The Raghuram Rajan Committee has released its report on “Evolving a Composite Index of States,” based on which the Centre should allocate funds to the States. It recommends that “8.4% of funds will be allocated as a fixed basic allocation. Of the remaining 91.6%, /th and /th of the funds should be allocated on the basis of need and performance respectively.” Need has to be captured through constructing an index of (under) development with the help of 10 variables — monthly per capita consumption expenditure, education, health, household amenities, poverty rate, female literacy, SC-ST population, urbanisation rate, financial inclusion, and connectivity. Most crucially, the report recommends that 25 per cent of the funds should be linked to performance — recognition for effective governance and efficient use of resources. Further, the formula rewards underdeveloped States more for an improvement in the index so that these States do not to lose on allocations as they develop.
Understanding social dynamics
The report, despite advocating multidimensionality (hitherto missing in formulae governing Central assistance to the States) is still embedded in the linear and technocratic understanding of policy processes. It is assumed that input A will result in desired output B. It ignores the fact that input and output is mediated by a “black box” where the policies are captured by the entrenched social groups and in the process alter their intended objective, often beyond recognition. If the policies have to perform better, then the aim should be to understand the social dynamics governing this black box. Can the suggested framework of the report achieve this?
The report invokes two crucial concepts — “absorption capacity” and “performance.” Absorption capacity, the report mentions, is the presence of “administrative and taxation institutions to raise resources,” and better governance capacity to use the resources, and is reflected in “better law and order conditions, business-friendly tax and labour laws, an effective legal and regulatory framework, transparent and well-enforced property rights, sound monetary and fiscal frameworks, etc.” It concludes that without sufficient absorptive capacity, allocated resources will be misutilised and States will eventually fail to claim funds contingent on performance.
This causal relationship drawn between “absorption capacity” and “performance” by the report, we argue, is an erroneous understanding of democracy and the democratic state, for two specific reasons.
First, performance is not only an outcome but also a process. The failure to recognise, quantify and index the socio-political processes affecting policy outcomes results in the conversion of what ought to be process variable into an outcome variable. All the “need-based” indicators of the under development index will acquire their values on the basis of the nature of absorption capacity. Hence, States with poor absorption capacity will not only be poor performers but also hugely inept in utilising the Centre’s funds.
Yet, the report relies entirely on outcome variables and talks little of how process variables could be incorporated in the ranking. For instance, the report may capture “health” statistically, but will fail to understand how many Dalits and Muslims visit public health centres. Or for that matter, it is easy to view education through the lens of access and dropout ratio, but more difficult and yet, more important to investigate its inclusiveness and quality. The layers of processes mask the real problems at hand. And it is these layers that the report does little to identify.
This leads us to the second argument. It is desirable to construct an index of the “State capacity” rather than using the techno-managerial concept of “absorption capacity” to assess performance. State capacity implies the creation and political alignment of institutions that would not only generate growth but also redistribute the growth and thereby articulate the socio-economic interests of the poor and marginalised. This institutional unfolding of State capacity will not only help the growth process but also offset the processes of policy capture by the entrenched interest groups crowding the so-called “black box” between policy input and desirable output.
Measuring institutions
State capacity for growth with redistribution will demand capturing and quantifying institutions that mitigate the adverse social impact of the growth; provide dignity, decent work and social security opportunities to the unorganised sector workers constituting more than 90 per cent of the work force; create structures of decentralised governance giving control over natural resources — land, forest and water — to the local community; promote gender and caste equity on one hand and mitigating the alienation of minorities on the other (the report justifiably captures SC/STs but Muslims, who actually exhibit deplorable statistics and form the bulk of poor population, are completely ignored). It will imply measuring institutions that signal the willingness of the States to create and sustain institutions that are socially inclusive, which in turn can be the real proxy for performance.
Unfortunately, the report mentions only those variables associated with economic growth to capture the absorption capacity. The available data suggest that policy measures capturing the outcomes of these variables has exacerbated inequality and further marginalised the poor and the deprived and in the process has further eroded State capacity.
To undo the risk of unintended omissions and forced inclusions, a separate discussion should emerge on how to quantify and capture institutions, which are the real cause and consequences of socially equitable development. In liberal politics, the social power is definitional: those with the ability to define problems can address them. Yet, defining the problem itself remains unachieved.
(Aseem Prakash is associate professor, O.P. Jindal Global University, and Yugank Goyal is PhD scholar at Hamburg University and honorary fellow at O.P. Jindal Global University.)
