It’s the states, stupid

There is a huge but false assumption underlying much of the debate on the election result and its policy implications.

The NDA lost, analysts theorise, because it neglected agriculture, or rural employment, or rural poverty. These armchair conclusions are contradicted by national data on poverty, and by state-wise voting trends (poor, rural states like Chhattisgarh and Orissa voted overwhelmingly for the NDA).

But there is a more fundamental issue that needs highlighting. The assumption of armchair theorists, and indeed of the Common Minimum Programme of the UPA government, is that the central government can actually do something meaningful about these issues. I beg to disagree. These issues are, basically, in the domain of the states. Where the states have failed to tackle such issues despite massive spending for decades, the Centre cannot do much to change matters. It can give more money, but this will be wasted the same way existing spending is.

It may not be obvious to readers, but 80% of Indians have never seen a central government officer. The only face of government they have ever seen is that of state government functionaries: the patwari, police constable, agricultural extension worker, school teacher, primary health worker, PWD engineer, and the state electricity board’s linesman. The villager regards these officials as drones and vultures, with much justification, and votes against them.. What is called the anti-incumbency vote is actually a vote against misgovernance by this motley crowd. It has nothing to do with the central government and everything to do with the state government.

No wonder the Congress party, even while winning the general election, suffered huge reverses in states where it currently rules (Punjab, Kerala, Uttaranchal, Maharashtra, Karnataka) and in states where it ruled till recently (Rajasthan, Madhya Pradesh, Chhattisgarh).

The central government can provide more money for various projects. But enormous sums are already being spent by the states and Centre in rural areas, and this is wasted so badly that voters are rebelling against it. The Centre cannot set up a parallel administration, it has to operate through the state administration. It can urge states to reform and offer some incentives for that. But, by and large, its role is limited to giving more money, which can simply mean more waste.

India spends 4% of GDP on education but this yields only 65% literacy, whereas Sri Lanka and Indonesia spend 1.3% of GDP on education and have over 90% literacy. Unmotivated teachers do not attend school. School completion rates are abysmal and some surveys suggest that only 7% of schoolchildren can write their own names. This problem cannot be solved by more central spending. It requires educational reforms which the states alone can implement (such as education vouchers, or giving parents’ associations the right to discipline teachers).

The same logic applies to the moribund systems for public health and farm extension. More money will mean more waste.. Only when state governments reform their delivery systems will things improve, and that does not require money.

Agriculture is the quintessential state subject. The Centre can propose, but the states dispose. The green revolution came to Punjab and Haryana first because their state governments were aggressive and motivated. Later the green revolution spread to West Bengal but not Bihar , because of the different attitudes of the two state governments.

There is much talk about a fall in public investment in agriculture in recent years. Traditionally, investment in agriculture was mainly in irrigation. Now that Medha Patkar and other environmentalists have the ear of the Supreme Court, public investment has necessarily slowed. Big irrigation projects cannot be implemented quickly even if governments want to.

Besides, bankrupt state governments do not have the money to repair collapsing state canal systems, largely because water charges are close to zero, and cannot fund even maintenance, let alone fresh investment. The need of the hour is to create empowered Water Users Associations that become owners of canal systems, and can levy user charges on members to fund maintenance. In addition, all employees of the irrigation department need to become employees of the Water Users Associations. Alas, no Indian state has the guts to do this: the irrigation department remains in charge. By contrast Mexico and Turkey have handed over irrigation systems totally to user associations.

I hear much talk of the need for agro-processing and cold chains that move produce of the field to factories and to retail stores without rotting. But a cold chain presupposes the existence of universal, reliable electricity. And the one thing all state governments have ensured is that the electricity system is bankrupt and completely unreliable. The election outcome is being interpreted by chief ministers as a vote for free power (Andhra Pradesh, Tamil Nadu). With such attitudes, no amount of central spending will produce reliable cold chains.

Rather than throw good money after bad, finance minister Chidambaram needs to resort to smoke and mirrors to create the illusion of massive central transfers while ensuring that additional money goes only to states that prove they are serious. Kerala and Sri Lanka achieved close to 100% literacy without massive educational budgets, or mid-day meals. West Bengal achieved its green revolution without massive central investment. Maharashtra ’s Employment Guarantee Scheme and Madhya Pradesh’s Education Guarantee Scheme were both launched without massive central assistance.

This does not mean the Centre has to stand aloof. Where states are serious, some targeted central assistance can indeed facilitate change and reform. Again, the Centre has the power to sanction funding from the World Bank or ADB, and should use this judiciously. Andhra Pradesh is a classic example of taking World Bank loans for power reform and then giving free power to farmers. It has taken New Delhi as well as the World Bank for a ride. This sort of public investment is both unsustainable and undesirable. We need more quality in spending rather than quantity.

What do you think?