Gist of EPW March Week 2, 2019

The Economic and Political Weekly (EPW) is an important source of study material for IAS, especially for the current affairs segment. In this section, we give you the gist of the EPW magazine every week. The important topics covered in the weekly are analysed and explained in a simple language, all from a UPSC perspective.

TABLE OF CONTENTS

1. Public Expenditure and Economic Development
2. What Do Citizens Value in E-governance?

1. Public Expenditure and Economic Development

Introduction

• This article examines the causal relationship between government expenditure and economic growth in India by comparing studies

Analysis

• There is much empirical research on the positive and adverse impacts of public expenditure on economic growth and of economic growth on public expenditure.
• The possible direction of causality between public expenditure and economic growth is highlighted by two approaches: Wagner’s law (1883) and Keynes’s law (1936).
• Wagner’s law of “increasing public and state activities” claims that the role of public expenditure is an endogenous variable in the process of economic growth.
  • His hypothesis asserts that economic growth leads to an increase in real income, which results in increased demand for infrastructure, health, education, and social security services.
  • The demand for such public utilities is due to industrialisation and urbanisation, and it increases perpetually; to continue to provide these services, the government needs to make huge expenditures.
• The Keynesian framework holds that public expenditure is an exogenous factor that influences growth, or public expenditure can be used as a policy measure to generate employment, and boost growth and economic activity.
• Macroeconomists cite several conventional and new channels through which public expenditure contributes to economic growth. For any economy, public expenditure consists of, majorly, expenditure on infrastructure and social welfare issues.
• Public spending on infrastructure positively affects growth through private capital formation. The rate of return on building a factory is much greater if the government spends on power generation, transportation, and telecommunications.
• However, public expenditure on infrastructure may affect growth adversely if the government finances such expansionary expenditures by raising distortionary taxes, which reduce the rate of return of private investment: the crowding-out effect.
• To ensure that the growth rate is consistent, private investment must be durable. To make sure that private investment is durable, the government must spend on the maintenance of such public capital and allocate recurring or revenue expenditure for its upkeep
• On the social welfare front, public capital plays an important role. Public spending on education, health, and welfare issues contribute to economic growth. Higher levels of education create awareness regarding society’s health needs.
• Good health raises life expectancy and, thereby, economic productivity. Thus, the government must consider how spending on infrastructure and social welfare contributes, directly or indirectly, to growth before allocating public expenditure.
• Studies were conducted taking the states of India. The analysis utilises yearly panel data for 2003–15 for 28 states of India as a full sample panel, classified into panels comprising six relatively developed states in Panel 2, 12 less developed states in Panel 3, and 10 least developed states in Panel 4. The classification is based on the development index by the Ministry of Finance.

Results of Studies

• Strong evidence is found of a direct association between economic growth and the two public expenditure variables, aggregate capital expenditure and revenue expenditure.
• The association of economic growth with public expenditure is unclear in the full sample of all states and in the panel representing relatively developed states.
• In the panels representing less developed and least developed states, however, public expenditure demonstrates a strong linear relationship with economic development.
• This implies that since relatively developed states have already witnessed adequate progress, the government is not utilising public expenditure as a policy variable for economic growth.
• The rationale emerges from the fact that as population and urbanisation rise in the process of economic development of each state, revenue expenditure—expenditure on education, health, and social welfare—increases in relatively developed states.
• In these states, advancement in trade and industry resulting from economic growth is telling of the growing role of the private sector, which eventually demands more public expenditure
• Least developed states require capital expenditure mostly for infrastructure development, which is necessary for economic growth; the governments of these states can manipulate capital expenditure for economic growth. Least developed states cannot ignore social welfare activities; they can raise income by increasing revenue expenditure.
• Thus, the study reveals that the Keynesian hypothesis operates for revenue expenditure. The results indicate stronger support for Wagner’s law, which postulates that growth in the real sector in a developing economy like India propels the government to spend on utilities demanded by the public.

Conclusion

• The causal relationship between economic growth and public expenditure has been debated since the late 19th century, but whether the association between economic development and public expenditure remains stable during the different stages of regional development in an economy has not been conclusively answered.
• The primary results for relatively developed and less developed states in India suggest a causal flow from real sector growth to increase in public expenditure, in line with Wagner’s hypothesis.
• This implies that with a steady increase in the real income in Indian states (majorly, relatively developed and less developed states), the demand for basic infrastructure has increased manifold, which stimulates an increase in public expenditure.
• In less developed states, where the role of capital expenditure is more evident, the observed increase in public expenditure is the result of increase in revenue expenditure, which has a non-developmental effect, and not capital expenditure, which has a developmental impact.
• In least developed states, capital and revenue expenditure contribute to growth, and growth contributes to capital and revenue expenditure. These findings can effectively guide major economic policies.

2. What Do Citizens Value in E-governance?

Introduction

• From the 1990’s governments across developing nations have been experimenting with e-governance projects, India being no exception.
• India has been making use of information and communication technologies (ICTs) in governance, increasing the efficiency of public service delivery models.
• India’s engagement with the use of information and communication technologies (ICTs) in governance has gradually moved from a mere automation of some of the government’s internal processes, to using e-governance as a means to improve transparency and accountability within public offices, and increasing the efficiency of public service delivery models..
• With e-governance initiatives emerging as the vanguard practice for reforming governance, understanding the nature and extent of changes brought about by them becomes crucial, both in terms of their immediate and long-term developmental outcomes.

Three levels on which the impact of e-governance projects could be studied:

• Primary Effects indicate a simple substitution of old technology by new
• Secondary Effects denote an increase in phenomena enabled by new technology
• Tertiary Effects bring in a new breed of business and social change, based on the use of new technology.

Capabilities Approach to study the Karnataka Valuation and e-Registration (KAVERI) project

It is an ICT project of the Department of Stamps and Registration (DS&R) of the Government of Karnataka, to assess its long-term impact, decidedly in enhancing citizen’s capabilities

• The capabilities approach focuses on overall human well-being by evoking the concepts of development and justice at the same time.
• The objective of human development is not merely economic growth, but the creation of real opportunities that enable people to achieve their valued ways of beings and doings.
• This refers to actions and activities that people want to engage in, often referred to as valued functionings, that include work, leisure, literacy, health and so on, that together render one’s life valuable
• Moving beyond the instrumental narrative of technology that focuses on efficient service delivery through computerisation, a capabilities approach framework can help in appreciating the long-term impacts of such initiatives on the lives of people.
• This framework consists of two concepts, namely, functionings and capabilities.
  • Functionings refer to the achievement or the actual living conditions of a person, and capabilities refer to the ability to achieve or the real opportunities to achieve what a person values as functionings
  • It is this notion of capabilities that takes the question of development beyond immediate living conditions to the broader scope of human freedom, and the conditions that need to be created for achieving one’s valued functionings.

In understanding the long-term developmental impact of e-governance initiatives, the capabilities approach provides a useful framework for several reasons.

• First, it focuses both on the range of ICTs available to individuals, as well as on the ability of the people and existing conversion factors required to generate valued functioning’s from ICTs
• Second, in recognising interpersonal variations among human beings, the capabilities approach underlines different spaces of equality. This implies that a similar real opportunity might have different impacts on two individuals depending on their existing functionings, or people with a similar set of functionings may not have the same set of capabilities, depending on different personal, social or environmental factors for conversion
• Third, without discounting the importance of technology as an important instrument of development, the capabilities approach views technology in its actual effectiveness rather than presupposing an inherent correlation between access to ICT and human well-being
• Fourth, by underlining human diversity, the capabilities approach brings out the importance of context and the situated agency of people in the adopting of and adapting to, a range of opportunities and choices enabled by access to ICT goods and services

The Property Transaction System

• The DS&R, through its network of Sub-Registrar Offices (SRO) and District Registrar Offices, is responsible for the registration of various documents involving property transactions, general power of attorney, wills, gifts, mortgage, lease agreement, etc, and to preserve them as public records.
• DS&R is responsible for registering all property transactions, as well as maintaining and preserving the records of registration in the state.
• Broadly, the services provided by the DS&R in registering property transactions can be classified as registration services and information services.
  • The former includes the registration of a document (referred to as the sale deed/agreement for transactions involving the sale/purchase of immovable property) that marks the transaction and the collection of the prescribed stamp duty and registration fee.
  • The latter includes issuing certified copies of registered documents, issuing a certificate notifying transaction and charges against properties, also referred to as an encumbrance certificate, and providing market value assistance by estimating and publishing a market value (popularly referred to as the guidance value) for various types of properties in different parts of the state
• Both registration and information services are offered by the SROs under whose jurisdiction the immovable properties to be transacted are located.

Launch of KAVERI

• The KAVERI application was launched in December 2003 to bring efficiency in the property registration process, while also enhancing the state’s revenues from such transactions.
• With its launch, the DS&R computerised its network of sub-registrar and district registrar offices across the state.

Merits

• The presence of computers has also brought some degree of accuracy and standardisation in the sale deeds.
• This is further enhanced with the use of biometrics (fingerprints and photographs) to verify the identity of the transacting parties.
• In addition, the availability of property details makes the preparation of encumbrance certificates easier and contributes to an enhanced service delivery experience for citizens when they want these certificates.
• Thus, KAVERI does bring convenience to the citizens, especially in terms of a substantial reduction in the time taken for registration, including making copies and returning the originals to the transacting parties.

Issues with Kaveri

• KAVERI is restricted to the actual registration process, and does not engage with either the preregistration step or the supporting actions. However, a citizen has to necessarily engage with these other processes as these are intrinsically linked to the property registration process. It is this connection that necessitates the evaluation of KAVERI within the larger spectrum of property transactions.
• Yet, convenience to the citizens in accessing the DS&R and its numerous office-bearers directly—without going through an intermediary—has not been affected by the digitisation project. Prior to the introduction of KAVERI, registration processes were mediated by intermediaries and the practice continues till date.
• E-governance projects are invoked as critical in realising development outcomes, their conception and design are constrained by a focus on short-term efficiency gains
• An analysis of the implementation of the Karnataka Valuation and e-Registration project reveals that while it has facilitated convenience and accessibility by reducing the turnaround time of the registration process, it has not reduced information asymmetries or provided assurance of the legal validity of property transactions.
• This is due to a narrow conception of e-governance which does not seek to alter the incongruities that exist in prevailing state–citizen relationships, in general, and the role of the state, in particular.

Conclusion

• Analysis reveals that the present design of e-governance projects such as KAVERI carries a narrow conception of governance outcomes (and by extension, the role that the state can play in achieving these outcomes).
• This conception is largely influenced by a utilitarian approach that emphasises first-order impacts or primary effects of computerisation and is, therefore, often concerned with a “simple” substitution of old technology by the new.
• While these impacts are not trivial, the long-term impacts of greater value in enhancing capabilities of citizens will require significant realignment of existing structures and relationships in the property transaction processes.
• Furthermore, the realignment of such structures demands a more meaningful engagement of the state with its citizens, rather than merely substituting it with automated processes and non-state intermediaries.
• To bring about positive and long-term social changes through e-governance initiatives, the state needs to better understand the functioning that citizens value when they interact with state agencies through a sound organisational and institutional framework, backed by robust legal processes.

For more EPW articles, read “Gist of EPW”.