Governments must understand that resources are held in trust. They’re not to be frittered away

News: Recently, the Rajasthan government has announced that it will restart the old civil servant pension scheme. Further, the Punjab government has announced its measures on providing electricity in Punjab. These decisions are based on the foundation of a welfare state to make a more egalitarian society.

Types of State as per Nobel Laureate James Buchanan

There are three versions of a state: (1) the protective state (police, rule of law, defence, courts), (2) the productive state (common goods like roads, power, health, education, etc.), and (3) the redistributive state.

What are the problems in India in terms of state?

Most of the state governments accept the status quo in the first two types of state. But they always “innovate” to fulfill their redistributive role.

The populist decisions lead to unsustainable borrowing burden in the future. For example, Europe is facing an unsustainable situation. It has 8% of the world’s population, 25% of its GDP, and 50% of its social spending.

If Indian state governments could limitlessly print or borrow money. It would lead India to reach an economic crisis that Sri Lanka is going through.

The populist schemes confiscate future spending on interest payments, it crowds out other expenditure, and crowds out capex.

What are the genuine problems that need the government’s attention?

India has the problem of unemployment. This is found in farming, informal wage employment, and self-employment.

Way Forward

It’s high time that all the state governments shift the usage of their resources from fulfilling their role of redistributive state to fulfilling their other two roles of protective and productive state.

The state government should work upon five structural interventions in order to create higher-wage jobs:

Reduce regulatory cholesterol: Around 80% of India’s employers’ compliance comes under the state government. Therefore, the state governments should rationalise, decriminalise, and digitise their compliance ecosystem. This will help in the achievement of lower corruption and higher formality.

Fix government schools: The most powerful tool for social mobility and employability is free and quality school education. The government works towards ensuring fulfilment of smaller class sizes, teacher salaries, teacher qualifications, and toilets. The governments must overhaul school performance management and governance. This will help in the creations of human capital.

Converge education and employability: The partition between degrees and skills is meaningless for the new world of work, organisations, and education. States should set up skill universities. The government can promote degree apprentices which innovate at the intersection of employment, employability and education.

Devolve money and power: Cities are the engine of growth, job creation and social justice. For example, New York City’s GDP is higher than Russia’s. Therefore, the state governments should devolve money and power to the Urban Local Bodies (ULBs) to avoid the curse of megacities.

Civil services reform: The state’s people need better government schools, primary healthcare, policing, infrastructure, selling off of loss-making public sector units, and greater Capital Expenditure (CAPEX). The state government needs a new human capital regime for civil servants via seven interventions; structure, staffing, training, performance management, compensation, culture, and HR capabilities.

Source: The post is based on an article “Governments must understand that resources are held in trust. They’re not to be frittered away” published in the Indian Express on 21^st May 2022.