M.R. Sharan Examines Decentralization and Local Representation in India

SHRUTI RAJAGOPALAN: Welcome to Ideas of India, a podcast where we examine the academic ideas that can propel India forward. My name is Shruti Rajagopalan and today my guest is M.R. Sharan, an assistant professor in the department of agricultural and resource economics at the University of Maryland College Park. He is the author of numerous papers and the book Last Among Equals: Power, Caste, & Politics in Bihar’s Villages. 

His main research interests are development economics and political economy. We talked about his research on local government in India, incentives of various political actors and the power structures they inhibit, fiscal federalism, and much more.  

For a full transcript of this conversation, including helpful links of all the references mentioned, click the link in the show notes or visit mercatus.org/podcasts. 

Hi, Sharan, welcome to the show.

M.R. SHARAN: Thank you so much for inviting me, Shruti. I’m very honored to be here.

Local Political Actors

RAJAGOPALAN: I’ve been reading your papers for a long time, but I’ve been reading them all week. If I had to figure out the overarching theme of your work, you’re looking really at the most local institutions, and the most local political actors, and how they mediate the gap between governance and representation, and all of this happening in very low state-capacity settings.

At the core of it, what you start peeling for us layer after layer is questions of who governs? Who is governed? Who has the knowledge? Who has the appropriate incentives? What networks are they fitting in? Are these networks overlapping? Do they have money? If they have the money, do they control the money? So on, and so forth. First, is this a good way to think about all the work you’ve done? Is that what you were going for, this sort of layer after layer of what we need to see at the most local level?

SHARAN: Is that what I was going for? Let me start with that. I’m not sure when I started doing this work, I thought I would be studying local political actors, which is what I ended up studying mostly in India. I thought I would be studying rural development and governance more broadly, so I thought I’d be working with bureaucrats, and all of these things.

It has so happened, and it’s just panned out this way that over the last, say, seven, eight years in particular, I’ve just spent more and more time thinking about extremely locally elected officials, their incentives, how they are selected, how they’re elected, and how they perform within an office? These are questions that animate everything I think about. Now, especially, say in the last three or four years, I have begun to place all of these different ideas, and understandings of how these local political actors work in the larger questions around decentralization in India. That’s how I see it.

RAJAGOPALAN: The second theme that I see in your work is, if you think of the very typical Hirschman framework—voice, exit, loyalty—analytically, the way you set things up, always look like they’re set up for exit, because that’s how local government work is done by economists analytically. Again, this is true of your work, and I also felt the same thing when I read Biju’s work, who’s also one of your co-authors. I may have even asked him about this. When I read your work, it looks like, though the setup is all exit, what you’re really looking at is voice and loyalty, right? All the ethnographic work seems to point that way.

SHARAN: Yes. In fact, first, I want to just say one thing about the Biju podcast, which is that I listened to it. Actually, I didn’t listen to it. I read the transcript. This is someone I’d worked with for a while by that point, and that podcast told me so much about this person who I literally interacted with every week, so amazing work on that.

RAJAGOPALAN: It’s his doing. He’s amazing. He was a very early podcast. We recorded during COVID.

SHARAN: Yes, exactly.

RAJAGOPALAN: Every time I speak with him, something new and amazing comes out. Hi, Biju, if you’re listening.

SHARAN: Yes, exactly. Hi, Biju. Amazing work on that. In terms of voice, let me talk a bit about voice. I feel like in the end, the main central question animating all decentralization, especially in India, is how do you empower these extremely local actors, and how do you give them voice? In a setting where nobody wants to give them voice, nobody really wants to listen to them, I think that’s the broadest way of thinking about it. Can you talk a bit more about what you mean by that, and then I’ll respond?

RAJAGOPALAN: For instance, in the panchayati raj paper, which I want to discuss with you in great detail, when you’re talking about devolution, when you’re talking about public goods delivery, and competition, and things like that, those are all premised upon, at least, the idea of exit, even if people don’t actually exit, right? There’s some competitive pressure at the analytical core of what you’re doing. When you talk about raising own revenue, it’s premised upon exit, right?

SHARAN: I see. You’re exiting the larger administrative framework that governs you by forming your own kind of core that is yours. In some sense, you’re exiting from the larger administrative framework, and you can see decentralization as a version of that.

RAJAGOPALAN: That’s one part of it.

SHARAN: Okay.

RAJAGOPALAN: The other part of it is, especially when we think about having fiscal federalism, and fiscal teeth, the way you talk about it, right?

SHARAN: Yes.

RAJAGOPALAN: We haven’t devolved fiscal powers enough, which means they don’t have revenue-raising capacity. At the core of all economics about revenue-raising capacity is, if we don’t deliver the services, we can’t raise the revenue, so people will exit. Either they will exit to the private sector, or they’ll exit to the neighboring village, or the neighboring state, depending on which version of Tiebout you’re talking about. That’s what I mean.

Analytically, when I look at the stuff, it looks very much like an economist talking about incentives, alignment, competition, and the potential for exit, or exit being the disciplinary mechanism. Actually, it’s all layered within voice and loyalty. That’s the most fascinating thing I find about all of this work.

SHARAN: I think Dilip Mookherjee at BU, and Pranab Bardhan make this point that the basic problem with the Tiebout-style framework, where people can choose between different local governments in India, especially in rural India, is that it’s actually not very true. People don’t really leave villages as much as they should, and this goes back to work by, and most recently Kaivan Munshi and Mark Rosenzweig have this great paper about seasonal migration in India.

What this basically means is that, because of the structures of caste and patriarchy, to some extent, what’s happening is, people are stuck to the village in some way or the other, so they can’t really exit beyond a point. That challenges one of the most fundamental arguments for decentralization, which is that, if you decentralize, and if people are able to vote with their feet, which is the exact phrase that Tiebout uses, then you could actually have competitions between different decentralized villages, or whatever administrative units, and that competition will spur development.

In our case, because people cannot say, “Oh, the school here sucks, so let me move to the next village.” Nobody is really moving to the next village. The way you exit, is you move to the town, or the city, or the capital most often—

RAJAGOPALAN: Or the private sector.

SHARAN: Exactly, or the private sector. In fact, in the most important fundamental way, the private sector in the same location. That’s happened with schooling. That’s happened with healthcare. I do think that, on balance, and I’m curious to know how you see this, but on balance, say, for example, the most fundamental question on exit is say, take healthcare. On balance, I’m not sure the exit is the best option there, because I think Jishnu Das’s work shows that over 70% of the first visit of a rural patient in villages in India is to an untrained professional, which is a polite way of saying quack, an experienced quack. It’s a quack, an experienced person, but it’s still a quack who doesn’t really have the understanding and knowledge.

Now, is that a good thing? Is that the kind of low-cost, private healthcare provision that we should be looking at? How do we get better, either public or private, provision of healthcare is one of the most fundamental questions. I think decentralization has a lot to speak to those questions in some ways. Some states have done it in ways that actually shows a path. Now, when I say states, I mean states in India.

I agree with you. Part of countering that exit in this way, means, is to emphasize voice. You can emphasize voice by actually giving extremely local actors access to complaint systems, grievance redressal systems, which is what I talk about. I think that’s still a smaller aspect, or a smaller element of a larger move towards devolving funds, functions, and functionaries to these very local actors. I think that should be the process.

When you think of voice, there’s always this equity-equality framing that creeps in. I think it’s actually growth-promoting. You need to give voice to extremely local actors in a setting that is fundamentally built on hierarchies. The way to upturn those hierarchies is to empower the last people. That’s the framework that I keep thinking of.

RAJAGOPALAN: To me, and I think here I’m very much on the same page as you and Biju, and your third author, Siddharth George, where voice alone won’t do the trick, and money alone won’t do the trick. It’s the exact feedback mechanism. The problem we have currently in India, is when it comes to elections and things like that, you’re looking at the people who are electing. It’s a bottom-up representative process.

When you’re looking at money and power and authority, you’re looking at the top, in the sense that you’re looking at the government just above you. If it’s a local government, it’s looking at the state government, or the union government. Oftentimes, it’s a union government bureaucrat, not even the union government elected politicians and things like that. Then, that feedback mechanism gets broken.

In the most idealized version of federalism, the people who are voting for you, and the people who are your taxpayers are almost identical, and have a very, very, very tight link. Here we’ve completely severed that in some way. We brought back the representation through the 73rd amendment, but we never quite figured out how to make our voters’ tax base. We haven’t frankly, even figured out how to do that at the union level. We are relying on consumption taxes in India for that. At the local level, we’ve certainly not cracked that puzzle. That’s the thing that stands out the most in this layered cake.

SHARAN: I agree. In fact, just a couple of points from what you’re saying. One, I really like the point on how, in the end, these local representatives are people who you should be questioning the most, and these are the people you should be interacting with the most. Not some higher-tiered official, like the bureaucrat, or the MLA or the MP. I was talking to a sarpanch actually in Tamil Nadu last year we were doing some field work in a panchayat not very far from Chennai. We were just talking to this sarpanch, and he said this very interesting point.

He said, “When I leave the house, there are 10 people who I’ve have known all my life, who I’ll meet on the streets, who’ll say, ‘Hey, why? What happened to that water pipe that you promised to lay? Or what happened to that road you said you were building?’” He says, “Which other representative, bureaucrat at any other level will have this kind of accountability mechanism at play?” He says, “Look, that’s why I respond. That’s why I do what I do.” Now, that’s one answer. That’s one way of framing what you’re saying. 

The other aspect, which is, how do they raise their own revenues, I think is the most fundamental question in decentralization today. There are two views on this. The first view is that, if you devolve, people will learn that these are the officials you go to, these are the people who are responsible for everything. Once they have the power to do what they want to do, automatically the taxes and everything will come through. 

The other view is the more pessimistic view, which is that, you’ll never be able to tax these people, because these are people who you’ve known all your life, and there’s this kind of almost  clientelistic relationship you share with these people. Will you even be able to go to them and say, “Pay your local taxes, and pay your roof taxes”? It’s going to be so much harder.

I don’t like that second view very much. I think that there are ways in which you can get people who are extremely local to also pay up. Examples go back all the way—

RAJAGOPALAN: Absolutely.

SHARAN: —to Gandhi, and you know Gandhi’s views, and a lot of local village-level cooperation has existed for a long time. Local taxes have funded local administrative tasks, not just in the 20th century, but all the way back to millennia in India. I don’t see this as being a fundamental concern.

RAJAGOPALAN: I also don’t, I’ll tell you why, because you’ve also talked about how criminality is deeply entwined with local politics, right? It’s entwined with every layer of politics. We’ve learned this from Milan’s work and so on. It is very much there at the local level. They do pay their local Bahubali. They do pay the private water mafia guy. This idea that, somehow, village people are stupid and they don’t know the difference between tax and user fee, frankly, I’m just offended by that.

Are there going to be some questions about exemptions, and certain groups getting preferential treatment? Absolutely. That is true for any tax system. That is true anywhere in the world. I don’t see how India is necessarily different, but they’re already paying. We have very regressive tax structure, because it’s all consumption taxes.

There’s another way to solve that problem, which is, right now we have a GST system. Why don’t we just say, we have central GST, we have state GST. Both of them take away 5% of each and, make it LGST. Make it local GST. Give them 10% of a corpus, which they’ll get no matter what, and the rest they need to raise. What’s the problem with that? It’s consumption taxes. Consumption taxes are the most local taxes that are collected. If people don’t live there, you can’t collect those taxes.

SHARAN: I agree entirely.

RAJAGOPALAN: There are so many ways to solve this problem. Except shrugging your shoulders and saying, “Oh, these people may not pay, and they may not learn.” That’s the other thing. They learn.

SHARAN: They learn and people learn, and there are examples. Kerala is able to both devolve and collect taxes. Karnataka now in the last few years, has been able to collect a lot of what are called roof taxes, or property taxes. States are doing it. It’s not that states don’t do it. 

Of course, it’s bad in some places. Like for example, in Bihar, I have rarely come across any household that pays any taxes at all to the local government. Basically, taxes don’t form any component of local expenditures. There are examples like that, but it’s not true that we haven’t done it before. I think people will eventually learn.

RAJAGOPALAN: The people in Bihar who move to Kerala and Tamil Nadu are doing it there.

SHARAN: Exactly. They’re able to see that the system works, and they are able to understand, and interact with the system. I’m sure they’ll learn. Over time, it’ll happen.

RAJAGOPALAN: Going back, you mentioned Munshi and Rosenzweig work, basically, on caste networks and how migration is seasonal. There are two aspects to it. One is just how complicated the urban setting is. It’s very difficult to take the whole family. There’s a caste network that you need to plug into there. There’s a second element to it, and Yamini Aiyar, a bunch of other people have done work on how it is also difficult to exit the rural setting, which is, all the benefits, whether it’s your LPG benefit, or what goes to the women welfare, or child welfare, every single thing is through the rural scheme, and it’s entirely geographically restricted. 

It’s not the person we will pay a region which has X number of people, and then we will split the pool. As opposed to making it portable, any of the welfare benefits. My hunch is, once again, if it were truly decentralized, and the most decentralized unit is the individual, and you allow people to port their welfare, I’m not saying the Munshi-Rosenzweig problem would disappear, I’m just saying, I don’t think it would be as binding as it is right now.

Portability

SHARAN: I completely agree. In fact, the question that I want somebody who studies urban more than I do to really answer for me is that, there is now portability for PDS, which is a fundamental thing, right?

RAJAGOPALAN: Yes, that’s right.

SHARAN: If you have portability on your PDS cards, and maybe this was not the case even in 2020, four years ago when COVID happened, when you saw that massive reverse migration, partly because you could never access your ration in the urban areas, and now you have nothing going on there, so you have to go back to your village. The question that I don’t fully understand even today is Bihar, for example, is a context I know reasonably well.

There is portability. Yet, the most prominent example of portability that occurs right now is within panchayat. That’s actually super cool, because it goes back to an old Shleifer-Vishny paper on the role of choice on cutting down corruption.

RAJAGOPALAN: What is the portable benefit? Can you walk us through this?

SHARAN: Yes. I’ll walk you through it. Basically, the idea is the following. Previously, you could collect your rations, but you were now linked to one dealer. You had just one ration dealer. You had to go up to that person and say, “Hey, we are four people. This is our ration card. Give us based on the fact that we are four people. We get 20 kilograms of rice, or wheat or whatever. We take it and we go back.”

Now, let’s say that there are three of you at home, and your husband’s in Bombay. Your husband can collect rations in Bombay for his quota. His five kgs, he gets there, the three of you, the wife and the two kids who live in the village continue to get their 15 kgs in the village. You would have imagined that, especially in a context like Bihar where a lot of people live away, that this portability would result in a lot of people withdrawing rations in cities.

Instead, what portability seems to have done, and I’ve only seen the data, is that over 50% of now transactions in Bihar are not happening with your parent dealer. It’s happening to some other dealer, but that some other dealer is predominantly somebody else in your own panchayat. What is cool about all of this—now I’m entering completely in the realm of speculation—we did a survey from earlier this year on whether people were getting rations in Bihar or not in villages. We saw that the leakages were very small. This has been reducing over the last 10, 12 years. Now, there’s almost no leakage.

RAJAGOPALAN: Between Aadhaar and DPI, and the local panchayat response system, it’s almost disappeared.

SHARAN: Exactly. The other big reason I would hazard, is that they also expanded entitlements to a larger percentage of the population, which gives more voice, especially people with more voice, have more ability to put pressure on the local dealer, and so corruption is reduced. Even controlling for all of that, we felt that the amount of corruption we found, which is less than 10%, was staggering.

Previously, they would say, “Ghost beneficiaries,” i.e. you don’t exist at all, and somebody’s just named you as a beneficiary, and taking rations on your name, that, we knew had reduced. Now, even this other element, which is, you are entitled to five kgs, the dealer gives you four kgs. Even that has gone away. It’s now five kgs, is now you get about 4.6.

RAJAGOPALAN: That’s pretty good.

SHARAN: Why has it happened? It has happened, because you the consumer in the village has choice. Previously, you were tied to the one guy who was your dealer, who lived maybe 500 meters away. Now, you have another guy who’s 700 meters away, who you could go to. It’s only 200 additional meters. You can just walk up there, and you can see—and those guys know each other.

The feudal nature of the village is not so strong, that these two are colluding in order to screw over the villager; they’re actually competing. Because they’re competing, you can actually see corruption go down. I think this is, in my view, one of the first clear instances that I have seen of that old idea in economics that, you could have competition between bureaucrats offering the same license, and that could actually result in a fall in corruption.

To go back to tie this to the earlier discussion, I think portability is one of the fundamental ways in which you can reduce also this entire urban-rural divide. It can also, in a more subtle way, reduce the problems we have right now, which the very different implementation of the 73rd and the 74th amendments that both do decentralization, but one seems to have worked much better than the other, which is the rural decentralization seems to have worked. The urban decentralization doesn’t seem to have worked, which means that people just do not trust the urban welfare system to actually help them in any strong way.

Village Government in India

RAJAGOPALAN: There is a lot to parse out there. Maybe the best way to do this is, why don’t we start with just your big survey paper on panchayati raj with Biju and Siddharth George. It’s a big survey article. I recommend everyone reads it, because you are really pulling together 30 years’ worth of what’s been happening in India at the local level. This is a quarter of a million in terms of the number of local governments, right?

India is a very large country, but even that number sometimes just makes you pause for a second. It’s an incredible laboratory as you call it. We have 250,000 elected panchayats. This election is done in a very specific way. It includes reservation for certain marginalized groups.

SHARAN: Women.

RAJAGOPALAN: Women. Some states were slow to start doing the elections, but I think everyone’s caught up. Everyone’s has at least four to five cycles of panchayati raj elections. A lot of the very early problems of just setting up the democratic system, I think those kinks have gone away. Now, there’s a whole bunch of other things that need to be figured out.

How do we do this? Should we walk through this step by step? Let’s first talk about political representation and democracy, and how that laboratory has panned out there, and then we can parse through the other parts of the paper.

SHARAN: Okay, great. Thank you so much for saying all the nice things about the paper. I actually think somebody should do a 1992 project like you guys did the 1991 Project, but focus on the 73rd and 74th amendments—

RAJAGOPALAN: I agree.

SHARAN: —that really launched this whole decentralization train that’s now been going for the last 30 years.

RAJAGOPALAN: I think your paper is it. That’s the project.

SHARAN: That’s the project, I guess. Just a side thing on this, what I loved about the 1991 Project is that you get so much oral history about the people who were there. Some of that has existed in the public domain for a while. The same thing does not exist at all for the 1992 project, because I think nobody really has a sense of why the Rajiv Gandhi government first pushed it in the ’80s, and why subsequent Congress government said, “Okay, fine. Let’s do this,” and what were the political incentives and stuff? Somebody has to do a really nice rich, thick description of that phase.

RAJAGOPALAN: You are that person.

SHARAN: I’m hoping to push more on that front, and that’s something that I am thinking of. 

RAJAGOPALAN: No, but one thing I do agree with you, if there are any researchers out there who are listening to this, there are some watershed moments in India: ’47 and ’50 with the independence, and constitution is definitely a big one. We can all agree Emergency is a big one, but for the wrong reasons. After that, it’s really the 1991 and 1992. Because, on one, you got decentralization in terms of public versus private. The other, you got decentralization in terms of governments.

I can’t think of things that are bigger than that, that have happened in India. You are right. Of the things that are understudied, that’s probably the top of the list. Though, now there are lots of papers, especially thanks to the fact that there was randomization in the, who gets the reserved seat? Women and SC/ST. So because of that randomization, thankfully, economists and political scientists just swarmed all over it. Luckily, there’s a big literature on it, and there’s a lot of data, but you’re right.

SHARAN: Exactly. I think that the randomization really helped there, because, of course, causal identification relies on the ability to find variation that allows you to identify causal effects. I also think that, despite all the economists coming and doing all of this work, there are still gaps. That gap is, basically, a result of the way the discipline has moved. We now only look where the light is.

RAJAGOPALAN: Where the randomization is.

SHARAN: Where the randomization streetlight is, and we all look under that, and then we find stuff, and then we study it. There’s a lot of stuff happening in the darkness. One of the things that I think people just do not appreciate enough, and I’m glad you brought it up, is that 250,000 panchayat heads, but also more than 30 lakh elected local officials were ward members and stuff like that in villages.

RAJAGOPALAN: Which is huge.

SHARAN: Which is huge. Maybe about a crore people who contest every election across the country. There is this massive pool of local leadership that has emerged. It’s important, because they are far more representative than leaders at any other level, not merely because of reservations. Of course, reservations play a role, and you have SCs and STs, and EBCs and OBCs and women, almost all states now have 50% reservation for women. None of this is true at the higher levels, at the MLA or the MP levels. This is fantastic.

It’s also representative in terms of wealth. These are not super-rich people. There are so many stories of panchayat leaders who come from very humble backgrounds. In fact, Biju has a really nice book coming out tracking these leaders in Karnataka, and I’ve had the privilege of reading some of the early draft of that manuscript. You have a local tea shop type of guy, who’s encouraged to contest elections, who puts in a bunch of money, who goes up the ranks, who actually ends up winning, and all of that.

You have these very local people, who would never have a shot at any other level, actually entering positions of governance. One thing I want to say here is that, in Bihar, the thing that I really liked about what Bihar managed to do was, we now have nice causal evidence to show that the local self-help groups are now able to channel members, especially women, but also households of these women who come from SC/ST groups, but also amongst the SC/ST’s, the poorest jatis are showing up, contesting elections, and often winning them.

That all comes from the fact that these self-help groups have created the ability for these very downtrodden households to pool financial resources, build networks, build leadership abilities, and then challenge entrenched power structures. I think that this is completely underrecognized. We need to do more to celebrate this fact. The tragedy of what has happened though, is that despite there being all of this great representation—I’m making a broad average statement—they simply do not have the powers to truly represent the people.

RAJAGOPALAN: I’ll add one thing. We treat, oftentimes, in the literature, the idea of local capacity or state capacity as something that either exists, or doesn’t exist. It’s strong or weak. It’s a process of becoming.

One lovely thing about this experiment is also that when a lot of people contest, and they understand how the system works, when they are no longer in government, they can also challenge how the system works, because they know how it works, right? There is a second layer of contestability, which gets built in, which keeps compounding as you have more and more elections, and more and more people who are willing to contest, or challenge, or be part of that network.

SHARAN: Completely.

RAJAGOPALAN: I think that is really underrepresented, or underappreciated in the literature.

SHARAN: In fact, I would say that it’s a fascinating point you make, because one of the things that we found from data in Bihar again is that, after 10 years of reservation in a panchayat in Bihar, once the reservation is removed, this is a reservation for scheduled castes, more scheduled castes continue to contest elections, more win, but interestingly, more of them use a grievance system to complain against the local state. You have created this set of leaders who are now able to represent their citizens exactly like you’re saying, even when they’re not in formal positions in government.

RAJAGOPALAN: They have the knowledge.

SHARAN: They have the knowledge.

RAJAGOPALAN: Governance is very procedural sometimes. We don’t appreciate how legal and procedural these things are. It’s hard for a regular person to navigate it. Most people who are elites like us can’t even stand in the post office for 10 minutes. It takes some doing to figure out how to crack the system, and know where the gaps are, and how to complain.

Even something as simple as, I’ve seen this happen, when you file a complaint, you’re supposed to get a receiving notice that the complaint was filed. They never used to give it before. The people who are filing the complaint had no idea that if they don’t give you the receiving note, it means you went and dropped something. It didn’t land.

These are tiny procedural things, but one experience in government will just really teach you how that works. You don’t forget that stuff. You take it with you as you go along. The thing I really like about the experiment, is also the compounding nature of how more and more people just understand how governance works, as opposed to protest or mobs, or going and breaking the windows of the ration shop. There’s a system through which we can get this done.

SHARAN: I love everything you’re saying. I completely agree.

RAJAGOPALAN: This is going to be a problem. 

SHARAN: Yes, this is going to be a problem, I guess. Let me say the other thing that, because you have 250,000 village democracies, you actually have 250,000, like you said, laboratories, or experiments in village democracy. That, in addition to allowing each person in each of these democracies to learn how to navigate structures, also, you could create systems where you as a policymaker, as a researcher, as an academic, as a thinker, as somebody interested in politics, as a politician, could actually learn from the different experiments to figure out what works, and what doesn’t.

In the end, these are giving you 250,000 living democracies, all of which have their own parts. Some of these parts are doing better than others. Where they’re doing better, we should be able to send that, transfer that knowledge to places where they’re not doing it.

RAJAGOPALAN: Basically, the Kerala model of devolution, and raising revenue, actually managed to go to Karnataka. I wish the Bombay model would also transport to Bangalore. On the urban side, we have a problem. On the rural side, very much being on the two sides, you have Tamil Nadu and you have Kerala, which are much more devolved and evolved than Karnataka. That seems to have permeated, and that has made some difference.

SHARAN: It has, I think, made a lot of difference, and it has entered the living conscience of people living, especially in villages, this notion that we are part of a polity that is not just the larger assembly constituency, or the parliamentary constituency, or our block, but we are part of this thing called the panchayat is now finally, after 75 years of independence and 30 years of the 73rd amendment, I think it’s entered your consciousness. Now, we have to build on it. I think that’s another 50- to 60-year process. 

RAJAGOPALAN: Takes a very long time to build capacity.

SHARAN: Yes, it does. 

RAJAGOPALAN: People forget.

SHARAN: Yes, it does. The one other point I want to make here is that this semester, I’ve been teaching this class on India for undergraduates on political economy of India. As part of it, I read a lot of stuff on not just India, but also China, to understand, because that’s a nice comparison. Yuen Yuen Ang’s work in China really emphasizes the crucial role that decentralization, and municipalities, and village governments played in attracting investments, propelling growth. It didn’t matter that the village institutions were not perfect. They were not Weberian, they were not—

RAJAGOPALAN: They were not democratically elected.

SHARAN: They were not democratically elected. Yet, the fact that you had these very local actors who were entrusted with power, who, even though there were no elections, who were still somewhat answerable both above and below, above to their superiors in the party, in the administrative hierarchy, but below also to the people they serve, really resulted in a growth, improvement in institutions.

Then, the Chinese story is remarkable for many reasons, but this is one of those things that people do not think of as often. They don’t think of China as a decentralization story. They think of it as a—

RAJAGOPALAN: It’s absolutely a decentralization story.

SHARAN: Exactly. They think of it as a Communist Party centralizing power, everyone follows the same rules story, which Ang does a good job of challenging.

RAJAGOPALAN: I remember, I think Montek Singh Ahluwalia told us this story in the late 80s when Narasimha Rao was actually a foreign minister and Rajiv Gandhi was the prime minister, they’d gone to China. A whole delegation had gone to China, and Rajiv Gandhi had met Deng Xiaoping, and that story is well documented. He tells a story of how when they landed, the mayor of Shanghai came to meet them.

Some of the people in the delegation, their first reaction was like, “The mayor of Shanghai? This is the prime minister of India.” They didn’t realize that the mayor of Shanghai is more important than pretty much anyone else, other than maybe the leader of the Communist Party. Other than Deng, this is the next most important person in the country. That’s what they managed to achieve.

You know one thing, I think the Chinese example is important for a second reason, they devolved to such an extent for a slightly different reason, which was to prevent local mutinies from snowballing into national mutinies. Because for communists, the revolution is always the biggest threat. You don’t want people to protest, which means you have to pay people off locally.

SHARAN: Right.

RAJAGOPALAN: The bigger number of people you can pay off, the less likely you’ll have protests. To be able to distribute the pie that widely, you have to make the size of the pie bigger. The incentives become very aligned, because two things: You don’t have serial corruption, you have monopoly corruption, which is all centralized by the party. Even the corrupt are very interested in growing the size of the pie.

They were actually competing, not just in providing services, but they were also competing to attract businesses. Whereas in India, we have not yet cracked that piece of the puzzle at the local level.

SHARAN: At all. In fact, every time I was reading Ang, I was thinking, “Why can’t we do this in Samastipur?” Then, I was like, “If I just start listing all the problems with how hard it is to do any business, and do it well in, say, a place like Samastipur, where there are so many other issues, it’s not easy.”

RAJAGOPALAN: Let’s say, you had to attract a business, right? What do you normally give them? You give them a bunch of exceptions, right? Now, I’m talking about the corruption version, okay? I’m not talking about the nice version. 

Let’s say, you want to attract one particular, I don’t know, shoe-making factory, or shoelace-making factory. You need to say, “Okay, we’ll not enforce the building code, or we’ll tweak the building code for you. The fire code is very stringent. We’ll tweak that for you. We’ll give you some tax incentives. You can wheel-wave overtime for your workers.” 

All of that’s happening at the state level. These guys can’t pass any legislation. They don’t have a rule book that the municipal level completely enforces. That’s too small. Which means all the corruption is going to be localized with the MLA, or with the MP. Those are the fixers. Your municipal corporator at the urban level or your Gram Panchayat sarpanch and all at the rural level, the best thing they can say is, “We won’t turn your water off.”

SHARAN: Yes, that’s it.

RAJAGOPALAN: That’s about it. Not even power.

SHARAN: Not even power, exactly. This is by design.

RAJAGOPALAN: Yes, of course.

SHARAN: In fact, I think part of the reason the urban stuff, or the urban decentralization, has worked worse than rural, is because there is more money, more resources, more power to be captured at the urban level, so no MLA, no MPs—

RAJAGOPALAN: Wants to devolve.

SHARAN: —no top bureaucrat wants to devolve. Karthik Muralidharan in his book has this nice quote that he’s talking to a bureaucrat, I think, who says, “Everyone wants decentralization up to their level.”

RAJAGOPALAN: Their level.

SHARAN: I think that’s a fundamental point, because in the villages, the part of the reason you could devolve, was there was not that much to be made, in some sense. You were like, “Okay, fine, let them get their local government.”

RAJAGOPALAN: Which is also what happened in China. They liberalized agriculture in rural level, because they were like, “There isn’t that much happening there to begin with. We don’t want them to mutiny.”

SHARAN: Right, exactly. The exact same pattern. If today there are so many more disruptions, in fact, in the village democracies paper, we document how elections happen. They happen everywhere. They happen regularly, blah, blah, blah. That is mostly not true in urban areas. Urban municipal governments, half the time have elections postponed, not for one or two years. 

RAJAGOPALAN: There are lots of places where no one’s contesting, or if they’re contesting, the papers are bad, and no one gets elected, there are vacant seats.

SHARAN: This, I think, strikes at the heart of the problem with the decentralization experiment in India, which is that, because the 73rd, 74th amendments came so much later than when independence happened, you are constantly trying to tug and pull your MLA and your MP and say, “Please give us stuff.”

In fact, it is a shame, because the fundamental way, by in which even village representatives talk about what they do is, our job is to go talk to the block officer, and get money. That’s how they think of what their job is. Their job is not to think about what’s happening in the village, raise money for it, get people to work. No, the job is to go all the way up.

My favorite example of how lopsided this whole thing is, a couple of years ago, we were talking to a mukhiya, a panchayat head in Bihar, and he had a thousand applications from his panchayat for toilets. He took all the application signatures, everything, went up to the block officer. The block officer says, “We have no money for toilets, but if you want to build open-air gyms in your village, we can let you build it.” This guy goes, “This is a village where everybody does hard manual labor comes back—” 

RAJAGOPALAN: Nobody’s going to an open-air gym. 

SHARAN: —why would you go to an open-air gym?” This is the most absurd proposition, but it tells you something about how decentralization has worked, which is that, in the last 30 years, all the victories we’ve seen has come at considerable cost and collective action by, strangely, elected representatives collectively acting and saying, “Please give us powers.” That’s all the limited devolution you see comes from there.

RAJAGOPALAN: That also happened at the state level, right? States got together, and kept lobbying the Union government saying, “You need to devolve more, you need to devolve more. Too much craziness is happening.”

SHARAN: Yes.

RAJAGOPALAN: Now, we have a third-level problem. Maybe I’m characterizing it wrong. You have the Union government devolving to the state level, and then the state level mostly doesn’t devolve to the local level. The Union government, as a bypass, creates centrally sponsored schemes that will directly be administered by the local government. I don’t even know what to call this, Sharan.

We have areas where health or education is a state subject, but there is a Union centrally sponsored scheme for a state subject. There are some state functionaries involved, which actually will be administered at the most local level and the whole thing is a mess.

SHARAN: Complete mess.

RAJAGOPALAN: Can you walk us through, first of all, why does this happen? Is it just as simple as, everyone wants decentralization up to their level? How is it that this dysfunction doesn’t seem dysfunctional to those people? Why isn’t there more outrage, or protest against this? It just makes no sense.

SHARAN: I can only speculate, but I’ll tell you one reason why I think that central governments often bypass the state governments. It is that, in the end, you want votes, and you are scared that the state government will capture the scheme that I’m funding through my resources. Therefore, I’m going to completely circumvent the state government, fund a bunch of local government officials. They will act as the people who will implement my scheme, but also as the rank-and-file for my party. The problem with that assumption is it’s never true.

I’ll give you another example here, where in Bihar, we saw the two schemes between 2016 and 2021, Nal Jal and Nali Gali. Drains and pipe water in villages, where—

RAJAGOPALAN: Which go together, usually.

SHARAN: Which go together, exactly.

RAJAGOPALAN: Sewage, and drainage, and piped water must go together.

SHARAN: Exactly. These schemes, and this is totally about 30 lakhs roughly for every ward. A ward is a very tiny constituency. It was about 200 to 250 households.

RAJAGOPALAN: That still seems less, but sure.

SHARAN: It seems less. Typically, they would get, 30 is one estimate. Some places got 50 lakhs, 70 lakhs, but they at least got to build these projects.

RAJAGOPALAN: Something.

SHARAN: Now, the Bihar government thought, and the Nitish Kumar government thought that it is best implemented by these actors called ward members, who basically were these representatives of these 200, 250 households. Now, they devolved. They gave them the funds. They formed separate ward-level bank accounts. They sent the money there.

They told the ward member, “You find the contractor. You implement the scheme. It’s still a scheme that we are telling you to implement, but you get the power to implement.” Ward members are overjoyed, because till this point, they’ve never got money to do anything. The person who’s pissed off is the panchayat head, mukhiya.

RAJAGOPALAN: Panchayat, yes, because he got elected. How could you just circumvent him?

SHARAN: Exactly. He says, “I got elected. You’re circumventing me. You’re giving it to other elected officials who are all part of the panchayat village council. They are still more local than me, but it should still come through me, because I’m the head of the panchayat. I’ve been elected by everybody in the panchayat.”

RAJAGOPALAN: Which is fair.

SHARAN: Which is fair. The problem is, and this is speculation, but part of the reason why I think the Bihar government under Nitish Kumar in 2016 said, “This is what we’ll do,” is because they thought the ward members of whom there are 110,000 in Bihar, when you empower them and you give them funds, and the funds come straight from the JD(U)-backed chief minister, they will all become the rank-and-file of the party for the 2020 state elections, because they will all be grateful to this leader who has now empowered them, right?

RAJAGOPALAN: That’s better than a handful of sarpanches.

SHARAN: Exactly. There were 8,000 mukhiyas, and so it’s better to empower these, and we can circumvent the mukhiyas. The mukhiyas often were not necessarily JD(U)-backed. This was like almost trying to take these very local actors, give them an identity, and that because you gave them the identity, they’re going to back you.

The ward members are political actors. They’re savvy. They said, “We take the money, we’ll do the things, but we’re not going to back you.” There was the contract. It was not a contract. It was an assumption, and a mistaken one at that. By 2023, after six years of this policy, and, in fact, we have now some evidence to suggest that the ward members did a pretty good job.

RAJAGOPALAN: They built their stuff. 

SHARAN: They built their stuff, whatever. Pipe water access went up from, basically, nobody in 2011 in Bihar, to about 40% in 2020.

RAJAGOPALAN: That’s pretty good.

SHARAN: That’s pretty reasonable. Official data and even our data suggests that 80% of wards that had projects got stuff built. Of course, there was corruption and everything, but the mukhiyas, the block officers, the district collectors, everybody, MLAs, everybody who felt that they were no longer having access to this pool of money, they created an impression that the ward members are corrupt.

RAJAGOPALAN: Of course.

SHARAN: Which they are. 

RAJAGOPALAN: Which they are, but that’s not the point.

SHARAN: That’s not the point.

RAJAGOPALAN: They are all corrupt.

SHARAN: Everybody’s corrupt. If you had sent that money to the mukhiya, he would have made the money. Now, you’ve distributed amongst 13 people. I actually think the democratization of corruption is a good thing, because these are more local actors. Despite doing a reasonable job providing these public goods, the state government rolled back all powers of ward members to implement projects, to the point where today in 2025, ward members no longer have any financial powers to implement stuff.

RAJAGOPALAN: This basically botched up. They could have done this in a way that everyone got a slice of the pie, and they botched it up.

SHARAN: They botched it up. All of this to say, the reason that the governments have these multiple tiers and multiple layers, is often you’re trying to build political constituencies. When you’re trying to build them, you try and say, “Okay, I’ll empower these people. Maybe the teacher union will help me today. Tomorrow, the ASHA workers will help me, and they will all act as my rank-and-file. Maybe the JEEVIKA Didi.” And to be honest, in Bihar, the self-help groups are remarkable, because they exist everywhere and they did really well, but the hope also was that, because you empower women, women did end up being strong backers of the Nitish Kumar JD(U) government.

Sometimes, these constituencies get created, and alternate power structures get built, and sometimes that rewards the person who creates them. Sometimes they don’t. What it always creates is this colossal cluster mess of an administrative structure.

RAJAGOPALAN: What I’m suggesting now is very hard to do for pipe water and drainage, because they are collective action problems, right? What is wrong in saying that whether it’s the central government, or the state government, now we have Aadhaar penetration, which is close to 100%. We have UPI. We have pretty good methods of tracking leakages, and sealing leakages, and things like that.

Why not just give people the voucher for the health benefit, the school benefit, make it portable, exactly what you were talking about when it comes to ration shops. Then, what you created is basically the constituency of actual voters, as opposed to the constituency of power brokers. Why isn’t that the obvious solution? That’s the economist solution, right?

SHARAN: That’s the economist solution. I think the school vouchers, the best example is Karthik Muralidharan’s work. He shows that some learning outcomes improve, but basically, the big advantage is that the private schooling system is much more low cost. I think that the vouchers are interesting ideas, but my fear, and here’s maybe a potential disagreement between us, my fear with a voucher system is that, it doesn’t solve the exit problem in the way that we want it to be solved.

In the sense that the fundamental problem, I think with healthcare and schooling in Indian villages is that, there is a power dynamic, a power structure that exists between the providers and the recipients, and there’s information asymmetry. The way that you as a healthcare accessing patient in a village in Bihar sees your local quack is that, this person knows something that I don’t, and they’ll give me an injection. That’s the main thing everyone goes to the doctor for.

If the doctor doesn’t give you an injection, there’s something wrong with the doctor. That’s how they think about it. [Hindi language] That’s the first thing they say. Now, what that basically means, is that you give these people money, and you say, “Oh, go access whoever you want, and we’ll create competition.” You actually already exist in an equilibrium where there’s reasonable amounts of competition between multiple quacks, and you haven’t solved the information asymmetry problem.

My solution, or my proposed solution for this, is that you instead have local governments work with your local public healthcare provider, figure out a way where you monitor them, and incentivize accountability on their part. They’re not going to be the sole provider. You still need all these private providers, but the public person, basically, acts as some kind of a floor. This is a standard, why public provision is important in some sectors. I think it’s true mainly for health and education. I wouldn’t want it for many other sectors.

RAJAGOPALAN: Why won’t licensing do the trick? I mean, here, presumably the license requirement is higher than one of a ration shop, right?

SHARAN: Yes.

RAJAGOPALAN: You could have a privately licensed person, hopefully not the quack. You have some baseline, but it is still easier to implement, and supervise a license-giving scheme than it is to actually run a primary healthcare center, or something like that, which is the core of the capacity problem. They need to build up to that in some sense.

SHARAN: I think the licensing system should be built anyway, and that’s an important thing to build. I think that there has to be some way to signal to the patient that, “Hey, you know what? This person doesn’t have a license. They may not be that good.”

RAJAGOPALAN: No, no. The voucher doesn’t work at a nonlicensed shop, I’m saying.

SHARAN: I see. Even better. You have the bunch of empaneled licensed doctors, and then you can—

RAJAGOPALAN: Yes, exactly. I’m saying but that might be easier to do, because we do already licensed doctors as doctors—

SHARAN: Yes, we do. Of course.

RAJAGOPALAN: —so you could have some layer of oversight, which can even be Union government, or state government. That empanelment or licensing doesn’t have to happen at the most local level. You just need to make sure there are at least, two people at the local level that exist. The local government has to, at least, attract two doctors who are licensed. That’s it.

SHARAN: Yes. Maybe that there is a solution that privileges licensing and empanelment. I think the other problem that we have at the local level, is that there are not many people who are licensed doctors, especially people who can afford to get an MBBS degree will not even want to go to this place.

RAJAGOPALAN: Will not want to go there, yes. You do have nurses, you do have midwives. What I’m saying is, we have solved that problem in midwifery, for instance, to a very large extent, and in child care.

SHARAN: Yes, we do.

RAJAGOPALAN: Can we expand that? Can we make it portable?

SHARAN: We should make it portable. I agree with that. I think that there is a world in which we should make it portable. We should allow people to try and access multiple providers. I’m a little less convinced about, say, even like the Ayushman Bharat-type tertiary care with licensed, empaneled hospitals. Again, mainly because it doesn’t solve for all the problems. You still have overtreatment. You still have expenditure on things that are not required.

RAJAGOPALAN: That’s an Indian problem.

SHARAN: That’s an Indian problem.

RAJAGOPALAN: I don’t think that’s a Bihar problem.

SHARAN: Yes. That’s an Indian problem. It’s not a Bihar problem.

RAJAGOPALAN: I go to India. In Delhi pollution, they just hand out antibiotics like it’s candy. I’m like, “You haven’t even tested if it’s a bacterial infection.”

SHARAN: I completely agree. I think that it is a broader India problem. As a child of two doctors, I have heard a lot of complaining about how, especially in more privatized places, there’s a lot of this stuff happening. The problem is that you have to still somehow incentivize people to show up in remote places where their private incentives are not very good to show up. I think the state still has a role to play. It need not be that the state does everything, but you have to come up with some accountability incentive system. I strongly believe that should all emerge locally, that allows the state to play basically a floor role. That’s it. Then let things take off from there.

RAJAGOPALAN: The thing that always kills me about India, in any other country, we could not do things at the local level because local level is too thin a market. It doesn’t have scale and blah, blah, blah. India has scale at every conceivable level. A fourth-tier city can presumably build a metro because it has numbers to make a metro service break even. That is extraordinary.

SHARAN: It is.

RAJAGOPALAN: Like in the US, you have maybe three cities where a metro can barely break even. In India, we have that scale. We don’t have a thick markets problem. If you can just get two licensed doctors or primary care physicians in every village, you’re sorted.

SHARAN: You’re sorted. Again, these health activists and right-to-food activists have been saying this for a while, that even your ASHA, Anganwadis, if they had just one additional staff that would improve things. Then Karthik Muralidharan has his RCT—and co-authors. I may be wrong. They show that you add just one staff, and that changes learning, changes nutrition.

RAJAGOPALAN: It’s amazing.

SHARAN: I think Karthik is right in his book more broadly that the smart investments in the state—and I think health and education are the places where you can say that’s true.

RAJAGOPALAN: We actually have to do it.

SHARAN: We have to do it. You have to invest smart, and they have high returns. The solution is I don’t think to have some central scheme where some person at the top decides everything. It has to be locally decided, locally backed with some state support.

RAJAGOPALAN: 70% of the problems don’t require a genius doctor. 70% of the problem is like hygiene level, not overprescribing, just pointing them in the correct direction of the next physician that they need to visit, and things like that. Your nurse practitioner level will do the trick.

SHARAN: Completely will do the trick. They just have to be trained well, and they have to be incentivized to do their job well. I will just say one other thing on healthcare, and it was really sad to see. We were doing some work, again, trying to understand tertiary healthcare, especially with respect to cancer in Bihar. The sad state of affairs is that cancer is basically seen as a death sentence in a lot of villages. Unless the person is below 40, then you’re like, “Okay, fine, this person still has young kids. Let’s give them a shot at trying to cure it.”

RAJAGOPALAN: They just give up.

SHARAN: They give up. The few people below 40 who access treatment, they go to all the wrong places, to all the wrong people. 

RAJAGOPALAN: It’s heartbreaking.

SHARAN: It’s heartbreaking. One person we spoke to had said the doctor diagnosed him—he had a lump. You could see the lump, it was visible. This is in a town, a hospital in the city, a private hospital, the doctor says, “You have mouth TB.” He’s given some goli, which is whatever it is, some medicine for a few months. That is a death sentence because in cancer, you need to act—

RAJAGOPALAN: Yes, you need to act quickly.

SHARAN: Yes, and they didn’t. By the time he shows up to—this is me working with my father, who’s an oncologist. We were talking to this patient. By this point, it is too late.

RAJAGOPALAN: I really think maybe we leapfrog into AI. That is my hope, that everyone will have a little portable doctor that will scan their face and see things and give them the core, basic, base-level diagnosis on what to do next. It won’t be error-free, it may still be better than the quacks.

SHARAN: It’s going to be better than the quacks for sure, I think. I’m being very optimistic here, but I’ve had conversations in the last few months with friends who work in AI or friends who have been seeing these developments happen. It’s staggering. It’s not just AI, it’s also robots. Who knows? That creates a whole other set of problems, but at least for this—

RAJAGOPALAN: I’m willing to trade off some problems if they’re lifesaving—

SHARAN: Exactly.

RAJAGOPALAN: —on the other extreme. We’ve discussed a number of things that were in the paper, including reservations and everything else. The one thing which is weird about local government in India, which I think most people don’t know is, that local governments can actually be either bypassed or dismissed altogether. You can have an appointed bureaucrat instead. This happens a lot more in urban local bodies. It doesn’t happen as much in rural levels. 

Separation of Powers

First, walk us through what is this madness where they’ve completely destroyed separation of powers? Which to me, it just drives me crazy. You can imagine my reaction to this. You’ve shown that it doesn’t quite work out as well as people imagine. What are the incentives at play, or what are the dynamics at play to make it happen?

SHARAN: There are many reasons. One could be that, though there’s COVID, we have to postpone elections. They postpone. The first postponement will be, “Okay, we’ll postpone it by six months.” By this time, actually, COVID is no longer maybe as big a problem. Then the government will come up with some other technicality. They’ll say, “Oh, there’s a state election going to happen next week, so we need all the staff there.” Most of these postponements actually happen on technicalities, and they’re fought in court. Once anything goes to court—

RAJAGOPALAN: It just stays there for a year.

SHARAN: You know this better than I do. You work on these things. The problem is that you can litigate away powers of local governments very easily by constantly lobbying for things in court. Somehow, this has come to be accepted as the way to do things.

RAJAGOPALAN: The default is not that if we postpone election, the old government continues. That’s not the default. It would take a minute to change that default.

SHARAN: Exactly.

RAJAGOPALAN: We should write this.

SHARAN: We should write this, maybe. Exactly. This is a good idea because it completely changes the incentive structures of the state government and the national government. Once you say, “Oh, you guys don’t take over governance, it’s still going to be this local person.” Then the elections will be held because there’ll be a lot of local people, they’re not happy, but they’ll be like, “We need to get rid of these guys. Let’s have the election so that we see churn.” I agree entirely. That’s a great idea.

The default right now is you have an appointed bureaucrat who takes over governance. Depending on which state you talk about, so in states like Karnataka, the appointed bureaucrat is usually trained, given a manual, and told, “This is how you do it.” Often they do take over governance because also that, for example, in the work that we have with Siddharth George, Abhishek Arora, and Biju, Nivedita Mantha, what we see is that there were some panchayats that were on a different electoral cycle.

When COVID hit, the elected people continue to govern because their elections were not up during COVID. There were other panchayats, the standard panchayats, where elections are supposed to happen in June 2020. Then COVID hits, and then they cannot have elections, and the administrator takes over. Now, when these administrators take over, some of them have done this kind of short-term—

RAJAGOPALAN: Who are they?

SHARAN: They are usually class B, C, D Karnataka bureaucrats. They’ll be like your Karnataka administrative services officers.

RAJAGOPALAN: At least they’re local.

SHARAN: They are local. They’re usually from not the panchayat, but from a group of 10, 15 panchayats.

RAJAGOPALAN: It’s not like some district collector is coming from Delhi and now imposing some craziness.

SHARAN: No.

RAJAGOPALAN: That is some silver lining.

SHARAN: Some silver lining. Yes. Unlike the elected officials, they do not have incentives to respond to the immediate needs of the citizens because they are answerable to their superiors in government, who will say, “Do this project, do that project.” As long as they are happy, you don’t have to worry about what complaints are coming locally. What we found in that work in Karnataka was that, in places where you had elected officials, they are better at implementing projects that citizens care about.

This was COVID. A lot of people came back to villages because they could not find work in the cities, and there was a reverse migration. When that happened, the NREGA became the one place where you could generate work quickly. The elected officials are much better at implementing these things, where the administrators took over, NREGA work went up, but by not as much. The one place where administrators seem to do slightly better is that if you were a drains inspector before you became administrator, then in the one year that you are administrator of a panchayat, you push the drains projects really well.

RAJAGOPALAN: Nice. Whatever capacity you bring, that gets implemented.

SHARAN: That gets implemented. The problem is that may not be what the citizens want.

RAJAGOPALAN: This is like the open-air gym.

SHARAN: This is like the open-air gym. This guy can build gyms. You’ve got to show up and be like, “We’re going to build a bunch of gyms here.” The citizens are like, “What are you doing?”

RAJAGOPALAN: Sorry, I shouldn’t laugh, but this is—

SHARAN: It is truly hilarious. When he said it, we had to ask him two, three times, and he kept saying, “Gym, gym.” I was like, “Gym? You are building a gym?” He’s like, “Yes, that’s what we have.” Anyway. This is what the administrators are better at doing. They have technical skills, but overall, we find that elected officials are better. The Indian system is right in that you take these elected officials, they know what citizens want. They are better at making plans and building stuff that citizens want, but they don’t have the technical know-how. You don’t need the bureaucrats.

RAJAGOPALAN: That’s why we have separation of powers. Right?

SHARAN: Exactly.

RAJAGOPALAN: This actually comes from Adam Smith.

SHARAN: I know this, by the way.

RAJAGOPALAN: Sorry. It’s a random detour.

SHARAN: Yes, I want to hear this.

RAJAGOPALAN: I always had this Montesquieu idea of separation of powers, which is checks and balances. You need to split the power so that ambition can check ambition, kind of thing. Adam Smith, and I want to say this is in book four of The Wealth of Nations, but I may be wrong [book V], has this one beautiful paragraph, two paragraphs, actually, back to back. We will try and throw it in the transcript, where he describes how you have separation of powers to check different branches of government to check power, but you also have separation of powers because of division of labor and specialization. It’s a knowledge issue.

“The separation of the judicial from the executive power seems originally to have arisen from the increasing business of the society, in consequence of its increasing improvement. The administration of justice became so laborious and so complicated a duty as to require the undivided attention of the persons to whom it was entrusted.” ….

“When the judicial is united to the executive power, it is scarce possible that justice should not frequently be sacrificed to what is vulgarly called politics. The persons entrusted with the great interests of the state may, even without any corrupt views, sometimes imagine it necessary to sacrifice to those interests the rights of a private man.” 

 Adam Smith, Wealth of Nations, Book V, Chapter 1, Part II

SHARAN: Very cool.

RAJAGOPALAN: Right? Legislatures, what are they good at? They’re good at aggregating preferences. The executive is good at implementing. The judiciary is good at looking at different kinds of evidence. He actually describes all this.

SHARAN: Very cool.

RAJAGOPALAN: It’s like one clean, tiny, pithy paragraph. Very Adam Smith. At the local government, more than the checks and balances, even, you really need the separation of powers to be intact for not just incentive alignment but actual knowledge—

SHARAN: —and actual implementation. I think that’s the main thing.

RAJAGOPALAN: Are they more or less corrupt? You have a couple of papers. One where you talk about women versus men, one where you talk about bureaucrats versus elected officials. Overall, I understand corruption has reduced, how do they do compared to each other?

SHARAN: Women versus men, we have a paper from 2017 where we looked at NREGA corruption in Andhra Pradesh, what was United Andhra Pradesh back then? We find that women leaders in the beginning are a bit more corrupt than the men, in the first year of their terms, and we don’t know—we can speculate—partly because maybe they don’t know how the system works. Therefore, you have the local bureaucrats who basically exploit them. That’s one.

RAJAGOPALAN: Think it’s because they need to have more buy-in. You have to pay more people off, is my guess.

SHARAN: You have to pay more people and buy in, so whatever. There’s some local power structure you need to—

RAJAGOPALAN: Because anything that suggests women don’t know offends me.

SHARAN: Yes. Fair.

RAJAGOPALAN: It can’t be the only explanation.

SHARAN: Only explanation. Fair. Completely fair. They need to somehow navigate these hierarchies, so they do it. The other explanation for this, what we find though, is that by the year five, there’s no difference.

RAJAGOPALAN: It goes away.

SHARAN: The women and men basically perform equally on whole bunch of corruption indicators.

RAJAGOPALAN: It’s either learning by doing because they didn’t know the system, and now they know the system, or they’ve amassed enough power and enough favors that they no longer need to buy everyone.

SHARAN: Both these mechanisms could be at play. The one thing I want to clarify here is that—and this is some interesting work that now we are seeing political scientists engage with, I think Apurva Bamezai, and Rithika Kumar, and Priyadarshi Amar have some work on proxy women leaders. Basically, the idea is that when we say women come because of quotas, it’s not clear if women are actually governing or not, or if it’s some stand-in. The Panchayat TV show has a very nice—

RAJAGOPALAN: This is like the pati sarpanch idea. Right?

SHARAN: Exactly. Right. Now, a lot of these gender quota papers, the one thing that they do not know how to grapple with is the proxyness in terms of just causal identification. Because the proxyness is not random. You really do not know if this proxy leadership, what is it playing? Is it actually moving things in one direction or the other? We don’t have evidence on that. When I say that women learn and women don’t, it could be 20% of the women who are actually making the difference. 80% of them are just still—

RAJAGOPALAN: That’s true.

SHARAN: In Bihar, I think now we have some evidence to suggest that about 80% of women ward members are still represented by their husbands, or fathers, or sons. There is a lot of proxyness that’s still happening. It’s reducing, but it’s still high. That’s on women versus men. 

Now, on scheduled castes, there actually is no good paper on seat reservation and corruption. We have some work to say, and some others also have shown this, that reservations for scheduled castes and scheduled tribes improves outcomes. I think with scheduled castes, we show that there’s no real efficiency-equity tradeoff. In other words, it’s not that upper castes do much worse, and that’s the way scheduled castes do better. It’s just that scheduled caste leaders are able to channel resources better to themselves, and maybe a small sliver of the upper castes, who used to control everything, do worse, but it doesn’t show up in the data. It’s really nice. We also show exactly what you said earlier, which is it creates a political class, it creates a whole bunch of new leaders. These leaders can then function even without reservations. They don’t need reservations to come back to power, which is great. 

Scheduled tribes, there is work by Saad Gulzar and co-authors that looks at reservations for them. They find that, again, it improves NREGA outcomes for SC/STs, but at the cost of some of these other costs. They find some tradeoff between equity and efficiency. More broadly speaking, the reservation literature, I think, suggests that outcomes improve for the minority group at very little cost for everybody else, but we do not know, at least, I cannot think off the top of my head of a good paper on corruption. Maybe that exists, and I’ve just missed something. In terms of these bureaucrats and elected officials, we find no effects on corruption.

RAJAGOPALAN: Bureaucrats are as corrupt as the elected officials?

SHARAN: Yes, they are. We ask about bribes, we also look at self-dealing, and all of this, and we find no differences.

RAJAGOPALAN: I think of everything like an economist, as a tradeoff. If you’re going to subvert democracy and you can’t even get the good outcomes, I’m sorry. You can’t get things implemented. They’re building an open-air gym or a drain, and they’re also corrupt. No, thank you. I’d rather stick with the broken democracy we have.

SHARAN: I agree. I also think it’s because when we think of a specialized bureaucrat, I think we have a very bias view of what a technocrat is. A lot of these local bureaucrats, they are technically skilled, and they’re going to be better in terms of technical abilities than the panchayat-elected leader, but the gap, the differential is not huge. If there is this bias that we have that technocrats are impartial at the higher levels, these are not those types of people, is how I would see it.

Inclusion

RAJAGOPALAN: The other question I have, this is moving a little bit away from purely the local government stuff. There is one layer in all of your work is a question of who gets included. It could be inclusion in terms of political representation. It could be inclusion in terms of the welfare itself that is being distributed, or inclusion or exclusion, and corruption, and the distribution of those funds, and so on. What is a good way to think about how we counting people on whether they need to be inclusion or exclusion in below-poverty-line schemes, which you’ve written about, but also NREGA more broadly, or some of these other schemes, are we getting it largely right? Are we getting it wrong? How good are these data, and what’s a good way to think about it?

SHARAN: These are great questions. Let me start by saying, on NREGA, my fundamental issue with NREGA is that the targeting is not bad within a panchayat. Within a panchayat, you see more representation of women-scheduled castes, scheduled tribes. I would say it should be more than that given the wages they pay. The wages are so low that I can’t see many upper castes wanting to work on those wages. Plus, there is a caste bias. Suanna Oh’s work shows this. There’s a caste bias against working in these occupations for many of these middle to upper castes.

You should see even more representation, but okay, fine. Let’s accept that at least within panchayat, there’s some targeting. The bigger problem is that the better states have more NREGA man-days. It should actually be reversed. The UPs, the Bihars, the Madhya Pradeshs.

RAJAGOPALAN: They have more money.

SHARAN: They have more money, but it’s a centrally sponsored scheme.

RAJAGOPALAN: I know, but it’s all money coming from whichever state you’ve gotten it. Right?

SHARAN: Yes. It is coming from whichever state you’ve gotten it, but I think it gotten demand for work. See, the way they do it is, it’s the administrative capacity of the state to implement that’s driving a lot of these .

RAJAGOPALAN: Basically, there’s the same reason that we have more papers on Andhra Pradesh and Tamil Nadu RCTs than we have in Bihar, because it’s easier to do the RCT in Andhra Pradesh and Tamil Nadu.

SHARAN: It’s interesting you say that. I don’t know that argument is true. I’ll tell you why.

RAJAGOPALAN: It’s my critique of the entire RCT community.

SHARAN: No. In fact, I’m going to say something that that will not necessarily disagree with your critique. It’s just going to add nuance, which is that I think the power structure, the power dynamic between a foreign researcher and an official in Bihar, is actually higher. In Tamil Nadu, you still deal with them as—not me, I’m a nobody—but like if you were a big researcher from a foreign university, you would still be treated okay. In Bihar, sometimes they’ll really treat you really well, or in UP, they’ll say, “Oh my God, this professor from this American university.”

RAJAGOPALAN: Treatment’s not the only problem. No?

SHARAN: Yes. Not the only.

RAJAGOPALAN: It’s all of it. It’s the ability to actually conduct the experiment.

SHARAN: Ability to conduct is going to be much easier to do.

RAJAGOPALAN: You have a capacity problem from top to tail.

SHARAN: That results in a lot of these schemes being regressive in implementation because the better off places are able to do it better. That, I don’t think it’s a design flaw of the NREGA, but it is something that we should think about deeply in terms of how do we implement programs better that include marginalized places where there’s low state capacity. Bihar has now, for example, the last 10 years, increased the amount of NREGA man-days they produce. I don’t think corruption has gone up. I don’t think the explanation can be that it’s all corruption.

It’s not. Corruption, if anything, has reduced, but it’s still not where it should be given the amount of demand that not Bihar produces, but other richer states produce. This is something that one needs to think about. This is true not just from the NREGA man-days. You take any government scheme, I think we had this graph many years ago in the economic survey. I did some work with Arvind Subramanian’s team back then. I think we had a graph where we looked at the difference between the share of resources you get in a district minus the share of the people who are poor. That’s a nice way of saying that, look, if you have a lot of poor people, you should get a lot of resources.

Instead, you get a lot of resources where there’s very little poverty. The South basically has high share of government resources from central schemes also, and yet not as much poverty. The money is not reaching where it should, and that’s a state capacity problem, I think.

RAJAGOPALAN: It’s also because we have focused too much on specific welfare instead of overall welfare, right?

SHARAN: Yes.

RAJAGOPALAN: If you start developing public goods, for instance, and you pay more attention to that, you pay more attention to drains and sewage systems, then you’re overall going to reduce the number of people who fall sick, as opposed to just figuring out a targeted, centrally sponsored scheme for giving you a shot, or reducing malnutrition, or something like that. I think we have no public goods provisioning functionally at the appropriate level of governance.

The only place where we see it is in private enclaves, where the people who are paying the user fees and living in those condos, or those gated communities, are also the ones who are benefiting from the collective action. Other than that, we don’t have that strong link. I think this is actually my biggest critique of development economics, as it’s done in India. All development economics is about how we split the welfare pie, but the welfare pie splitting, one, depends on how much revenue you can raise overall, and second, what are the capacities at the different ends. All the different branches, what’s the capacity to actually disperse it? 

Overall, you still need to increase the size of the pie, which can only be done if you do what we call macro dev, which is, how do you make sure that these systems work, capacity works. Capacity is overall improved. We can actually build roads, and have night lights, and have police. We haven’t even talked about police yet.

SHARAN: Let me say, I completely agree with everything you’re saying. In fact, to be a good economist, I feel like the causal inference is a good tool. While now it has assumed a lot of importance. I think it’s a cycle. Things change and things move. In my own 10 years of being here in the US, I’ve seen it being like you have an RCT, the paper gets published immediately, you have to do 20 other things now, and still it may not get published. More importantly, I feel like the cost of not reading more broadly.

There are fundamental questions that we don’t even think about as economists as much anymore, that we have now basically left to political scientists, sociologists, anthropologists to think of when we actually have a lot of the tools.

RAJAGOPALAN: We have the analytical tools to do this.

SHARAN: We have it.

RAJAGOPALAN: We just left them behind.

SHARAN: We left them behind. In today’s age, where there’s so much data.

RAJAGOPALAN: Yes, that’s true.

SHARAN: I am hopeful. I’ll tell you why I’m hopeful. I’m hopeful because Raj Chetty’s work is a good example of how we can come back and say important, big-picture things. I think with the rise of Paul Novosad and Sam Asher.

RAJAGOPALAN: With big data becoming cheaper and easier to collect.

SHARAN: Easier to do.

RAJAGOPALAN: One is the data thing. I’ve griped enough about RCTs on this podcast, so I will spare everyone that. The issue is not just about too much focus on method at the cost of everything else. As economists, we use these tools when common sense doesn’t give us the answer. I would really like to bring back some common sense into economics. I need very, very good causal inference when there are multiple explanations, when there is reverse causality, and so on and so forth. A lot of the things we’re talking about is a pretty one-way, straightforward relationship.

Everywhere in the world, where children are not dying of malaria, looks pretty similar. The drains are covered, the water is piped and cleaned, the roads are paved. Simple. Let’s not deviate too much from common sense, is my overall point.

SHARAN: The other point I’ll make here is there are two things we need for understanding how to build better policy and better understanding of what’s happening in India. One is thick descriptions, which we can do now with more data. Second is insight grounded in what’s happening in these contexts.

RAJAGOPALAN: In these contexts, yes. Which we have to do fieldwork.

SHARAN: Yes. For all the much-maligned, say, JNU or Ashoka University, or even Delhi School of Economics, where I did my master’s, if you look at some of the theses that come from there, if they don’t do the causal inference stuff, if they’re doing the causal inference stuff, they’re always going to not be as good as the stuff we’re producing here because we have better resources. We use the power dynamic between us and people there, and we are able to pull off stuff, but if they do more grounded stuff. I love reading good, thick descriptions—

RAJAGOPALAN: I agree.

SHARAN: —and using tools that economists use. The people are doing it there, and we need much more of it. I think the goal is to marry all that insight with all—

RAJAGOPALAN: With good data and good tools.

SHARAN: Yes, and then tell the story. I think we should go back to telling big stories. Now I’m really veering into a topic that maybe I shouldn’t be veering into. We write these really big, 150-page papers in economics about one thing.

RAJAGOPALAN: They’re awful.

SHARAN: Right?

RAJAGOPALAN: They’re horrible to read. To the listeners who are writing these papers, I am reading them, please stop. They’re horrible.

SHARAN: I think the value you get from it is that you’re basically saying something very small but very cleanly. 

RAJAGOPALAN: Beyond reasonable doubt.

SHARAN: Beyond, yes. 

RAJAGOPALAN: No one is in court about to be hanged, so we don’t need this.

SHARAN: Yes, and it’s not that even this process is foolproof. We are doing a lot to play this game, but actually, what we need more of, I would argue, is that, almost go back to “the big questions” book, but tell it with data, which we can tell now.

RAJAGOPALAN: Which we can do now. I think you’re right. I think the way is to do the 150-page book instead of the 150-page paper. You’ve written a book, which is very thick description.

SHARAN: Yes, it is thick description.

RAJAGOPALAN: It’s a proper ethnography.

SHARAN: It’s more ethnography, exactly, yes.

RAJAGOPALAN: Walk me through that book. That’s a weird thing for an economist to write, especially at the beginning of their career. It’s a lovely book, actually. Last Among Equals: Power, Caste & Politics in Bihar’s Villages.

SHARAN: Exactly. The book is basically proper ethnography in this one particular way, which is that I follow one character called Sanjay Sahni, who’s now a very good friend of mine, who basically left his electrician shop in Janakpuri in Delhi to go back to his village to fight corruption. He goes back because he discovers corruption in NREGA on the internet. It’s a very nice story about how he goes to the cyber cafe, he tries to use internet.

RAJAGOPALAN: It’s also very nice story about how, when you leave your village and you enter new networks, how you’re able to perceive the same information very differently from those who are left behind.

SHARAN: Exactly.

RAJAGOPALAN: It’s such a lovely story.

SHARAN: Exactly. The one really nice thing about this story—actually two nice things. One is that it was somebody who came from a marginalized background, who basically failed class seven, was a child laborer working in different cities. Gets to a point where he’s 25 and has a small electrician shop, discovers corruption, but goes back to that context, and he’s from that context. Unlike most activists we know, who are people like you and me, who go back. I’m not saying that that is entirely wrong.

RAJAGOPALAN: No, it’s not at all, as long as they work in the local context and know it, I’m totally fine. I know lots of activists who transplanted themselves, starting with Gandhi, but this is different. It hits differently, and more importantly, he’s received differently.

SHARAN: Exactly. I agree entirely. He’s received differently.

RAJAGOPALAN: I got this from your books, so I think you have to agree.

SHARAN: I agree, entirely agree. He’s received differently. In the end, what really helps him is the fact that he has women, who are amazing. I have not met women like that anywhere, they are most marginalized but also are vociferous, are able to come together, act for the collective good in ways that is very hard to see.

RAJAGOPALAN: The story also has villains.

SHARAN: It has villains.

RAJAGOPALAN: That’s the thing I like about the story. It has good guys, it has bad guys, it has intermediate guys, it has good gals.

SHARAN: Exactly. A lot of good gals and a lot of intermediate gals. There’s all kinds of things happening in this story. When I saw him, and I met him for the first time in 2012, ’13, on a train, we were both going back from Araria and Bihar, all the way back to Patna, he was going to Muzaffarpur, which is where his village was. He said, “Come to my village.” We show up in his village, and then he shows me all these NREGA workers who are mobilizing and coming together to demand more from their local government.

That’s what the book started as, but then, eventually, I also put in stuff that couldn’t go into my PhD. This goes back to the thick description book, which is that in the PhD, you end up writing papers on causal questions that are important, and they need to be answered.

RAJAGOPALAN: I didn’t do that, and hence I have turned out the way I am.

SHARAN: No, I think we need more of you, verily.

RAJAGOPALAN: I’m the cautionary tale. I’m not the example.

SHARAN: No, I think that there should be more parts. Anyway, so to finish what I was saying, I added all the stuff I couldn’t put in the PhD, but I had field notes. I already have about 20,000-plus words of notes I had taken from my time in these villages.

RAJAGOPALAN: They’re so descriptive. The book is actually so descriptive. They should turn your book into a panchayat—

SHARAN: The Panchayat is already made.

RAJAGOPALAN: I know. No, but one of these long miniseries.

SHARAN: Maybe. I would be very interested if somebody is listening to this and wants to do it.

RAJAGOPALAN: No, because this is a different story. This is actually a very classic story of an underdog coming back and being the voice for his people. Maybe if Salim–Javed had read this in the ’70s, they would’ve made a movie out of it. This is very much that story.

SHARAN: This is that story. It’s complicated because in the book, actually ends with him losing the MLA elections and not even losing by a small margin.

RAJAGOPALAN: For me, the fact that he fought it is the big deal. That’s the win.

SHARAN: That is completely the win.

RAJAGOPALAN: It is so hard to fight an MLA election. As you described.

SHARAN: Yes, it is crazy. To his credit, he comes forth off a pool of 10, 12 candidates.

RAJAGOPALAN: Doesn’t lose the deposit.

SHARAN: No, he does lose.

RAJAGOPALAN: Oh, no.

SHARAN: I think he didn’t make it to 10% of votes polled because the top two candidates got 35% each or something like that.

RAJAGOPALAN: Oh, wow.

SHARAN: Then everybody else splits. Coming forth as an independent—

RAJAGOPALAN: That’s a big deal.

SHARAN: —is a big deal. He did really well, and he continues to do it. That is a remarkable thing about him, and the movement is that they continue to expand to work in more panchayats. It’s a classic collective action story because what I really like about that movement is that over 60 to 70% of the movement is funded by local workers.

RAJAGOPALAN: This is not an enemy political party coming and doing this whole thing.

SHARAN: It’s not.

RAJAGOPALAN: This is really ground up.

SHARAN: Yes, and it’s not funded by donations. There are elite networks that help the movement when they want visibility, when they want to get out of some trouble. It’s not the elite networks that these other movements that we’ve seen across India, including the great freedom movement we had. The networks were really strong. Right? This is my strong belief. I’m happy to be proven wrong. No movement or no bottom-up collective action can function without active elite support.

RAJAGOPALAN: I agree.

SHARAN: That’s why there are so many of these movements run by elites, because you need the media, you need the courts, you need the institutions to back you when things go south. If you are not able to do that, or if you do not have that kind of access and you’re still “winning”, then that is a movement to document. The way I figured out that this was a book was when I would send these emails based on these field notes to friends and family who had nothing to do with economics—this was outside.

RAJAGOPALAN: They got excited because it’s so readable.

SHARAN: They got excited, and that’s when you knew, okay, this is a book that can actually reach a broader audience than just academic economists.

RAJAGOPALAN: No, I really loved reading it.

SHARAN: Oh, thank you so much.

RAJAGOPALAN: It was unexpected. In fact, I told you this. I have met Sharan in random music concerts. I have read Sharan’s papers with Biju, and I’ve read the book. In my head, I did not connect these three people together. Which makes me sound a little bit nutty because how can three people be called Sharan? Somehow in my head, I just never connected the dots. They just seemed completely disparate things to me.

SHARAN: I am very surprised by that. I don’t know what to say. 

RAJAGOPALAN: It is definitely my fault.

SHARAN: I guess now we are completely wearing out, but basically, I do remember. I think I told you when we met at the concert, seeing you when we were in college, and you came to talk to us.

RAJAGOPALAN: I apologize.

SHARAN: No, you did. It was really good.

RAJAGOPALAN: Twenty-year-long due apology.

SHARAN: I know. I connected immediately. In fact, recently, somebody sent me a copy of our college magazine. This is Hansraj College in Delhi University.

RAJAGOPALAN: I’m on the masthead.

SHARAN: You’re on the masthead, and there’s an article by you. Now I’ve forgotten. I should have looked up the content.

RAJAGOPALAN: Completely terrible.

SHARAN: Mine is terrible. 

RAJAGOPALAN: You know who was my associate editor? Uday Bhatia, who is now the film writer for Mint.

SHARAN: Oh.

RAJAGOPALAN: And wrote the book on Satya, the movie.

SHARAN: Wow.

RAJAGOPALAN: We both founded the magazine, I don’t know—God knows how—we are not going to count.

SHARAN: We’re not going to count. That’s remarkable. I didn’t know that.

RAJAGOPALAN: I love that it still exists. I’ve been claiming a credit for his entire career. I’m like, “I gave you your first chance.”

SHARAN: This Satya happened only because you gave it the chance.

RAJAGOPALAN: Totally.

SHARAN: No, it’s amazing. I have to read the book. I haven’t read it.

RAJAGOPALAN: It’s a lovely book. I can give you a copy, but thank you so much for doing this.

SHARAN: Thank you.

RAJAGOPALAN: This was such a pleasure.

SHARAN: This was so much fun. Thank you.