businesses. NPAs were over 14% of gross advances in 2018 for public sector banks, with a still-high 8% for net NPAs (net NPAs are net of provisions) (Figure 4).

Figure 4: A large rise in Non-Performing Assets, especially in public sector banks

Source: DBIE, RBI

This rise in NPAs, alongside recent setbacks to India’s shadow banking industry, is a crucial constraint to the flow of credit and private investment, which has stalled in recent years. Gross capital formation as a percentage of GDP is hovering around 31%, its lowest since 2003 (Figure 5). Reported new investment proposals have also been falling steadily since 2015 (Figure 6).

Figure 5: The rise and fall of India’s investment rate

Source: World Bank information base

Figure 6: The rise and fall in investment proposals

Source: CMIE

Resolving the NPA crisis, an increasingly important policy priority in recent years, is necessary but not sufficient. The informal sector continues to dominate the economy, with over 80% of non-agricultural workers employed by the informal sector and Micro, Small, and Medium Enterprises (MSMEs) contributing over a third of GDP. Yet the IFC estimates that formal credit channels account for only 16% of debt financing in the MSME sector.

The Urgency of Action
Why is a focus on the functioning of Indian capitalism so important for the incoming administration?

For every administration that fails to put in place the institutional and policy preconditions for dynamic, inclusive development, there is a permanent loss in productive and human potential. Failure to act now means another cohort of India’s youth being substantially ill equipped to participate in productive work, fostering further increases in inequality.

Even more critical is the risk of further entrenchment of business elites, with respect to their links to both the state and minority shareholders, creating an oligarchic capitalism that heightens resistance to future institutional transitions to dynamic, competitive capitalism.

Furthermore, the global economic context is much more anaemic than the ‘sweet spot’ of the early 2000s. Long-term growth is slowing throughout Europe and the US. Even China – the main autonomous source of growth in the global economy – is in the midst of both a long-term slowdown as its economy matures, and concerns over financial fragility.

Finally, global technological change will increase incentives for increased automation in the economy. This is likely to have profound effects on the work opportunities for India’s labour force, with as yet ill-understood consequences.

These developments will have major distributional dimensions that threaten political stability. The interaction between a consolidation of oligarchic capitalism and the less favourable global context is why the risk of a Latin American style middle income trap is so salient.

A Policy Agenda
Whether India realizes its growth potential or gets stuck in a middle income trap depends on both policy choice and institutional design. Avoiding the Latin American path of oligarchic capitalism and widespread informality involves building the basis for a dynamic, inclusive and competitive capitalism. This requires, in the resonant phrase of Raghuram Rajan and Luigi Zingales, ‘saving capitalism from the capitalists’.5 Rebuilding state-business relations in an open, competitive rules-based fashion is essential. We outline six complementary areas. The complementarity is critical, as is an overarching theme that without institutional deepening with respect to accountability, autonomy and transparency, these policies will be subverted.

(1) Resolution of NPAs: Critical to real credit flows, investor sentiment and the broader macroeconomic health of the system is the effective resolution of NPAs. While the Insolvency and Bankruptcy Code (IBC) has set out a sound framework to resolve NPAs and shift power from promoters to creditors, translating the promise of the IBC into practice remains a challenge. RBI data available until January 2019 indicates that resolution has been approved in 66 cases so far, unlocking INR 800 billion for creditors. But the pace of resolution lags the Act’s guidelines – egregiously, in some cases. In addition, continued vigilance is required to ensure that tight eligibility guidelines for potential buyers do not translate to increased corporate concentration in key sectors. Underpinning the broader NPA challenge is the need to sustain the autonomy of the central bank, whose independence must be protected and unchallenged by the executive.

(2) Competition: Dynamism and innovation require competition. Many sectors are already concentrated, and there are risks of further concentration – in the consolidation following resolution, and in the future via network effects in platform-based sectors. This is vividly illustrated by the debates in Europe and the US over platform-based companies. This requires an empowered, autonomous competition authority, and also continued innovations in regulation in the wake of technological change. Mexico actually created a strong, autonomous competition authority, with a dynamic head who could not be removed by the executive. But its action on anti-competitive behaviour (including of billionaire-linked companies) got stuck in the judiciary – with lessons for India. Infrastructure and natural resources are a special case: while auctions are an important step, implementation is again crucial. The most notorious Latin America-wide corruption scandal of the recent past, involving the Brazilian conglomerate Odebrecht, involved a series of contracts won in competitive auctions for PPPs. The Achilles heel was in the renegotiation phase, when concessionaires often extract big advantages. An alternative design is to make renegotiation also subject to credible, third-party scrutiny and decision-making with transparent processes.

(3) Better rules: Shifting the balance to rules-based interactions requires better rules. There has been a plausible focus on the ‘Doing Business’ indicators and healthy interstate competition on the rankings. However, international evidence finds that these notional measures are often completely unrelated to actual experience, which depends on implementation. The GST reform should help in the long term, but the costs of participation often still seem to outweigh the benefits, especially for informal firms. Of specific importance are the complex areas of land acquisition and labour policy. While there has been a tendency amongst economists to fetishize labour flexibilization as the missing ingredient for labour-intensive industrialization (it is no panacea), the goal has to be delinking social protection from the labour contract if inefficient informalization is to be discouraged; this is a specific bridge to comprehensive social policies.

(4) Facilitating implementation: The bureaucracy has in the past been in the production line of converting politican-business deals into the prevailing rules. With the (desirable) anti-corruption motif, there is widespread reference to the ‘chilling’ effects on approval, from both business and bureaucrats. Some reduction in the excessive legal risks for bureaucrats have come with changes in the 13(1)(d) regulation in 2018 – which previously criminalized bureaucrats for any loss to the government, even if there was no intent – but the effects are still unclear. Additional action, such as new third-party processes for contract renegotiation just referred to, can help. This is an area where concerted exploration of implementation design is important.

(5) Inclusion: Deepening institutional support for small-scale and informal enterprises will require a whole suite of policy changes across sectors and along the value chain. Providing more robust support to MSMEs, including those in rural areas, will require enhanced infrastructure provision (along the lines of the Pradhan Mantri Gram Sadak Yojana), a deepening of financial inclusion and access to credit, a data-driven reorientation of NRLM and urban skilling programmes, and finally, a revamping of CSR towards leveraging corporate comparative advantage in favour of supporting business enterprises instead of government programmes.

(6) Industrial policy: Finally, there is a potentially important role for sector-specific industrial policy. In this regard, India has both successes and failures. The auto industry has benefited from a series of state actions that led to a productive sector strongly integrated with global value chains, notably in Tamil Nadu. Sector-specific public goods, such as on National Automotive Testing and R&D Infrastructure Project, are also examples of successes. By contrast the Special Economic Zone policy often became associated with land deals. Effective 21st century industrial strategies require both close cooperation with the business sector and a focus on sector-specific public goods (rather than a bias towards protection or tax breaks), but also sufficient autonomy from business lobbies – or especially a politician-business nexus – to avoid consolidation of inefficiency and rent-extraction. Credible sunset clauses to support are one example of an instrument.

This is only an outline of policy domains. While the complementarity between them is vital, even more important is the way in which the state behaves in their implementation. And key to this are the checks and balances that lie at the heart of the accountability mechanisms that underpin state behaviour.

These are of two complementary kinds. First, there are checks and balances within the state: fundamentally in the independence of the judiciary, but also the full array of regulatory agencies, and the incentives that they face. India has had plenty of experience of accountability institutions, notably in the long-term independence of the Election Commission and the Supreme Court. Both, however, are increasingly seen as subject to influence, with critical actors in both taking unprecedentedly public measures to decry perceived threats to institutional autonomy and conduct.

Second, there is the pressure from civil society, whether (weakly and imperfectly) via periodic elections, or through ongoing civil society activism over state performance, via many mechanisms. This is heavily influenced by the availability of information, for which the various kinds of media play a central role. Unfortunately, the traditional media in India is largely owned by big business, and mostly supine on state business concerns.

There is room to strengthen both the mechanisms of accountability that belong with the state, and those that belong with civil society. What is needed is a genuine counterbalance in institutional and societal terms, complemented by strengthening, not weakening, of the capabilities of the state. For while India has a tradition of very high-quality individual state actors and a reputation for an overbearing state presence, a real issue is weaknesses in state functionality.

The Latin American experience shows that growth can occur for a while under conditions of oligarchic capitalism and widespread informality. India has immense economic potential, for which the business sector is crucial. However, unless there is a comprehensive agenda of policy and institutional change to create a dynamic capitalism, there is a risk of a Latin Americanization of India’s path that will consolidate a middle income trap of low productivity growth and entrenched inequality.

Other pieces as part of CPR’s policy document, ‘Policy Challenges – 2019-2024’ can be accessed below:

The Future is Federal: Why Indian Foreign Policy Needs to Leverage its Border States by Nimmi Kurian
Rethinking India’s Approach to International and Domestic Climate Policy by Navroz K Dubash and Lavanya Rajamani
India’s Foreign Policy in an Uncertain World by Shyam Saran
Need for a Comprehensive National Security Strategy by Shyam Saran
A Clarion Call for Just Jobs: Addressing the Nation’s Employment Crisis by Sabina Dewan
Time for Disruptive Foreign and National Security Policies by Bharat Karnad
Multiply Urban ‘Growth Engines’, Encourage Migration to Reboot Economy by Mukta Naik
Schooling is not Learning by Yamini Aiyar
Clearing Our Air of Pollution: A Road Map for the Next Five Years by Santosh Harish, Shibani Ghosh and Navroz K Dubash
Protecting Water while Providing Water to All: Need for Enabling Legislations by Philippe Cullet
Interstate River Water Governance: Shift focus from conflict resolution to enabling cooperation by Srinivas Chokkakula
Managing India-China Relations in a Changing Neighbourhood by Zorawar Daulet Singh
Beyond Poles and Wires: How to Keep the Electrons Flowing? by Ashwini K Swain and Navroz K Dubash
Regulatory Reforms to Address Environmental Non-Compliance by Manju Menon and Kanchi Kohli
The Numbers Game: Suggestions for Improving School Education Data by Kiran Bhatty
Safe and Dignified Sanitation Work: India’s Foremost Sanitation Challenge by Arkaja Singh and Shubhagato Dasgupta
Safeguarding the Fragile Ecology of the Himalayas by Shyam Saran
Female Labour Force Participation: Asking Better Questions by Neelanjan Sircar
Towards ‘Cooperative’ Social Policy Financing in India by Avani Kapur
Understanding Land Conflict in India and Suggestions for Reform by Namita Wahi
Regulating New Technologies: Three Central Principles by Ananth Padmanabhan
Back-end First: A National Agenda for India’s Agricultural Markets by Mekhala Krishnamurthy
In Need of Structural Repairs: The Social Justice Project by D Shyam Babu
1 ‘Can’t run world’s fastest growing economy on employment support… Must create employment: PMEAC member Rathin Roy’, Indian Express, 26 May 2019, https://indianexpress.com/article/india/rathin-roy-indian-economy-employ….
2 Government of India, Economic Survey of India 2017-18 (New Delhi: Government of India, 2018).
3 Aseema Sinha, ‘India’s Porous State: Blurred Boundaries and the Evolving Business-State Relationship’, in Business and Politics in India, edited by Christophe Jaffrelot, Atul Kohli and Kanta Murali, (New Delhi: Oxford University Press, 2019).
4 L. Chancel and T. Piketty, ‘Indian Income Inequality, 1922-2014: From British Raj to Billionaire Raj?’, CEPR Discussion paper 12409 (Washington, DC: Center for Economic and Policy Research, 2017).
5 Raghuram Rajan and Luigi Zingales, Saving Capitalism from the Capitalists: Unleashing the Power of Financial Markets to Create Wealth and Spread Opportunity (New York: Random House, 2003).

Bihar Election 2015: Commentary and Analyses
ELECTION STUDIES POLITICS

The Bihar state elections resulted in a clinching victory for Grand Alliance (Mahagathbandhan) and the return of Nitish Kumar as Bihar’s chief minister. At CPR, Neelanjan Sircar, Bhanu Joshi and Ashish Ranjan captured the election cycle through in-depth analyses based on extensive field work and data.

Their commentaries have been published as op-eds in a series in The Hindu and as working papers/data analyses on CPR’s website. Find below a complete chronological compilation to date:

Series on Bihar elections in The Hindu:

Bihar polls: the shifting goalposts​
It’s not about caste or beef, but vikas
How will Bihar shake out?
How Modi surrendered Bihar
​After Bihar, politics seeks a new normal
Working papers and analyses:

The Battle for Bihar: Understanding the Upcoming 2015 Election
“What do Bihar’s Voters Want?”
“How Will Bihar Shake Out?”

BY ACCOUNTABILITY INITIATIVE
FISCAL DEVOLUTION SOCIAL SECTOR SCHEMES BUREAUCRACY

Accountability Initiative (AI) released a series of blogs over the month of August, interpreting their research on fiscal devolution (State of Social Sector Expenditure 2015-2016) in response to the Fourteenth Finance Commission’s (FFC) recommendations to increase the fiscal autonomy of states.

AI studied 19 state budgets to come up with a first comprehensive analysis of the FFC recommendations and its implications for devolution, federalism, and social sector investments in India. Its blog series is highlighted below:

Winners and Losers: How the 14th Finance Commission Recommendations Impacted State Revenues: Avani Kapur analyses the impact of fiscal devolution to states and whether increase in tax devolution was offset by cuts in Centrally Sponsored Schemes. Read the full blog here.

What Has Changed for Centrally Sponsored Schemes (CSSs) in 2015-16: Yamini Aiyar discusses how the top down, one-size fit all model of Centrally Sponsored Schemes (CSS) gives little flexibility to states in implementing social policy related programmes, even as the CSS play an important role in ring-fencing money for social policy programmes. Read the full blog here.

The 14th Finance Commission (FFC) and Social Sector Spending: Vikram Srinivas and Avani Kapur analyse state budgets to discuss how states are using greater fiscal autonomy proposed under the FFC recommendations, and find that all states intend to spend more money on the social sector in 2015-16. Read the full blog here.

The 14th Finance Commission and the Way Forward in States: Vikram Srinivas and Priyanka Roy Choudhury write that for effective usage of money through decentralisation, states must ensure a detailed budgetary process and quality data to make informed decisions. This calls for both measures of capacity building and strengthening accountability. Read the full blog here.

The Future of Centrally Sponsored Schemes in the New Era of Devolution: Yamini Aiyar offers specific ways in which the CSS can be best structured to serve the needs of the states as the country adapts to a new era of fiscal devolution post the recommendations of the FFC. Read the full blog here.
AI also ran a tweetathon focusing on findings from six states (Maharashtra, Chhatisgarh, Rajasthan, Bihar, Karnataka, Tamil Nadu) out of a total of 19 state budgets studied, which capture the key impacts of fiscal devolution on social sector investments and public service delivery. The full storification of the #PAISA2016 tweetathon can be accessed here.