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August 30, 2025
Rs 7.5 lakh crore (around 3 per cent of GDP) on education annually, half the fifth-grade children in rural India cannot read at a second-grade level.
Nearly 35 per cent of India’s children are stunted, and India has more malnourished children than any other country: over 60 million children under five are stunted or underweight.
corruption likely accounts for only 17 per cent of the waste in government and the remaining 83 per cent is due to inefficiency resulting from poor management and governance.
India, however, is one of the most over-centralized countries in the world. For instance, India spends only 3 per cent of its budget at the local government level compared to over 50 per cent in China. While outsiders often think of China as highly centralized, in practice its budgets are nearly seventeen times more decentralized than India’s!
When the state promises more than it can deliver, it is often forced to break some promises,
For instance, most experts agree that our current farming practices are fiscally and ecologically unsustainable, and that reforms are needed.
The Indian state has a history of broken promises, affecting Indians of all classes.
Why have we, as a society, not paid more attention to addressing the fundamental problem of weak state capacity? One reason is that Indian elites and middle classes have mostly seceded from being recipients of public services.
The Middle Class Exit
a fragmented society is more likely to demand ‘vote bank’ politics where the focus of political activity is on directing the resources of the state to preferred voter groups rather than providing broader public services
Progressive policymakers, starting from Dr Ambedkar, have not trusted local elites to deliver services such as education that could empower marginalized groups. This is partly why our founders concentrated powers in higher-level officials rather than local governments,
Working with the state government, my colleagues and I helped set up an outbound call centre that contacted over 25,000 randomly selected farmers to verify payment receipts.
One reason for underinvestment in state capacity is its low priority among tax-paying elites and middle classes who have seceded from using public services.
In many ways, the Indian state and its agents can seem like an extortion racket that collects money both legally (taxes) and illegally (bribes) to benefit those who belong to or are closely connected to the state.
political and bureaucratic incentives often reward the appearance of activity rather than the effectiveness of that activity.50 Companies face ‘market tests’ that keep them accountable. If they do not create more value for customers than their costs of production, they will go out of business. In contrast, governments can spend taxpayer money ineffectively for a very long time without facing any consequences.
India’s unique experiment of ‘democracy before development’ has led to greater voter demands on the Indian state relative to its fiscal and administrative capacity than today’s high-income countries had at similar stages of development.
Educated, eyes-open optimism pays; pessimism can only offer the empty consolation of being right.
Third, when the state is unable to effectively deliver for all citizens, it often makes political sense to direct the state’s limited resources to narrow groups of base voters as opposed to investing in state capacity to better serve all citizens. This phenomenon is commonly known in India as vote-bank politics. As we’ll see in this chapter, weak state capacity contributes to vote-bank politics, and vote-bank politics further weakens state capacity, reinforcing each other in a vicious cycle.
military spending often accounted for 70–90 per cent of spending in national budgets
‘War made the state, and the state made War.’5
Pakistan terror made the state and state made the terror
Until the emergence of industrial states, the world was mostly stuck in a ‘Malthusian trap’ where productivity gains were primarily absorbed by population growth, with GDP per capita mostly remaining stagnant.8 The
While the US and the UK were ‘democracies’ in the nineteenth century, voting rights were restricted, and concentrated among those who were educated and owned land or property. These
wealth of these nations was built at least in part on the back of extreme exploitation of either slaves (in the US) or the colonies (in the case of the UK). This is why India’s democracy, which empowers even the most marginalized groups in society,
The first is a public finance challenge and the second is a political incentives challenge. While
rate of return from investing in governance and state capacity is often ten times greater than the cost (as shown in Chapter 1).21
Thus, many candidates won with support from less than 20 per cent of the electorate.23
Consider a politician with a public budget of Rs 1000 for 100 voters. They can invest in a public good that increases the total value to Rs 1500, benefiting each voter by Rs 15. Or they can redistribute Rs 750 (with 25 per cent lost to administration and corruption) to twenty-five ‘base’ voters, providing them Rs 30 each, and zero to the other seventy-five. The first option generates greater social value (Rs 1500 vs Rs 750). However, if only 20–25 per cent of registered voters are needed to win, the second strategy is politically more attractive—especially because Rs 30 is double of Rs 15, and
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In India, clientelism is known as vote-bank politics,
Multiple studies have documented widespread atrophy in governance during this period.25 Yet, what is perhaps less well-known is that programmes targeting the welfare of Yadavs and Muslims—his two main vote banks—functioned relatively well.26 Thus, by directing the limited resources of the state towards his loyal base voters, he could still get re-elected, despite poor overall performance.27
if the tariff costs Rs 50/year per consumer, then its total cost for 140 crore Indians would be Rs 7000 crore/year. If it raises producer profits by Rs 30 crore/year on average for 100 steel producers, the total benefits would be Rs 3000 crore/year. In this example, the tariff results in a national loss of Rs 4000 crore/year.33 Yet, people are unlikely to protest against tariffs since the costs are diffused and are only Rs 50/year on average. In contrast, concentrated benefits make it worthwhile for steel producers to lobby for tariffs. They could each make political contributions of Rs 10
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The political reluctance to take on concentrated interest groups is magnified by the highly non-linear relationship between votes and seats in the FPTP election system.
This highly non-linear relationship between votes and seats can magnify political reluctance to implement public interest reforms that generate concentrated costs.
BSNL sale
‘democracy tax’
Dr Ambedkar, who noted before the Constituent Assembly in 1949 that: On the 26th of January 1950, we are going to enter into a life of contradictions. In politics we will have equality and in social and economic life we have inequality. In politics we will be recognizing the principle of one man one vote
A second insight is that weak state capacity contributes to vote-bank politics, and they reinforce each other in a vicious cycle. The need to raise large
they need to invest in upgrading the 1950s car that is the Indian state.
around 10 million employees across the Central and state governments. Of these, roughly 75 per cent are state government employees and 25 per cent are Central government employees.3
We found that, on average, 25 per cent of teachers and 40 per cent of doctors were absent on any given day. Another 25 per cent of teachers were present but not teaching. Thus, at any given point in time, 50 per cent of government teachers across India were not teaching.9
we estimated that the all-India fiscal cost of teacher absence was over Rs 10,000 crore per year, which is likely greater now since salaries are even higher.
In contrast, teacher absence rates are much lower in private schools, driven
bureaucratic accountability in India prioritizes paperwork and compliance over performance
Put together, short and unpredictable tenures of senior officials is a key reason why the bureaucracy as a ‘system’ underperforms, despite having outstanding individuals in
The system was designed to keep administrators distant from the population and correspondingly feel less guilt about their extractive roles.34
Indian state has not yet fully completed the transition from being an extractive colonial state to becoming a modern, democratic state whose primary goal is to serve citizens rather than rule them as subjects.
Government jobs are highly valuable and sought after due to higher-than-market compensation (especially at lower levels), lifetime job security, and the potential for additional ‘unofficial’ income in many positions.
what was surprising was that even among two candidates of his own caste and party, he selected the less capable one. His reasoning was that the more capable candidate may start thinking that he actually deserved the position, and work independently after being appointed. In contrast, the less capable one
Many state education secretaries have told me that they spend 20–40 per cent of their time responding to litigation on personnel matters.
