Dispatch #99: State capability in India-The key to effective governance & development
This dispatch explores the critical role of state capabilities in shaping India's development trajectory, as highlighted in Natarajan & Somanathan's insightful book
In this article, we delve into the concept of state capabilities, an essential aspect of governance and development that has been previously discussed in our newsletter. This piece serves as an extension of those discussions, drawing insights from the insightful book State Capability in India by Gulzar Natarajan and T.V. Somanathan. Their work provides a comprehensive analysis of how state capabilities influence development outcomes, particularly in the context of India, a nation characterized by its vast diversity and complex governance challenges.
Introduction to State Capabilities
State capability can be simply defined as the ability of a government to effectively design, implement, and deliver services to its citizens. Natarajan and Somanathan highlight that India's evolution—from grappling with famine in the 1940s to managing surplus grain today—illustrates significant progress. However, despite these advancements, there remains a consensus that India has the potential to do even better. The authors emphasize that achieving this potential requires addressing the often-neglected aspect of state capability.
Understanding State Capability
Definition and Importance
State capability is not merely about having resources or institutional frameworks; it is about the effectiveness with which these resources are utilized to achieve desired outcomes. The authors argue that a capable state can identify the right policies to implement, but without effective execution, even the best policies can fail.
Distinction from Related Concepts
The book distinguishes between state capability and related terms like state capacity and bureaucratic capability. While state capacity often refers to quantitative aspects such as resource availability, state capability focuses on qualitative aspects—how well a government can mobilize resources to achieve its goals.
Determinants of Development Outcomes
Apart from state capability, other factors determine development outcomes.
Role of Institutions
As Douglass C North explained, institutions are the rules of the game, formal and informal that shape interactions between individuals and organizations. Institutions are foundational in shaping development outcomes. Strong institutions are considered the primary reason for the economic growth of developed countries, while weak institutions hinder progress in developing nations.
History of Colonization
The authors argue that historical factors, such as colonization, also impact current institutional effectiveness. They explain:
Colonial powers benefitted immensely from the selective imposition of tariffs and from unfair terms of trade with their colonies and this had nothing to do with state capability (the ostensibly capable colonial British-Indian state did not prevent famine).
Resource Endowment
Countries like Botswana and Kuwait have significant advantages because of their abundant natural resources (like minerals or oil) and small populations. These resource endowments mean they can generate substantial revenue relative to their population size, allowing them to fund development projects more easily. In contrast, a country like India, with a much larger population and fewer resources per capita, must rely more on effective governance and innovative strategies to ensure development. Even if bureaucratic capabilities are similar, resource abundance provides an inherent head start.
Knowledge and Expertise
Good policies often depend on expert knowledge and innovative ideas. For example, to improve farm incomes, we need agricultural scientists to develop better crop techniques and agricultural economists to suggest effective market strategies. These "good ideas" provide the foundation for practical and impactful solutions. Even when governments don’t have all the expertise in-house, they can rely on researchers and external experts to shape policies that address real-world challenges effectively. Good ideas, backed by expertise, can drive significant progress.
Political Dynamics
Good policies depend on both politics and state capability. Politicians influence which ideas are adopted, while the government staff assesses and implements them. Even with excellent state capability, poor policy choices—like in the Soviet Union—can lead to harmful outcomes. A capable state balances political constraints and administrative expertise to choose and execute the best policies. This distinction between political decision-making and administrative capacity is vital for understanding effective governance.
Policy Implementation
Adopting good policy alone is not enough to achieve successful development outcomes. Effective implementation is essential, as even the best policy can lead to poor results if it is not executed properly.
These factors are highlighted in the figure above.
Development outcomes (O) depend on resources (R), policies (P), and state capability (S). Policies combine expertise (k) and political will (p), making outcomes a function: O = f(R, k*p*S).
While state capability isn’t the only determinant, it is critical for translating well-designed policies into results. In India, weak state capability often hinders effective governance, leaving public systems unable to deliver desired outcomes. This book focuses on improving state capability, a crucial yet overlooked factor in achieving successful development.
As the figure above shows, state capability has two key dimensions: policymaking and policy (or program) implementation. Policymaking involves understanding the broader problem, defining government intent, and selecting guiding principles or specific actions to address it—essentially, choosing the right thing to do. Policy implementation focuses on successfully executing these plans through frontline government functionaries, ensuring objectives are achieved. In simpler terms, policymaking identifies the “what,” while implementation delivers the “how,” making both dimensions critical to realizing desired outcomes.
The authors compare state capability with a hose to deliver water. If the hose is in good condition—straight, without any leaks—it can deliver the full amount of water to the desired location. However, if the hose is damaged, with leaks or kinks, only a small portion of the water will reach its destination, even if you try to push more water through it. In the same way, a weak state—one that lacks strong institutions, good governance, and effective systems—struggles to deliver its programs successfully, even if more resources are added. Just like more water won't help a leaky hose, more funding or resources won't help if the state's capacity to implement programs is not strong. The problem lies in the state's ability to effectively manage and deliver on its initiatives.
Most international aid has focused on building physical infrastructure and helping reduce poverty. Efforts to improve the skills and abilities of governments have mostly been limited to providing technical support for specific projects. If you look through the projects of major international organizations, it's hard to find examples that focus mainly on strengthening the overall capability of the state to function effectively.
Addressing State Capability Failures
Many of the major public policy challenges we face today—such as poor education outcomes, inadequate sanitation, broken healthcare systems, traffic problems, unaffordable housing, and low agricultural productivity—are complex and interconnected. Solving these problems requires a lot of cooperation, both within the government and with other partners, and involves empowering people at different levels. It's not something that can be fixed quickly; it requires consistent and long-term effort.
When governments fail to address these challenges, people often look for solutions in one of four common ways:
Increased role for the private sector: Many, especially in urban areas, believe that the private sector can fix governance failures. This view is partly shaped by seeing successful private businesses and contrasting them with the often poor performance of the government. This belief is encouraged by the media and influential people. However, this isn’t always true—like the case of Jet Airways collapsing despite being a private company, which challenges the idea that private companies are always more efficient than government-run ones.
Participatory governance: This approach promotes giving communities more control and decision-making power. The idea is that local people, through decentralized decision-making, can ensure transparency and accountability. A common example of this is women’s self-help groups and micro-loans, which help empower communities. Supporters of this approach believe it’s the key to sustainable development. However, while empowering people is important, this approach alone isn’t enough to address bigger governance issues or drive economic growth.
Innovative approaches: Some people believe that new ideas can solve governance problems. These include things like conditional cash transfers (where the government gives money to people if they meet certain conditions), promoting social enterprises, using technology in government systems, and applying ideas from behavioural psychology. While these innovations are exciting and have potential, they often seem like “quick fixes” that may not address the deeper, long-standing issues. In many cases, it’s more valuable to focus on improving existing solutions rather than always chasing new ones.
Evidence-based policy design: Some academics argue that using rigorous experiments to design and evaluate policies is the way to fix governance problems. By understanding what works and what doesn’t through evidence, governments can create better policies. While this approach is useful, it may miss the bigger picture or ignore the real challenges that come with implementing ideas in the real world.
While each of these approaches has its value and importance, none of them can replace a strong and capable government. Governments are responsible for providing essential public services, such as education, healthcare, safety, and protection of rights. The private sector can play a small role in helping with these services, but it can't replace the government's responsibility.
The problem with the community-driven approach, as economist Lant Pritchett points out, is that it focuses too much on local empowerment without addressing the larger, structural issues needed for economic growth. Innovations may seem like an easy fix, but many complex problems need more than just new ideas. In fact, often the best solution is simply to improve the way existing systems work.
Lastly, while research and new ideas are important, they often fail to address the practical challenges of implementation. In short, no amount of private sector involvement, decentralization, innovation, or incentive realignment can compensate for the lack of basic state capabilities. Improving the government’s ability to function effectively is crucial for the success of any of these approaches. A capable state can make all these strategies work better, but without it, they’ll struggle to succeed.