Ideas and Institutions is a fortnightly newsletter from Carnegie India’s political economy team. It presents analyses of contemporary developments in India’s political economy and reviews of writings relevant to India’s development, thereby seeking to inform the institutional and policy choices that India is making in its development journey. The contributors also reflect on how India’s political economy shapes these choices and the effects that they have on the political economy order.
Analyses:
1. Four Questions About Corruption and Development in India
Robert Klitgaard defines corruption as “where a market enters where society says it shouldn’t.” Corruption turns certain decisions into illicit transactions, which, as per societal rules, ought to be taken on the basis of some other criteria. Since 2011, corruption has been a central issue in India’s political economy, and certain enforcement actions have been taken as part of a broader anti-corruption strategy. This essay considers data on anti-corruption enforcement under India’s main anti-corruption law and places it in the broader context of draconian laws coupled with moderate state capacity, to raise certain questions regarding the efficacy of India’s anti-corruption strategy and the possibility of unintended consequences. Read it to get a perspective on an issue that may be shaping the behavior of the government bureaucracy in India.
2. A Big Picture View of Income Tax Disputes in India
In her speech presenting the budget for 2019-20, Finance Minister Nirmala Sitharaman invoked the Tamil Sangam era poet Pisiranthaiyar’s allegory for government-taxpayer relations: “A few mounds of rice from paddy, that is harvested from a small piece of land, would suffice for an elephant. But what if the elephant itself enters the field and starts eating? What it eats would be far lesser than what it would trample over.” This essay shows that, for more than a decade, the elephant has been rampaging in the field (even though some of these years have been times of poor harvest), and what makes it worse is that hardly any of the crops the elephant takes actually make it to its stomach. Read it to understand an important aspect of changing state-capital relations in India.
3. Agricultural Marketing Laws Prevent Agricultural Markets from Developing
The union government’s farm laws died a sad death, but their repeal speaks loudly about the entrenched inefficiencies in the agricultural market and the interests that benefit from them. This essay contrasts what an ideal agricultural market should look like for an entrepreneurial farmer and describes how the existing system looks nothing like it—the monopsonies of APMCs, the lack of adequate marketing infrastructure, the absence of contract farming, and the fear of stock limits under the Essential Commodities Act. As a consequence, the Indian farmer is barely a free agent. Read it to understand how agriculture is one of the few product markets that continues to be shackled by the government in India.
It seems strange to analyze the process by which regulators fix fees for their regulated entities. After all, an independent regulator has to find sources through which it can finance its activities and retain its independence from the government. Moreover, charging regulated entities a fee for regulating them is common across regulators. But what about a case where the regulator proposes to increase annual fees for some entities eight times in one go and to collect 20 percent of revenue as annual fees from other entities? Is this still fair, or could the regulator cannibalize its market in the process? Read this essay to chew over why these are important questions for regulatory governance.
5. Looking at Lucas’s Question After Seventy-five Years of India’s Independence
In a paper published in 1988, Robert Lucas wrote: “Is there some action a government of India could take that would lead the Indian economy to grow like Indonesia's or Egypt's? If so, what, exactly? If not, what is it about the ‘nature of India' that makes it so? The consequences for human welfare involved in questions like these are simply staggering: Once one starts to think about them, it is hard to think about anything else.” Taking this quote as a point of departure, this essay gives an overview of India’s GDP per capita since independence from a comparative perspective. Read it to understand India’s journey towards prosperity—where it has come from, where it is, and where it needs to go.
6. Land Pooling: The Unanticipated Benefit of Reforming Land Acquisition Law
Industrialization and urbanization are at the heart of India’s development agenda. Urban planners since independence have been preoccupied with the question of how to deploy land to enable cities to develop. The path that they have predominantly taken has been to use land acquisition law to plan and develop cities or to develop industry. In 2013, reforms to land acquisition law made acquisition much more expensive. This essay explains how one of the main consequences of this reform was the move to lessen coercive methods of land use, including land pooling. Read it for yet another example of unintended consequences of policy change.
7. The Gloss in the Gross Domestic Product Estimate
India’s GDP growth estimates since 2021 are being widely cited to suggest that the Indian economy has recovered well from the economic crisis induced by the pandemic and the policy responses to it, and that it is doing better than other economies. This essay questions the validity of these assertions by comparing GDP in recent quarters with that in the pre-pandemic period, considering sector-wise performance since the pandemic, and placing the international comparison in perspective. Read it to understand the complexity of interpreting the data on economic output since the pandemic.
Reviews:
1. James C. Scott's Searing Critique of State Power
The increased legitimacy of state power is likely to be one of the lasting legacies of the Covid-19 pandemic. And yet, we continue to see the disastrous consequences of high-modernist state policies globally, from China’s dynamic zero-covid regime and its effects on the Chinese economy, to Sri Lanka’s sudden, top-down turn to fertilizer-free agriculture and subsequent descent into chaos. James C. Scott’s body of work provides a scathing intellectual critique of such high-modernist state action. Read this essay to get a glimpse of his critique of state power.
2. When Did India Transition to a High Growth Regime?
It is widely accepted that the Indian economy has registered high growth in recent decades, but there is no consensus on when the economy transitioned to high growth. The answers typically range from the late 1970s to the early 1990s. The answer is important because it is directly linked to understanding the drivers of economic growth in India. This essay not only reviews the most important papers on this question but also endorses a paper that uses the most sophisticated methodology to arrive at the answer. Read it to get one answer to the question of India’s transition to a high growth economy and an overview of methodologies used for identifying such transitions.
3. The Intellectual Odyssey of Albert Hirschman
A fascinatingly original thinker, Albert Hirschman made important contributions to many fields over a career spanning six decades. A recent intellectual biography by Michele Alacevich contextualizes Hirschman’s ideas and finds certain threads that run through his intellectual life. Alacevich finds in Hirschman’s contributions “an intellectual trajectory of startling imagination and profound coherence.” While those who have read Hirschman know the brilliance of his imagination, Alacevich brings out the coherence in his body of work. Read this review of the book to appreciate Alacevich’s achievement in understanding Hirschman’s complex intellectual journey and presenting it in a succinct manner.
4. The Theory of Populism According to Pierre Rosanvallon
Although quite popular at this moment in world history, populism remains an undertheorized concept. It is therefore good to see one of the foremost political theorists of our times, Pierre Rosanvallon, present his theory of populism in a recent book The Populist Century – History, Theory, Critique. In the book, Rosanvallon offers his theory of populism and situates it within the history of democracy. Typical to his style, he brings together historical analysis and political theory to offer a critique of populism. Read this review to get a flavor of Rosanvallon’s ideas that speak to our present moment.
Show me a problem and I will write you a law, is the mantra policymakers are increasingly adopting in response to policy problems. If laws are the solution, is the converse also true? Do laws create binding constraints to growth and economic development? And, is legal reform a panacea? In their book, Tirthankar Roy and Anand V. Swamy argue that laws and rules in some sectors are indeed increasingly becoming binding constraints after 1991, with the growth of private markets and the necessity of enforcing private contracts. This essay analyzes their main arguments and contextualizes them within India’s development trajectory. Read it to understand the complex relationship between law and economic development.
6. Achieving Economic Growth by Negotiating Property Rights in China’s Cities
Most developing countries are faced with serious fiscal constraints for implementing developmental policies. China is one of the few countries that sustained high economic growth for over three decades and managed to overcome some of these constraints. Meg E. Rithmire’s book provides a detailed account of how local Chinese officials managed to capitalize on property rights by creating land markets and then successfully used them to promote economic growth. Read this review to appreciate Rithmire’s deep understanding of the local political economy and the enabling framework that allowed this transformative process to succeed.
7. The Aristocratic Liberalism of Alexis de Tocqueville
The most profound thinker on democracy, Alexis de Tocqueville, has been a subject of many biographies and philosophical portraits. Olivier Zunz’s The Man Who Understood Democracy: The Life of Alexis de Tocqueville is the latest biography of Tocqueville, and perhaps the best one till date. Written as a portrait of Tocqueville’s intellectual life, it is a succinct account of a life that engaged with the grand themes of its time while having a keen eye for detail. Read this review to see how well Zunz captures Tocqueville’s intellectual pursuits and how the book compares with other works on Tocqueville.
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