Economic Survey 2018-19 PDF

Economic
Survey 2018-19
Volume 1
Government of India
Ministry of Finance
Department of Economic Affairs
Economic Division
North Block
New Delhi-110001
E-mail: cordecdn-dea@nic.in
July, 2019
CONTENTS
Chapter Page Name of the Chapter
No. No.
vii Acknowledgement
ix Preface
xi Abbreviations
1 Shifting Gears: Private Investment as the Key Driver of Growth, Jobs, Exports
and Demand
2 Last Five Years: The Accomplishments
4 The Next Five Years: A Blueprint for Growth and Jobs
10 Going beyond the economics of "equilibrium" in the blueprint
12 Navigating a world of constant dis-equilibrium
17 Major Factors, Reforms and Risks
2 Policy for Homo Sapiens, Not Homo Economicus: Leveraging the Behavioural
Economics of "Nudge"
29 The Influence Spectrum of Public Policy
32 Successful Applications of Behavioural Insights in India
40 Principles for Applying Behavioural Insights to Public Policy
41 An Aspirational Agenda for Path- Breaking Change
54 Implementing the Aspirational Agenda for Behavioural Change
3 Nourishing Dwarfs to Become Giants: Reorienting Policies for MSME Growth

57 Introduction
58 The Bane of Dwarfism and Its Impact on Jobs and Productivity
63 The Role of Policy in Fostering Dwarfism
74 Way Forward
4 Data "Of the People, By the People, For the People"

78 The Economics of Data and Social Welfare
81 Why Must Data be Treated as a Public Good
83 Building the System
90 Transforming India's Data Infrastructure
93 Applications
95 Way Forward
5 Ending Matsyanyaya: How to Ramp Up Capacity In The Lower Judiciary

98 Introduction
99 Pendency
100 Disposal
101 Case Clearance Rate
103 Can the Legal Logjam be Cleared?
105 How should the Additional Judges be Allocated?
111 Making Indian Courts more Productive
6 How does Policy Uncertainty affect Investment?

115 Introduction
117 Economic Policy Uncertainty in India
120 Decoupling of Economic Policy Uncertainty in India Since 2015
121 Green Shoots of Turn Around in Investment Activity
122 Relationship of Economic Policy Uncertainty with Investment in India
125 Conclusion and Policy Recommendations
7 India's Demography at 2040: Planning Public Good Provision for the 21st
Century
128 Recent Demographic Trends
132 Projecting National and State Level Population
139 Policy Implications of Ageing
146 Conclusion
8 From Swachh Bharat to Sunder Bharat via Swasth Bharat: An Analysis of the
Swachh Bharat Mission
148 Introduction
149 Swachh Bharat Mission-Gramin (SBM)
152 Comparison across states for ODF status (in per cent)
154 Solid and Liquid Waste Management
154 Analysis of SBM on Health Issues
157 Impact of SBM: Few Independent Studies
160 Way Forward
9 Enabling Inclusive Growth through Affordable, Reliable and Sustainable

Energy
163 Introduction
164 Energy for Prosperity
166 Access to Energy-Energy Poverty
169 Energy Efficiency
172 Impact of Energy Efficiency Programmes
172 Energy Saving Potential of Various Sectors
174 Sustainability of Energy Generation
175 Potential of Renewable Energy
176 Electric Vehicles (EVs) In India
180 Way Forward
10 Effective Use of Technology for Welfare Schemes- Case of MGNREGS
183 Introduction
185 Use of Technology in implementation of MGNREGS
188 Impact of DBT on Effectiveness of MGNREGS
193 Use of Data on Consumption to Proxy Distress
195 Way Forward
11 Redesigning a Minimum Wage System in India for Inclusive Growth

199 Introduction
200 Minimum Wage System in India
200 National Level Minimum Wage
200 Complex Minimum Wage System in India
202 Different Minimum Wage Across States: Is It Justified?
202 Reflection of Gender Discrimination through Minimum Wage Provisions
204 Compliance with the Minimum Wage Act
206 Impact of Minimum Wages
209 Way Forward
Acknowledgements
The Economic Survey is a result of teamwork and collaboration. The Survey has benefitted from the comments
and insights of the Hon'ble Finance Minister Smt. Nirmala Sitharaman and Hon'ble Minister of State for Finance
Shri. Anurag Singh Thakur. The Survey has also benefited from the comments and inputs of various officials,
specifically, Subhash Chandra Garg, Ajay Bhushan Pandey, K. Rajaraman, Amarjeet Sinha and Arunish Chawla.
Contributions to the Survey from the Economic Division include: Sanjeev Sanyal, Sushmita Dasgupta, Arun
Kumar Jha, Arun Kumar, Rajiv Mishra, Rajasree Ray, A Srija, Surbhi Jain, A. Prathibha, S. Arputhaswamy,
Nikhila Menon, Ashwini Lal, Abhishek Acharya, Rajani Ranjan, Sindhumannickal Thankappan, Prerna Joshi,
Dharmendra Kumar, Aakanksha Arora, M. Rahul, Rabi Ranjan, Tulsipriya Rajkumari, Shamim Ara, J.D.
Vaishampayan, Arya B.K., Abhishek Anand, Sonal Ramesh, Sanjana Kadyan, Amit Sheoran, Shreya Bajaj,
Subhash Chand, Riyaz Ahmad Khan, Md. Aftab Alam, Pradyut Kumar Pyne, Narendra Jena, Sribatsa Kumar
Parida, Mritunjay Kumar, Rajesh Sharma and Amit Kumar Kesarwani, Arpitha Bykere, Naveen Bali, Mahima,
Ankur Gupta, Lipi Budhraja, Sonum Gayatri Malhotra and Lavisha Arora.
The Survey benefited from the comments and inputs from officials, specifically Pranab Kumar Mukhopadhyay,
DG, DGCI&S, Kolkata; Shri Ajay Srivastava, Economic Adviser, Department of Commerce; Ms. Shruti Shukla,
Joint Director, DGCI&S, Kolkata; Dr. M. D. Patra, Executive Director, Reserve Bank of India (RBI); Shri
Rajan Goyal, Adviser, Reserve Bank of India (RBI); Prof. K. S. James and Prof. Chander Shekhar, International
Institute for Population Sciences; Prof. Suresh Sharma and Vandana Sharma, Institute of Economic Growth;
Shri Rajiv Jain, Director, RBI; Shri Dhirendra Gajbhiye, Assistant Adviser, Reserve Bank of India (RBI); Mr.
Surya Prakash B. S., Fellow and Programme Director (Daksh); Siddharth Mandrekar Rao, Research Associate
(Daksh); Ms. Soumasree Tewari, Research Officer, RBI; Shri Sukhbir Singh, CAAA, Department of Economic
Affairs, Ministry of Finance; Shri Abhay Bakre, Director General, Bureau of Energy Efficiency; Dr. Ashok
Kumar, Director, Bureau of Energy Efficiency; Dr. Surya P Sethi and Shri Sameer Kumar- Joint Secretary,
Ministry of Drinking Water and Sanitation.
The Economic Survey team is thankful for inputs from National Judicial Data Grid, eCourts portal, and the
International Labor Organisation, New Delhi. We are also grateful for comments and inputs from numerous
academics and practitioners, including Tanuj Bhojwani, Sajjid Chinoy, Mohandas Pai, Harshini Shanker, Sharad
Sharma, Prasanna Tantri and K. Vaidyanathan.
Apart from the above, various ministries, departments and organisations of the Government of India made
contributions in their respective sectors. Several ministries directly interacted with the CEA via presentations
to provide their inputs. The Economic Survey is grateful for their valuable time, engagement and contributions.
Able administrative support was given by K. Rajaraman, Rajkumar Tiwari, Jasbir Singh, Suresh Kumar, Anupam
Shukla, Sadhna Sharma, Arun Gulati, Sushil Sharma, Manish Panwar, Muna Sah, Suresh Kumar, Jodh Singh,
Ombir Singh, R R Meena, Subash Chand, Raj Kumar, Ram Niwas, Kesar Singh, Bal Kishan, Satish Kumar,
Gajender Singh and other staff and members of the Economic Division and the Office of CEA. The cover
page for the Survey was designed by India Brand Equity Foundation. Viba Press Pvt. Ltd. undertook the printing
of the English and Hindi version of the Survey.
Finally, the Economic Survey owes deep gratitude to the families of all those involved in its preparation for
being ever so patient, understanding and encouraging and for extending their unflinching emotional and physical
support and encouragement throughout the preparation. The families, indeed, are the unconditional pillars of
support for the dedicated contributors to the Economic Survey.
Krishnamurthy V. Subramanian
(Chief Economic Adviser)
Ministry of Finance
Government of India
(vii)
Preface
At the outset, we would like to express our sincere gratitude to the leadership provided by previous Chief
Economic Advisors, which has elevated the Economic Survey to a much anticipated event in India's economic
calendar. The contribution they have made through their erudition, rigour and, most importantly, their ideas
can only be expressed through Sir Isaac Newton's immortal quote: "If I have seen further than others, it is
by standing upon the shoulders of giants." This Survey makes a humble effort to carry forward this glorious
tradition.
This Survey is the first for the new Government, which came to power with an overwhelming mandate. With
the aspirations that have been kindled among our predominantly young population, India stands at a historic
moment when sustained high economic growth has become a national imperative. Aptly, the Honourable Prime
Minister laid down the vision of India becoming a $5 trillion economy by 2025 (#Economy@5trillion) and
has inspired every citizen to contribute his or her bit to this worthy cause. In his words, "If every one of the
130 crore Indians takes one step forward, the country too will go that many steps ahead." By laying out the
strategic blueprint for fructifying this vision, the Survey extends its absolute commitment to a collective
endeavour: 130 crore Indians creating an inclusive India by 2022 when we, as a nation, complete 75 years
of Independence (#India@75).
Imbued by the power of the opportunity that beckons, the team for Economic Survey 2018-19 has been guided
by "blue sky thinking." The Survey adopts an unfettered approach in thinking about the appropriate economic
model for India. This endeavour is reflected in the sky blue cover of the Survey. To achieve the vision of
#Economy@5trillion, India needs to shift its gears to accelerate and sustain a real GDP growth rate of 8%.
The Survey departs from traditional thinking by viewing the economy as being either in a virtuous or a vicious
cycle, and thus never in equilibrium. Rather than viewing the national priorities of fostering economic growth,
demand, exports and job creation as separate problems, the Survey views these macroeconomic phenomena
as complementary to each other. The cover design captures the idea of complementary inter-linkages between
these macroeconomic variables using the pictorial description of several inter-linked gears.
Drawing upon the trajectories followed by East Asian economies that experienced long periods of high growth,
the Survey postulates the centrality of investment as the "key driver" that catalyses the economy into a self-
sustaining virtuous cycle when supported by a favourable demographic phase. After laying out the strategic
blueprint for fulfilling the vision of #Economy@5trillion, the Survey describes some of the tactical devices
required to navigate an uncertain world in constant dis-equilibrium. Inter alia, the Survey focuses on nourishing
MSMEs to create jobs and become more productive so that they can become internationally competitive,
enhancing legal reform, ensuring consistency of policy with the vision and the strategic blueprint, reducing
the cost of capital, and rationalizing the risk-return trade-off for investments.
In its attempt at unfettered thinking, the Survey utilises the significant advances made in Behavioural Economics
in the last few decades, which culminated in the 2017 Nobel Prize in Economic Sciences being awarded to
Prof. Richard Thaler. The impact created by Government's flagship initiatives such as Swacch Bharat Mission,
Jan Dhan Yojana and the Beti Bachao Beti Padhao provide testimony to the potential for behavioural change
in India. Given our rich cultural and spiritual heritage, social norms play a very important role in shaping the
behaviour of each one of us. Behavioural economics provides the necessary tools and principles to not only
understand how norms affect behaviour but also to utilise these norms to effect behavioural change. The Survey,
therefore, lays out an ambitious agenda for behavioural change by applying the principles of behavioural
economics to several issues including gender equality, a healthy and beautiful India, savings, tax compliance
and credit quality.
Heading into a century where data has become the new oil and analytics from data the new tool for decision
making, the Survey foresees countless opportunities in creating data as a public good "of the people, for the
people and by the people".
In preparing this Survey, time and talent have been devoted to make our analysis understandable to all readers
while maintaining the necessary level of rigor. To illuminate the key insights and demystify the concept for
readers across all disciplines, an Abstract and a Chapter at a Glance have been included for each Chapter
of the Survey.
(ix)
We chose to continue with the popular tradition of presenting the Survey in two volumes. Volume I, which
attempts to capture our "blue sky thinking", provides evidence based economic analyses of recent economic
developments to enable informed policymaking. Volume II reviews recent developments in the major sectors
of the economy and is supported by relevant statistical tables and data. This would serve as the ready reckoner
for the existing status and policies in a sector.
The Economic Survey attributes its existence and popularity to the collaborative effort of all Ministries and
Departments of Government of India, the prodigious resource base of the Indian Economic Service officers,
valuable inputs of researchers, consultants and think tanks both within and outside the government and the
consistent support of all officials of the Economic Division, Department of Economic Affairs. The Survey has
made a sincere effort to live up to the expectation of being an indispensable guide for following, understanding
and thinking about the Indian economy. While our immensely enriching journey represents our ultimate reward,
we hope readers share the sense of excitement with which we present the Survey.
Krishnamurthy V. Subramanian
(Chief Economic Adviser)
Ministry of Finance
Government of India
(x)
ABBREVIATIONS
AgDSM Agriculture Demand Side Management ICDS Integrated Child Development Services
ANBC Adjusted Net Bank Credit ICT Information and Communications Technology
API Application Programming Interface IDA Industrial Disputes Act
APL Above Poverty Line IHHL Individual Household Latrine
APL Aadhaar Linked Payments IIPS International Institute for Population Sciences
ASI Annual Survey of Industries ILC International Labour Conference
BAU Business as Usual ILO International Labour Organization
BBBP Beti Bachao, Beti Padhao IMD India Meteorological Department
BCE Before Christian Era ISRO Indian Space Research Organisation
BEE Bureau of Energy Efficiency IVA Independent Verification Agency
BEVs Battery Electric Vehicles JAM Jan Dhan, Aadhaar and Mobile
BHIM Bharat Interface for Money KUSUM Kisan Urja Suraksha Evam Utthaan Mahabhiyan
BPL Below Poverty Line LCR/R and P Lower Courts Records - Records and Proceedings
BRICS Brazil, Russia, India, China, South Africa LED Light-Emitting Diode
CAFE Corporate Average Fuel Efficiency LFPR Labour Force Participation Rate
CAGR Compound Annual Growth Rates LPG Liquefied Petroleum Gas
CBSE Central Board of Secondary Education MAA Mothers' Absolute Affection
CCR Case Clearance Rate MGNREGA Mahatma Gandhi National Rural Employment
CEPEJ Commission for the Efficiency of Justice Guarantee Act
CO2 Carbon Dioxide MIS Management Information System
CPI Consumer Price Index MoDWS Ministry of Drinking Water and Sanitation
CSC Common Service Centre MoEF&CC Ministry of Environment, Forest and Climate
CV Coefficient of Variation Change
D&S courts District and Subordinate courts MoU Memorandum of Understanding
DBT Direct Benefit Transfer MPCE Monthly Per Capita Expenditure
DBTL Direct Benefit Transfer for LPG MSME Micro, Small & Medium Enterprises
DC Designated Consumers MtCO2 Metric Tons of Carbon Dioxide Equivalent

DDU GKY Deen Dayal Upadhyaya Grameen Kaushalya MTOE Million Tonne of Oil Equivalent
Yojana NARSS National Annual Rural Sanitation Survey
DISCOMs Distribution Companies NBFC AA Non Banking Financial Company Axxount
DSM Demand Side Management Aggregators
E- NAM National Agriculture Market NDC Nationally Determined Contribution
ECBC Energy Conservation Building Code NEFMS National Electronic Fund Management System
ECC Employment Conditions Commission NEMMP National Electric Mobility Mission Plan
EESL Energy Efficiency Services Limited NEV New Energy Vehicle
EODB Ease of Doing Business NFLMW National Floor Level Minimum Wage
EPU Economic Policy Uncertainty NJDG National Judicial Data Grid
ESCerts Energy Saving Certificates NRM Natural Resource Management
EUS Employment & Unemployment Survey NSSO National Sample Survey Organisation
EVs Electric Vehicles NVA Net Value Added
FAME Faster Adoption and Manufacturing of Electric ODF Open Defecation Free
vehicles OECD Organisation for Economic Cooperation and
FCEVs Fuel Cell Electric Vehicle Development
FII Foreign Institutional Investment OLS Ordinary Least Squares
GHG Greenhouse Gas ORS Oral Rehydration Solutions
GIS Geographic Information System OSH Occupational Safety and Health
GST Goods and Services Tax PAN Permanent Account Number
GVA Gross Value Added PAT Perform Achieve and Trade
HDI Human Development Index PDS Public Distribution System
HRD Human Resource Development PHEVs Plug-in Hybrid Electric Vehicles
ICAR Indian Council of Agricultural Research PMAY-G Pradhan Mantri Awas Yojana- Gramin
(xi)
PMJDY Pradhan Mantri Jan Dhan Yojana UAE United Arab Emirates
PMO Prime Minister's Office UIDAI Unique Identification Authority of India
PSL Priority Sector Lending UJALA Unnati Jyoti by Affordable LEDs
RE Renewable Energy UK United Kingdom
SBM Swachh Bharat Mission ULBs Urban Local Bodies
SBM(G) Swachh Bharat Mission (Gramin) UNICEF United Nations International Children's Emergency
SDGs Sustainable Development Goals Fund
SLWM Solid and Liquid Waste Management UPI Unified Payments Interface
SRB Sex Ratio at Birth USA United States of America
SSI Small Scale Industries UTs Union Territories
TFR Total Fertility Rate VDA Variable Dearness Allowance
TOE Tonnes of Oil Equivalent WHO World Health Organization
TWh Terawatt-hour ZEVs Zero Emission Vehicles
(xii)
Shifting Gears: Private Investment
as the Key Driver of Growth, Jobs,
01
CHAPTER
Exports and Demand
During the last five years, India’s economy has performed well. By opening up
several pathways for trickle-down, the government has ensured that the benefits
of growth and macroeconomic stability reach the bottom of the pyramid. To
achieve the objective of becoming a USD 5 trillion economy by 2024-25, as laid
down by the Prime Minister, India needs to sustain a real GDP growth rate of 8%.
International experience, especially from high-growth East Asian economies,
suggests that such growth can only be sustained by a “virtuous cycle” of savings,
investment and exports catalysed and supported by a favourable demographic
phase. Investment, especially private investment, is the “key driver” that
drives demand, creates capacity, increases labour productivity, introduces new
technology, allows creative destruction, and generates jobs. Exports must form
an integral part of the growth model because higher savings preclude domestic
consumption as the driver of final demand. Similarly, job creation is driven by
this virtuous cycle. While the claim is often made that investment displaces jobs,
this remains true only when viewed within the silo of a specific activity. When
examined across the entire value chain, capital investment fosters job creation
as the production of capital goods, research & development and supply chains
generate jobs.
The Survey departs from traditional Anglo-Saxon thinking by advocating a growth

model for India that views the economy as being either in a virtuous or a vicious
cycle, and thus never in equilibrium. This model, in turn, stems from two key
departures from the traditional view. First, the Survey departs from the concept of
equilibrium as a key tenet, which is being challenged increasingly following the
Global Financial Crisis. Second, the traditional view often attempts to solve job
creation, demand, exports, and economic growth as separate problems. As these
macro-economic phenomena exhibit significant complementarities, the Survey
postulates the centrality of the triggering macro-economic variable that catalyses
the economy into a virtuous cycle. The Survey makes the case for investment as
that key driver. By presenting data as a public good, emphasizing legal reform,
ensuring policy consistency, and encouraging behaviour change using principles
of behavioural economics, the Survey aims to enable a self-sustaining virtuous
cycle. Key ingredients include a focus on policies that nourish MSMEs to create
2 Economic Survey 2018-19 Volume 1
more jobs and become more productive, reduce the cost of capital, and rationalise
the risk-return trade-off for investments.
LAST FIVE YEARS: THE independence history. The current account

ACCOMPLISHMENTS deficit (CAD) remained within manageable
levels and foreign exchange reserves rose to
Macroeconomic Stability all-time highs.
1.1 World output grew at 3.6 per cent in 1.3 The performance was not just a one-
2014 and again in 2018. In the intervening time adjustment but stemmed from a new
period, when the world did not appear to institutional framework. Following an
have changed much, India took a few giant agreement between Government of India
strides forward. India became the sixth largest (GOI) and Reserve Bank of India (RBI), a
economy by sustaining growth rates higher Monetary Policy Committee (MPC) was
than China, thereby earning the epaulette of constituted in February, 2015 with the
being the fastest growing major economy in mandate to target a headline inflation of 4 per
the world (Figure 1). Importantly, this pace of cent, with a band of two percentage points
growth was sustained while re-establishing on either side. The framework has been
macro-economic stability. successful in containing inflation. Since April
1.2 Average inflation in these five years 2015, when the MPC was first convened,
was less than half the inflation level of the monthly headline inflation has always
the preceding five years, matching the remained within the band except for one
lowest levels attained in the country’s post- month.
Figure 1: Growth of GDP in India and the world
7.5
6.9
5.0
4.6
3.6
2.1
World Advanced EMDE ASEAN-5 China India

economies
Source: World Economic Outlook, April 2019, IMF
Note: (1). EMDE – Emerging Market and Developing Economies; (2). ASEAN-5 composed of 5 countries:
Indonesia, Malaysia, Philippines, Thailand, and Vietnam.
Shifting Gears: Private Investment as the Key Driver of Growth, Jobs, Exports and Demand 3
1.4 Discipline was also imposed on the 1.7 Major schemes implemented under
Gross Fiscal Deficit (GFD). The Fiscal DBT include MGNREGS (Mahatma Gandhi
Responsibility and Budget Management National Rural Employment Guarantee
(FRBM) Act of 2003, which got a new lease Scheme), NSAP (National Social Assistance
of life since 2016, determines the glide Program), PMAY-G (Pradhan Mantri Awas
path for the ratio of GFD to GDP to reach Yojna- Gramin), besides various scholarships
an eventual target of 3 per cent. The ratio and fertilizer subsidy schemes. A key initiative
declined from 4.5 per cent in 2013-14 to 3.4 for last-mile delivery was the Pradhan Mantri
per cent in 2018-19. Other macro-stability Ujjwala Yojana (PMUY) that was launched
indicators have similarly improved. in 2016. The PMUY had originally targeted
Beneficiary focus and targeted delivery to provide 5 crore LPG connections over a
span of three years to BPL (Below Poverty
1.5 In addition to re-establising Line) families with a support of `1,600
macroeconomic stability, the government per connection. Till date more than 70
also focused on last-mile delivery of basic million PMUY-LPG connections have been
services to the poor, on basic safety-nets, released to women residing in more than 700
and on creating pathways for the benefits districts. In 2018, another effort to provide
of growth to reach the bottom of the socio- a basic safety net was launched through the
economic ladder. The promulgation of the Ayushman Bharat Yojana (ABY), which
Aadhaar (Targeted Delivery of Financial and provides an insurance cover of `5,00,000
Other Subsidies, Benefits, and Services) Act, for cashless treatment to each of the 100
2016 was one such initiative that opened a million BPL families at a nominal premium
major pathway to this trickle-down. By of `100 per month. Till date, the scheme has
assigning a unique identification number to empaneled more than 15,000 hospitals, which
every individual, the government now has the have admitted about 2.6 million persons from
ability to provide targeted support. Presently, the 346 million enlisted beneficiaries.
Aadhaar coverage stands at more than 90 per
cent of the country’s population. Infrastructure
1.6 Another pathway for the trickle-down 1.8 The creation of physical infrastructure
is the Pradhan Mantri Jan Dhan Yojana accelerated significantly during 2014-19. In
(PMJDY), a financial inclusion initiative. April 2018, electricity finally reached every
The linking of mobile numbers with village in India with the effort to electrify
bank account numbers and subsequently every home still ongoing. The construction
Aadhaar, created a JAM (Jan Dhan, Aadhaar, of national highways (NH) proceeded at
Mobile) trinity that further secured Direct a rapid pace with more than 20 per cent of
Benefit Transfers (DBT) to the intended the existing highway length of 132,000 km
beneficiaries. Presently close to `1 lakh being constructed in the last four years alone.
crore is deposited in more than 35 crore bank The UDAAN scheme was launched in 2017
accounts opened under PMJDY. The JAM to foster regional connectivity by extending
trinity has enabled cumulative transfers thus flight connectivity to Tier-3 and Tier-4
far of around `7.3 lakh crore. Presently 55 towns in the country. Over 30 unserved and
central ministries through 370 cash-based underserved airports have been mainstreamed
schemes are transferring benefits under the under UDAAN with flights creating additional
DBT mechanism. Chapter 10 in Volume I of 40 lakh seating capacity. The scheme has
the Survey, in fact, provides careful evidence also sparked significant increase in helicopter
of this targeting. services in hilly areas and islands that engage
31 heliports. The infrastructure of the North- in operation. IBC set a time limit for closing
Eastern states was a special focus and there of insolvency and bankruptcy cases within
has been a significant improvement in which assets of a defaulting borrower are
connectivity with the building of key bridges, auctioned to pay off the debt owed to lending
and the expansion of railways/highways. institutions. Following the operationalization
The 4.94 km long Bogibeel bridge in Assam of IBC since 2017, a significant number of
was inaugurated in December 2018; it is the non-performing assets have been brought
second longest rail-cum-road bridge in Asia. under its ambit. In addition to the large sums
recovered by creditors from resolution or
Federalism
liquidation, the introduction of a framework
1.9 Fiscal federalism strengthened for exit has improved the overall business
significantly when the Fourteenth Finance culture of the country. Chapter 3 in Volume II
Commission increased the share of states in of the Survey explores this topic in detail.
the divisible pool of central taxes from 32 per
cent to 42 per cent. Although central grants THE NEXT FIVE YEARS: A
to states saw compensatory cuts, the shift BLUEPRINT FOR GROWTH AND
empowers states to manage their revenues JOBS
and expenditures independently.
1.12 With the micro-economic and macro-
1.10 The launch of the GST (Goods and economic foundations laid over the last
Services Tax) in July, 2017 added a new five years, the Indian economy is ready to
dimension to centre-state and inter-state shift gears so that economic growth, jobs
financial relations. The GST Council and exports can be pushed up to the next
experience provides key learning for level. For this purpose, the Survey presents
implementing cooperative federalism in a blueprint.
several other areas such as labour and
land regulation. Niti Aayog has helped Emphasising Growth
institutionalize cooperative federalism by 1.13 As articulated by the Prime Minister,
setting up teams from both the states and Shri. Narendra Modi, India aims to grow into
the central government to jointly evolve a USD 5 trillion economy by 2024-25, which
strategies for addressing development will make India the third-largest economy
challenges. States have also been involved in
in the world. Given 4% inflation, as the
a friendly competition to improve their Key
Monetary Policy Framework specified by the
Performance Indicators (KPIs).
Government for the Reserve Bank of India,
Corporate Exits this requires real annual growth rate in GDP
of 8 per cent.1 What are the ingredients of a
1.11 When the Insolvency and Bankruptcy model that can generate such growth?
Code (IBC) was introduced in 2016, it
consolidated the insolvency resolution 1.14 To understand this key question, we
process into a single law by repealing/ examine the drivers of economic growth
amending multiple rules and processes earlier followed by countries across the globe. In
___________
1
Among the different modelling possibilities, assume a 0.7% increase in total factor productivity in India when compared
to the U.S. and a constant real effective exchange rate. This then translates into an exchange rate of INR 75 per USD in
March 2025, which implies that the Indian economy must have a nominal GDP of 375 lakh crores in March 2025. An 8%
real growth rate for GDP combined with 4% inflation would deliver this nominal GDP. While the export growth required
to deliver the 8% real GDP growth rate may require a depreciation of the real effective exchange rate, we emphasize export
growth stemming from increases in productivity rather than currency depreciation.
recent times, Chinese economic growth departures from the traditional Anglo-Saxon
stands out for its explosive growth over view of the economy.
a long period of four decades. Post war
economic expansion in Western Europe 1.18 First, the traditional view, which has
led to high growth rates of its economies. come under significant challenge following
During 1950-73, Japan's GDP growth rate the Global Financial Crisis, considers the
frequently exceeded 10 per cent. Post World concept of equilibrium as a key tenet. In
War II, Hong Kong, Singapore, South Korea, contrast, by imbibing some of the new
and Taiwan successfully maintained a rapid learning from the economics literature
growth rate of more than 7 per cent until following the Global Financial Crisis, we
1980s. view the economy as being in a constant state
of disequilibrium as captured by a virtuous or
A virtuous cycle of savings, investment, a vicious cycle.
exports and growth with investment as
the “central driver” 1.19 Second, the traditional view often
attempts to solve job creation, demand,
1.15 The overwhelming evidence across the exports, and economic growth as separate
globe, especially from China and East Asia problems. In contrast, as we show below,
in recent times, is that high growth rates have these macro-economic phenomena exhibit
only been sustained by a growth model driven significant complementarities. Therefore,
by a virtuous cycle of savings, investment understanding the “key driver” and enhancing
and exports catalysed and supported by a the same enables simultaneous growth in
favourable demographic phase. As we explain each of the other macro phenomena.
in detail below, investment, especially private
investment, is the “key driver” that drives 1.20 When viewed in this manner, the
demand, creates capacity, increases labour triggering macro-economic “key driver”
productivity, introduces new technology, that catalyses the economy into a virtuous
allows creative destruction, and generates cycle becomes critical. This Survey makes
jobs. the case for investment as the “key driver”
that can create a self-sustaining virtuous
1.16 We depart from traditional thinking cycle in India. This investment can be both
by outlining a growth model that views the government investments in infrastructure,
economy as being in constant disequilibrium- as such investment crowds in private
a virtuous cycle or a vicious cycle. When the investment (Chakrabarti, Subramanian and
economy is in a virtuous cycle, investment, Sesha, 2017), and private investment in
productivity growth, job creation, demand itself.
and exports feed into each other and enable
animal spirits in the economy to thrive. In Evidence supporting the “virtuous
contrast, when the economy is in a vicious cycle” view
cycle, moderation in these variables dampen
each other and thereby dampen the animal 1.21 Figure 2 shows how the share of GCF,
spirits in the economy. savings and exports in GDP evolved for
China as a function of the log of GDP per
1.17 As we describe in the next section, our capita from 1980 to 2017. Crucially, we note
view of the economy in either a virtuous or that all the three macro-variables increased
a vicious cycle—with investment as the key as the country became richer. Thus, as the
driver of this cycle—stems from two key economy started doing better, as measured by
Figure 2: Share of GCF, Savings and the rising GDP per capita, China’s savings,
Exports in GDP vs. log GDP Per Capita in investment and exports increased further.3
constant 2010 US$: China (1980-2017)2 Figures 3 and 4 show the same relationships
for saving and investment for four countries
50
in East Asia (Thailand, Indonesia, Malaysia
GCF, Savings and Exports(% of GDP)
40 and South Korea), which witnessed high

growth before the Asian Financial Crisis. The
30
time period employed in these charts is 1980-
20 1995, i.e. before the Asian Financial Crisis.
While Figure 3 shows the relationship of
10
investment and savings, Figure 4 shows the
2.5 3.0 3.5
Log(GDP Per Capita)
same for exports except for South Korea. The
Exports GCF Savings
inference that we made using China, thus,
Source: World Bank remains unchanged by examining Figure 3
Note: GDP per capita is in constant 2010 US$ and the and 4.
time period used is 1980-2017. The logarithmic scale
taken for the x-axis is with base 10 to enable ease of 1.22 Sandri (2014) provides a different
reading. way of looking at the same phenomenon.
Figure 3: Share of GCF and Savings in GDP vs. log GDP Per Capita in constant 2010
US$: High Growth East Asian Economies ex-China (1980-1995)
40 30
GCF, Savings(% of GDP)
35
25
30
20
25
20 15
3.2 3.3 3.4 3.5 3.15 3.20 3.25 3.30 3.35
Log(GDP Per Capita): Thailand Log(GDP Per Capita): Indonesia
GCF Savings GCF Savings
40
40
35 35
30
30
25
25
20
3.6 3.7 3.8 3.6 3.7 3.8 3.9 4.0 4.1
Log(GDP Per Capita): Malaysia Log(GDP Per Capita): Korea, Rep.
GCF Savings GCF Savings
Source: World Bank

Notes: GDP per capita is in constant 2010 US$ and the time period used is 1980-1995. The logarithmic scale
taken for the x-axis is with base 10 to enable ease of reading. High Growth East Asian Economies correspond to
Indonesia, Malaysia, South Korea and Thailand.
___________
2
Instead of examining the relationship between log of investment and log of GDP per capita, which would not capture the
non-linearities embedded in a virtuous cycle, we examine the relationship between the share of investment in GDP to log of
GDP per capita so that the change in this share with a change in GDP per capita can be examined. A similar rationale applies
for the use of shares of exports and savings to GDP on the y-axis.
3
Though there is an exponential increase and then a dip post the year 2000 in the export to GDP ratio for China, the overall
linear trend is still increasing.
Figure 4: Share of Exports in GDP (%) vs. log GDP Per Capita in constant 2010 US$:
High Growth East Asian Economies ex China (1980-1995)
30.0
40
Exports (% of GDP)
Exports (% of GDP)
35 27.5
30 25.0
25 22.5
20
3.2 3.3 3.4 3.5 3.15 3.20 3.25 3.30 3.35
Log(GDP Per Capita): Thailand Log(GDP Per Capita): Indonesia
Exports Exports
90
33
Exports (% of GDP)
Exports (% of GDP)
80
30
70
27
60
50 24
3.6 3.7 3.8 3.6 3.7 3.8 3.9 4.0 4.1
Log(GDP Per Capita): Malaysia Log(GDP Per Capita): Korea, Rep.
Exports Exports
Source: World Bank

Notes: GDP per capita is in constant 2010 US$ and the time period used is 1980-1995. The logarithmic scale
taken for the x-axis is with base 10 to enable ease of reading. High Growth East Asian Economies Correspond to
Indonesia, Malaysia, South Korea and Thailand.
By averaging across 62 episodes of growth and investment with consumption decreasing

spurts from 1960 to 2011 among non-OECD significantly as a share of GDP (Figure
countries, Sandri (2014) demonstrates that 6). China remains an investment-driven
productivity growth across these episodes is economy even today with its investment and
combined with a rapidly rising investment savings rates reaching about 45% of GDP
rate and an even more steeply increasing even in 2017.
savings rate.
1.24 For China and other East Asian
1.23 China has relied primarily on savings Economies, Figure 7 shows the strong
Figure 5: Changes in productivity, investment, savings and current account across 62
episodes of growth accelerations in non-OECD countries (1960-2011)
8
D Savings & Investment(% GDP)
6
Productivity Growth (%)
D Current Account(% GDP)
6 3
4
4 2
2
2
1
0
0 t*-2 t* +2 +4 +6
0
t*-2 t* +2 +4 +6
Investment Savings t*-2 t* +2 +4 +6
Source: Sandri (2014)

Figure 6: Consumption, Gross Capital Figure 8: Gross Capital Formation to

Formation and Savings to GDP for China GDP vs. Savings rate for China and High
(1980-2017) Growth East Asian Economies ex-China
(1980-2000)
GCF, Savings, Consumption Exp. (% GDP)
60
40
40
38
GCF (% of GDP)
GCF (% of GDP)
50
35
36 30
40
34 25
1980 1990 2000 2010 2020
Year
Consumption Exp.(% of GDP) GCF share Savings rate

35.0 37.5 40.0 20 30 40
Savings (% of GDP): China Savings (% of GDP): HGEs
Source: World Bank
Source: World Bank
Figure 7: GDP Growth vs. Gross Capital Notes: The left panel shows the relationship for China
while the right panel shows the same for the four high
Formation to GDP for China and High
growth East Asian economies of Thailand, Indonesia,
Growth East Asian Economies ex-China Malaysia and South Korea. Time period taken is 1980-
(1980-2000) 2000.
suggests that savings, investment and GDP

12.5 growth have grown in a virtuous cycle in the
10
high growth economies, be it China or other
GDP Growth Rate (%)
East Asian economies.

GDP Growth (%)
10.0
Importance of savings
5
7.5 1.26 As Feldstein and Horioka (1980)
demonstrated in what has since been labelled
the “Feldstein-Horioka puzzle”, a high
5.0
32.5 35.0 37.5 40.0 42.5 20 25 30 35 40
investment effort must be backed by domestic
GCF (% of GDP): China GCF (% of GDP): HGEs
savings. Further research (Carroll and Weil,
Source: World Bank 1994; Attanasio, Picci and Scorcu, 2000;
Notes: The left panel shows the relationship for China Rodrik, 2000) has since shown that savings
while the right panel shows the same for the four high
growth East Asian economies of Thailand, Indonesia,
and growth are not only positively correlated
Malaysia and South Korea. Time period used is 1980- but their positive correlation is even stronger
2000. HGEs correspond to the four High Growth East than that between growth and investment
Asian economies of Thailand, Indonesia, Malaysia (Gourinchas and Jeanne, 2013). In fact,
and South Korea.
Sandri (2014) argues that as investment is
correlation between investment as measured risky, entrepreneurs are exposed to the risk of
by the Gross Capital Formation and GDP idiosyncratic business failure that leads to the
growth while Figure 8 shows an equally loss of the invested capital. Therefore, savings
stronger correlation between investment and have to increase more than investment to
savings. allow for the accumulation of precautionary
savings. The evidence from Sandri (2014)
1.25 Thus, the evidence in this section for the 62 episodes of growth acceleration
(Figure 5) and China (Figure 6) shows the Figure 9: Unemployment Rate vs. Gross
same as well. Capital Formation (GCF) to GDP for
Jobs East Asia and Pacific (1960-2017)
1.27 A general apprehension is that high 8
investment rate will substitute labour. This
thinking has led to much debate about
Unemployment Rate (%)

6
labour-intensive versus capital-intensive
modes of production. However, the Chinese 4
experience illustrates how a country with
the highest investment rates also created the 2
most jobs. What matters most is whether or
not investment enhances productivity and 0
thereby international competitiveness. The 10 20 30 40
GCF(% of GDP)
misconception arises from a view buried
Source: World Bank
in the silo of a specific activity. When
examined in the full value chain, capital a force-multiplier when high income growth
investment fosters job creation as capital feeds consumption. So, where would the
goods production, research and development, final demand for the large capacities created
and supply chains also generate jobs. by high investment come from? The answer
International evidence also suggests that is exports. This is why an aggressive export
capital and labour are complementary when strategy must be a part of any investment-
high investment rate drives growth. For driven growth model. Figure 10 shows the
instance, Lin (2011) shows that the coming
of software and computers, while having Figure 10: GDP Growth vs. Growth in
replaced some white collar tasks, have also Exports for High Growth East Asian
generated new labour centric tasks related Economies (1980-2017)
to software and application development,
computer security, and specialised tasks
for loan application analysts and medical
10
equipment technicians.4 Figure 9 shows how
unemployment rates decreases with greater
GDP Growth (%)
gross capital formation in East Asia and 5

Pacific, thereby providing additional evidence
that labour and investment complement each
other. Therefore, job creation can indeed be 0
fostered by encouraging investment. −10 0 10 20 30
Exports
Exports Growth (%): HGEs
Source: World Bank

1.28 With the share of consumption in GDP Note: Time period taken is 1980-2017 and High
constrained by the high level of savings, Growth East Asian Economies correspond to
domestic consumption can be, at best, act as Indonesia, Malaysia, South Korea and Thailand.
___________
4
The success story of Town and Village Enterprises (TVEs) in China becoming the engines of its spectacular growth shows
how labour-intensive manufacturing investment can simultaneously boost productivity, job creation and exports (Wei and
Balasubramanyam, 2015). While in 1980, there were about 1.4 million TVEs with 30 million employees, by 1996, there
were 23.4 million TVEs with 135 million workers contributing nearly 30% of China’s GDP and 50% of the industrial output
(Perotti et al., 1999). By 1999, TVE exports accounted for 48% of China’s total exports and much of these were labour-
intensive products involving simple production techniques (Fu and Balasubramanyam, 2005).
strong correlation between growth in exports in his efforts to improve the social order, he
and GDP growth for the high growth East will learn that in this, as in all other fields
Asian economies. where essential complexity of an organized
1.29 The global market is extremely kind prevails, he cannot acquire the full
competitive with the firms that are able to knowledge which will make mastery of the
produce at the lowest costs having the ability events possible. He will therefore have to
to gain market share in exports. So, average use what knowledge he can achieve, not to
productivity of firms in the economy becomes shape the results as the craftsman shapes his
crucial to export competitiveness. As seen in handiwork, but rather to cultivate a growth
Figure 11, capital investment enhances total by providing the appropriate environment, in
factor productivity, which in turn enhances the manner in which the gardener does this
export performance. Therefore, investment for his plants.”
becomes crucial to enhancing export Friederich Von Hayek, Nobel prize speech,
performance. 1974.
1.30 While it is true that world trade is 1.31 As the above quote from Hayek (1974)
currently facing some disruptions, India’s illustrates, the blueprint starts from the
share in global exports is so low that it should philosophy that economies are intricately
focus on market share. One could even interwoven systems. Therefore, they can
argue that the current disruptions provide an neither be meaningfully viewed in silos nor
opportunity for India to insert itself into global can they be analysed without accounting
supply chains. The High Level Advisory for dynamic effects over time. Moreover,
Group, chaired by Dr Surjit Bhalla, submitted economies may rarely be in a state of
its report in June 2019 on how India can equilibrium. While writing about economic
enhance its exports. Its recommendations need theories following the Global Financial
to be studied and implemented where possible.
Crisis, Rodrik (2018) laments:
GOING BEYOND THE “Why do we focus so much on the perfectly
ECONOMICS OF ʻEQUILIBRIUMʼ rational individual even though real people do
IN THE BLUEPRINT not seem to behave quite that way? Shouldn’t
“If man is not to do more harm than good we be paying a wee bit more attention to
Figure 11: Effect of GCFC Growth on Productivity and in turn on exports for OECD
countries (1985-2017)
5.0 20
Multi Factor Prodcutivity Growth (%)
Exports Growth (%)
2.5
10
0.0
−2.5
−5 0 5 10 15 20 −2.5 0.0 2.5 5.0 7.5

GFCF Growth (%) Multi Factor Productivity Growth(%)
Source: OECD Database.

disequilibrium, in addition to equilibrium? An approach that integrates behavioural
Why do our models exclude social and economics and complex systems theory, as
institutional features without which markets well as economic history.”
could not work? Why do we emphasize math
1.33 As Box 1 illustrates, the meltdown
so much and disregard things that cannot be
of economic activity following the Global
easily quantified?”
Financial Crisis highlighted that economies
1.32 To highlight the inadequacies in may be in a vicious cycle, where moderation
economic models following the Global in demand, jobs and investment feed
Financial Crisis, the OECD created the group into each other and thereby dampen the
New Approaches to Economic Challenges animal spirits in the economy. Therefore,
(NAEC). In a blog post on NEAC, Ramos as highlighted by Romer (2015), Ramos
(2017) highlights: (2017) and Rodrik (2018), economic thinkers
now recognise the need for economics to
“The very name of (traditional economic) embrace the learning from other fields. They
models, general equilibrium, shows that acknowledge that the concept of treating
they assume that the economy is basically in an economy as always being in equilibrium
balance until an outside shock upsets it. They may “force fit” the “standard” framework to
assume that you can understand the economy an ever-changing world. Instead, thinking
by studying a representative agent whose about economies as being in the constant
expectations and decisions are rational. disequilibrium of virtuous or vicious cycles
This view is essentially linear, and the policy provides a more apt framework for the
advice it generates is tailored to a linear current times. Therefore, when the economy
system, where an action produces a fairly is viewed, proper sequencing of policy levers
predictable reaction… Real life is not like assumes importance, especially because of
that… We need a new approach to economics the presence of complementarities between
that isn’t just about quantitative economics. different elements of an economy.
Box 1: The need for economic theory to be contextualised to India
The Global Financial Crisis exposed the problems embedded in conventional macroeconomic
theories. Yet, to use this failure as an excuse to disband economic thinking would be to throw
the “proverbial baby with the bath water” for theories are required in our field to discipline our
thinking and thereby enable careful policymaking. Therefore, economic theories, in general and
macroeconomics, in particular, may need to adapt to a world that is in constant disequilibrium. In
this context, it is useful to understand the process of theory building in economics and contrast the
same with other disciplines to enable us to develop the appropriate model for economic development
in India.
The process of building theories in economics proceeds as follows:
Start with Fit the “standard” “Puzzle” if the data

“standard” theory theory to the real does not fit the
world i.e., data “standard” theory
Consider the classic paper by Lucas (1990) to understand this flaw in the theory building process in
economics. The paper attempts to explain why capital does not flow, as standard theory predicts, from
capital-rich to capital-poor countries, because the latter would have higher returns. The theory starts
with some assumptions in “standard” theory such as individuals always making “rational” decisions,
the preferences of a collection of individuals captured by the preference of a “representative agent”,
the law of diminishing returns, etc.
Having constructed the “standard” theory, the paper finds that the theory does not fit the real world,
where capital flows from the poor to rich countries rather than vice versa. Capital flows from China
to the United States provides a salient example though the phenomenon is more pervasive. As the
“standard” theory does not fit the real world, the study labels the real world phenomenon “a puzzle”.
In contrast, in other disciplines, especially the natural sciences and engineering, the process of building
theories proceeds in the following direction:
Start with the real Construct the Change theory if

world i.e., data theory to explain new data
the data contradicts
If we adopt this discipline, the phenomenon studied in Lucas (1990) may not be a puzzle. Consider a
business that becomes extremely productive and is able to produce goods at very low prices, thereby
capturing large market share and generating huge profits. The profits are usually ploughed back into the
business to fund further investment. But suppose the profits are so large that even after reinvesting the
entire amount required for funding new projects, the business is still left with a surplus. What would
the business do? Invest this excess surplus in “other assets.” For instance, the business may invest in
other firms. This is what China is doing. Why is it a puzzle then?
Another prominent example of “standard” theory is the use of the dynamic stochastic general
equilibrium (DSGE) model in macroeconomics. Despite the large literature in this area, which posited
DSGE models of enormous varieties, the pre-crisis models assumed the financial sector as a side-show.
Therefore, any problems arising from potential misallocations within the financial sector were absent
from the DGSE models. This is especially relevant in the Indian context given the recent experience of
distress in the banking sector and the overhang that it created on the economy.
While a growing literature has since fixed the problem in DGSE models, such ex post facto fixing may
not be adequate as some other critical element omitted from the current models will have to wait for
next crisis to uncover. This ex post fixing stems from the insistence on using the “standard” theory
to understand real world phenomeona. The adapting of DGSE models to the Indian reality is critical
because the financial sector in India differs significantly from those in the Anglo-Saxon countries.
The case of Lucas (1990) and the over-reliance on DGSE models are but two examples that highlight
the need for evolving macroeconomic thinking that fits the institutional differences in a country like
India vis-à-vis the Anglo-Saxon economies.
NAVIGATING A WORLD OF this uncertain world of dis-equilibrium

CONSTANT DIS-EQUILIBRIUM requires three elements : (i) a clear vision;
(ii) a general strategy to achieve the vision;
1.34 An economy that is in a constant
and (iii) the flexibility and willingness to
state of dis-equilibrium needs a new
approach to navigate. The earlier attempt continously recalibrate tactics in response to
to create five-year plans, largely using the unanticipated situations. In earlier sections,
equilibrium framework, failed because we have described a broad strategy to achieve
it was too prescriptive for an inherently the vision of a US$5 trillion economy.
unpredictable world. Therefore, navigating We now turn to some of the tactics. Figure
Figure 12: Tools for navigating the economy in a constant state of disequilibrium
CHANGE IN MODELLING
BEHAVIOURAL INSIGHTS
APPROACHES
Incorporating insights from behavioural economics to
Modelling the ‘virtuous’ or ‘viscous’ cycle (Ch. 1, Vol.1)
change behaviour (Ch. 2, Vol.1)
MEASUREMENT OF NEW
MICRO DATA
CONCEPTS
Measuring job creation and productivity contributed by Employing data as a public good to enable welfare driven
young firms vs old firms (Ch. 3, Vol.1) policy-making (Ch. 4, Vol.1)
BOTH STOCKS & FLOWS DISTRIBUTIONS
Using technology to administer welfare programmes

Sustainable Development (Ch. 9, Vol. 1) effectively and thereby reduce inequality (Ch.10, Vol. 1)
MULTI-DIMENSIONAL WELL-BEING
Source: Adapted from NEAC, OECD
12 below shows the approach advocated for sustainable development of the Indian
by NEAC, OECD to navigate this world. economy.
Apart from the need to model the different
elements of the economy simultaneously in Behavioural economics
an integrated manner, this approach critically 1.35 As policymaking must keep real people
requires assimilation of several other tools. as its focus, rather than the optimization-
Several chapters in Volume 1 of The Survey focused robots that conventional economics
lay out the policy details for navigating this assumes, the insights from behavioural
world. This chapter lays out the framework economics need to be integrated into
for integrated modelling of the various policymaking to foster productivity and
economic phenomena. Chapter 2 in Volume economic growth. Chapter 2 of the Survey,
1 delves deep into utilising the insights therefore, delves deep into this subject. By
from behavioural economics for behaviour analysing the successful behavioural change
change that can thereby foster productivity effected by the Swachh Bharat Mission and
and economic growth. Chapter 3 in Volume the Beti Bachao, Beti Padhao campaigns, the
1 pursues the measurement of new concepts chapter incorporates their learning and lays
by examining the impact of young versus old out frameworks for integrating behavioural
firms in fostering job creation and enhancing economics into policymaking in various
productivity. Chapter 10 in Volume 1 studies contexts:
how the benefits of technology can be
applied to enhance the efficacy of welfare (i) The Beti Bachao, Beti Padhao campaign
programmes and thereby generate better has helped in improving child sex ratios,
distributional outcomes in the Indian society. particularly in large states where the
Chapter 4 in Volume 1 describes the use of child sex ratio was poor. Therefore, the
data as a public good for enhancing welfare. campaign has had the maximum impact
Chapter 9 focuses on the use of energy in states that plausibly also needed the
greatest pivot in their social norms. improved the experience of a large

Taking the learning from this campaign, majority of taxpayers. Behavioural
the chapter attempts to further the cause insights can be leveraged to transform
of Gender equality by coining the slogan the tax culture from one of tax evasion to
of BADLAV (Beti Aapki Dhan Lakshmi tax compliance. This would then provide
Aur Vijay-lakshmi) to inter alia enhance the necessary revenues for investments
contribution of women in the workforce in both the hard infrastructure of
and the economy; roads, ports, railways, etc. and the soft
(ii) The Swachh Bharat Mission has helped infrastructure of skills and education;
increase the percentage of villages (v) The introduction of the GST represented
that are Open Defecation Free and has a salient instance where policymakers
enhanced access and usage of toilets. exhibited the appetite to introduce bold
This improvement in sanitation has reform by eschewing loss aversion,
helped improve health outcomes as whereby a policy that creates some
is seen in the number of malaria and short-term losses while creating
diarrhoea cases and the number of large long-term benefits may lack
still births and children with low birth enough support (Milkman et al. 2012).
weight. Incorporating the learning from Behavioural insights can build on the
this successful behavioural change, positive outcome of enacting such a
the chapter develops the framework to path-breaking policy change to reduce
use behavioural insights for a healthy loss aversion and thereby improve policy
India. The framework embeds the idea and legislative outcomes.
of taking off from the Swachh Bharat
Mission into "Swasth + Ayushman = 1.36 Figure 13 below summarises the seven
Sundar" Bharat. This would enhance principles of behavioural economics that can
labour productivity and enhance savings, be applied to achieve the above outcomes.
and thereby investment; Chapter 2 of the Survey explicitly lays out
applications in each of these areas.
(iii) The creation of the Insolvency and
Bankruptcy (IBC) process has helped Data as a public good
bring a large number of non-performing
assets into the IBC process. Further, the “Cross the river by feeling the stones.”
threat created of losing control under - Deng Xiaoping
IBC is helping change the credit culture
in the country. Insights from behavioural 1.37 Having set out the broad strategy for
economics can be utilised to enhance the achieving the goal of a US$5 trillion economy,
credit culture, especially with respect to continuous re-calibration of policies to
frauds and wilful defaults, by drawing achieve this goal is necessary. Data-driven
on the social and cultural norm of the evidence enables this re-calibration. Deng
“doctrine of pious obligation.” This, Xiaoping’s exhortation to “cross the river by
in turn, will foster credit growth and feeling the stones” is relevant in this context.
investment. If the economy in constant disequilibrium
represents the flowing river, then data-driven
(iv) Several changes brought through the
policymaking represents the process of
use of technology in tax administration
feeling the stones for necessary re-calibration.
have decreased manual intervention in
tax administration, and have thereby 1.38 Chapter 4 in Volume 1 of the Survey
Figure 13: Principles of behavioural economics to foster behavioural change
Principle 1:
Leverage
Principle 7: Default Rules
Make Principle 2:
Messages Make it Easy
Mimic Mental to Choose
Models
Principle 3:
Emphasize
Principle 6: Social and
Leverage Loss Cultural
Aversion Norms
Principle 5: Principle 4:
Reinforce Disclose
Repeatedly Outcomes
lays out the framework for creating data “of create data as a public good within the legal
the people, by the people, for the people.” framework of data privacy.
The chapter surmises that society’s optimal
consumption of data is higher than ever
Legal Systems and Contract
Enforcement
before because of the exponential decline
in the marginal cost of data combined with 1.39 The economic model described in
the manifold increase in its marginal benefits the blueprint is explicitly about creating
to society. While private sector does a good virtuous cycles in an evolving, complex
job of harnessing data where it is profitable, landscape. It is about investment, risk-taking
government intervention is needed in and innovation in an environment that is
social sectors of the country where private inherently uncertain and unpredictable due to
investment in data remains inadequate. a range of factors from changing technology
Governments already hold a rich repository and consumer preferences to geopolitics and
of administrative, survey, institutional and economic cycles. This is a world of “butterfly
transactions data about citizens. However, effects” and unintended consequences, where
these data are scattered across numerous uncertainty is inevitable. As uncertainty
government bodies. Utilising the information exacerbates the temptation to renege on
embedded in these distinct datasets would contracts when the ex post outcome is
inter alia enable government to enhance different from the one expected ex ante, the
ease of living for citizens, enable truly ability to enforce contracts and the rule of law
evidence-based policy, improve targeting become critical to navigating an uncertain
in welfare schemes, uncover unmet needs, world (Acharya and Subramanian, 2009;
integrate fragmented markets, bring greater Acharya, Baghai and Subramanian, 2013,
accountability in public services, generate 2014; Chava et al., 2013; Sapra, Subramanian
greater citizen participation in governance, and Subramanian, 2013; Subramanian and
etc. Given that sophisticated technologies Tung, 2016; Subramanian and Megginson,
already exist to protect privacy and share 2018). While a well-functioning legal system
confidential information, governments can is important to economies in all situations, it
is absolutely central to one that aims to drive the legal system may be the best investment
economic growth through high investment Indian reformers can make.
rates in an unpredictable world.
Consistency in Economic Policymaking
1.40 The importance of the legal system 1.43 In the world of constant uncertainty,
and contract enforcement are repeatedly economic policymaking can either alleviate
emphasized by ancient Indian economic the uncertainty faced by investors or
thinkers such as Kautilya and Kamandak. exacerbate it. The earlier attempt to create
They saw the Rule of Law as key to averting five-year plans, largely using the equilibrium
Matsya-nyaya or Law of the Fish (i.e., law framework, aimed to solve this problem.
of the jungle). Nobel prize-winning Austrian However, as we discovered to our dismay,
economist Friedrich von Hayek echoed the the best-laid plans can get unravelled in
same sentiment in his famous book 'The an uncertain world that is in perpetual
Road to Serfdom': dis-equilibrium. Therefore, navigating
“Nothing distinguished more clearly this uncertain world of dis-equilibrium
conditions in a free country from those in a requires three elements: (i) a clear vision;
country under arbitrary government than (ii) a general strategy to achieve the vision;
the observance in the former of the great and (iii) the flexibility and willingness to
principles known as the Rule of Law”. continuously recalibrate tactics in response
to unanticipated situations. Having taken the
1.41 Unfortunately, India’s legal system, Prime Minister’s vision of a US$5 trillion
burdened by 3.5 crore pending cases, is economy, this Economic Survey lays out a
arguably now the single biggest constraint to general blueprint as the strategy to achieve
doing business in India and thereby fostering this vision. However, as discussed above,
investment. The World Bank’s latest Ease of policies must respond continually to the flow
Doing Business Report ranked India at 163 of real-time data.
for contract enforcement. Experience shows
1.44 The obvious problem from having
that every other field of economic reform,
such tactical flexibility is that it creates its
be it property rights, taxes and insolvency,
own uncertainty. This is particularly the
eventually flounders because it gets entangled
case when major reforms are being carried
in the legal system. This is why the legal
out. In this context, in Chapter 6 of Volume
sector reforms must be a top priority.
1 of the Survey, we examine how economic
1.42 The good news is that the problem policy uncertainty has evolved in India over
is not insurmountable. A scenario analysis the last few years. More importantly, given
of the effort needed to clear the backlog in our emphasis on investment as the key
five years suggests that significant efficiency driver of the virtuous cycle, we examine the
gains are also necessary. At sanctioned relationship of economic policy uncertainty
strength, productivity will need to increase with investment. To capture economic policy
by 24.5 per cent, 4.3 per cent and 18 per cent uncertainty, we use the Baker et al. (2016)
for lower courts, High Court and Supreme index, which has been used widely across the
Court respectively. The use of technology, world. We find that while this uncertainty was
increase in working days and administrative/ higher during episodes of greater uncertainty
process reforms can enable these ambitious such as the taper tantrum in 2013, overall
yet achievable efficiency gains. Given the economic policy uncertainty has significantly
potential economic and social multipliers of a decreased over the last decade (Figure 14).
well-functioning legal system, strengthening A noteworthy feature of this Figure is that
Figure 14: Economic policy uncertainty in Figure 15: Investment growth and
India (2011-2019) economic policy uncertainty index
20.0
15.0
GFCF gr (%)
10.0
5.0
0.0
0.0 50.0 100.0 150.0 200.0 250.0
Source: http://www.policyuncertainty.com/ -5.0

EPU index
the introduction of GST barely increased Source: http://www.policyuncertainty.com/, CSO

the economic policy uncertainty despite
the enormous change that it entailed. This rather than from tactical inflexibility. Second,
illustrates that path-breaking reforms that “what gets measured gets acted upon”. So,
are consistent with a well-articulated vision economic policy uncertainty index must be
do not create as much disruption as some tracked at the highest level on a quarterly
people may fear. The continued decrease in basis. Finally, quality assurance of processes
economic policy uncertainty in India post in policymaking must be implemented
2015 is as exceptional because it contrasts in government via international quality
sharply with the increase in economic policy certifications.
uncertainty in major countries during this MAJOR FACTORS, REFORMS
period, including the U.S.
AND RISKS
1.45 Surges in economic policy uncertainty
Role of demographics in the “virtuous
increase the systematic risk, and thereby cycle”
the cost of capital in the economy. As a
result, higher economic policy uncertainty 1.47 As we shall discuss in Chapter 7 in
lowers investment, especially because of Volume 1 of the Survey, India has already
the irreversibility of investment. Consistent entered this demographic phase of a high
with this thesis, we find that an increase share of working age population, and will
in economic policy uncertainty dampens remain in this “demographic dividend” zone
investment growth in India (Figure 15). The for over two decades. Figure 16, in fact,
impulse-response function suggests that highlights that the working age population
an increase in economic policy uncertainty (20-59 years), which comprised 50.5 per
affects growth in investment for about five cent of the overall population in 2011, will
quarters. increase to about 60 per cent in 2041.
1.46 This effect of economic policy 1.48 Change in demographics, especially in
uncertainty, therefore, provides important the age structure of the population, has been
policy implications for managing an shown to have had a significant effect on
economy in constant disequilibrium. First, economic growth throughout Asia between
the predictability of policy stems from being 1960 and 1990 (Bloom and Williamson,
consistent with the overall vision and strategy 1998). A rise in the share of the working-age
Figure 16: Demographic composition in this accounting effect, but it also brought with
India (2011-2041) it behavioural changes. Savings increased as
100 life expectancy increased (Lee, Mason and
8.6 9.7 12.4 15.9
Miller 2000; Bloom, Canning, Mansfield and
75 Moore 2007), and consequently investment
50.5
55.8
58.8 58.9
increased. In fact, changes in growth of
50
labour force per capita, changes in the
25
savings rate, and changes in the investment
40.9 34.5 28.8 25.2 rate are three plausible mechanisms by which
0 demographics affects the economic growth
2011 2021 2031 2041
(Higgins and Williamson, 1997; Bloom and
0-19 years 20-59 years 60+ years
Williamson, 1998).
Source: Survey Calculations
1.49 Figure 17 shows how savings rate in
population, brought about by a decline in the China and other high-growth East Asian
fertility rate, increases income per capita as economies was driven significantly by change
output per worker remains unchanged but the in its demographics from a predominantly
number of youth dependents declines. The young to an older population. While the top
rise in the working-age share in Asia created panels show the change in the demographics,
Figure 17: Impact of demographics on savings for China and other High-growth East
Asian Economies
Population(15−64 Year) Share
Population(15−64 Year) Share
70
70
65
60
65
55
1980 1990 2000 2010
Year
60
1980 1990 2000 2010
Year Indonesia Korea, Rep. Malaysia Thailand
40
50
Savigs (% of GDP)
Savigs (% of GDP)
35
45
30
40
25
35
20
30 15
60 65 70 55 60 65 70
Population(15−64 Year) Share Population(15−64 Year) Share
Source: World Bank

Note: Time period taken is 1980-2015 and High Growth Economies pertain to Indonesia, Malaysia, South Korea
and Thailand.
the bottom panels illustrate how closely the of the age group is to increase savings/
household saving rate and the working age investment while a negative coefficient
proportion of the population move together indicates that this effect decreases savings/
in China and other high-growth East Asian investment. Investment rises significantly
economies. This makes sense because only with an increase in each of the age cohorts till
people who are earning income can save, and age 50 while savings rises significantly with
the majority of income for the majority of an increase in each of the age cohorts till age
people will be labour income. But, in addition 60.
to this effect of demographic composition,
having fewer “mouths to feed” raises the 1.51 Figure 19 shows how wages affected
availability of resources that can be saved China’s savings rate. This relationship is
for the future. Second, due to the importance crucial to note because without an increase
of children as a source of retirement income in the earnings of the working population,
in the Asian/Indian context, the decline neither consumption nor savings can
in the number of children by the working increase. Therefore, jobs that pay meaningful
generation promotes saving as they must rely wages become crucial in driving savings rate
more on savings for retirement in comparison in the economy. The “virtuous cycle” that we
to previous generations. Finally, saving also describe fosters job creation by exploiting
increases as a result of a composition effect: a the complementarity between capital and
large portion of saving tends to occur between labour, on the one hand, and by increase
the ages of 40 to 65 as people start to save for overall productivity and labour productivity,
retirement. on the other hand. Policy changes to enhance
productivity and job creation in the economy,
1.50 As Bosworth and Chowdorow-Reich which we describe in Section 5.2, become
(2007) show for Asia, both savings and crucial in this context.
investment rise with the proportion of the
working population (Figure 18). Notice 1.52 Our analysis, thus, shows that savings
that this figure shows the coefficient of the is driven primarily by demographics and
effect of proportion of each age group in the income growth. Therefore, keeping domestic
population on investment and savings. A interest rates high may not encourage savings
positive coefficient indicates that the effect behaviour; a mildly positive real rate is good
Figure 18: Impact of composition of Figure 19: Impact of wages on savings in

demographics on savings in Asia China (1963-2009)
2
Age Distribution Coefficients
1
Saving
0
-1
Investment
-2
-3
0-14 20 - 24 30 - 34 40 - 44 50 - 54 60 - 64 70+
Source: Bosworth and Chowdorow-Reich (2007) Source: Curtis, Lugauer and Mark (2011)
enough. As demographics and wages are the recognises a startling fact. Dwarfs, which
major factors that drive savings, policymakers we define as small firms that never grow
obtain a key degree of freedom. Specifically, beyond their small size, dominates the Indian
the two parts of the financial system, the economy and holds back job creation and
savers and the borrowers, can be disentangled. productivity. Firms employing less than 100
As investment depends crucially on a low workers are categorized as small and firms
cost of capital, reducing real interest rates employing 100 or more workers as relatively
need not necessarily lower savings when the large. Though a firm employing 100 workers
demographics are favourable. At the same is definitely not large in the global context,
time, the reduction in real interest rates can they are relatively large in the Indian context.
foster investment and thereby set in motion Firms that are both small and older than ten
the virtuous cycle of investment, growth, years are categorized as dwarfs as these firms
exports and jobs. have continued to be stunted in their growth
despite surviving for more than 10 years.5
Role of job creation and earnings
1.54 Figure 20 shows the share of dwarfs in
1.53 Chapter 3 in Volume 1 of the Survey the number of firms, the share in employment
Figure 20: Share of dwarfs versus other firms in number, employment and productivity
55.8
60.0
Share in total number of firms
46.1
50.0
50.0
Share in workers
40.0
40.0
26.2
30.0 30.0 21.2
20.0 20.0
10.2 7.9
10.0 4.7
7.3 5.5 10.0 4.9 3.9 6.2
0.0 0.0
0 to 49 50 to 99 Above 99 0 to 49 50 to 99 Above 99
Firm Size (Number of Employees) Firm size (Number of Employees)
Share of Young firms Share of Old firms Share of young firms Share of old firms
60.0 51.3
50.0
37.2
Share in NVA
40.0
30.0
20.0
5.6
10.0 1.3 2.7 2.0
0.0
0 to 49 50 to 99 Above 99
Firm Size( Number of Employees)
Share of Young firms Share of Old firms

Source: Annual Survey of Industries, 2016-17 and Survey Calculations
___________
5
Disclaimer: The Survey uses the term “dwarfs” for firms that remain small despite being old is contrasted to “infants” for
firms that are small because they are young. This usage is purely for firms and has no correlation with such usage for
individuals and is therefore not intended to harm any sensibilities, whatsoever.
and their share in Net Value Added (NVA). when compared to the average workers it
This analysis has been conducted using employed when it was less than five years
firm-level data from the Annual Survey of of age. An average firm in Mexico doubles
Industries for the year 2016-17, which is the its employment when it is forty years of age
latest available. While dwarfs account for half when compared to the workers it employed
of all the firms in organized manufacturing when it was less than five years of age. In
by number, their share in employment is contrast, an average firm in India only
only 13.3%. In fact, their share in NVA is employs 40% more workers when it is forty
a miniscule 4.7% despite them dominating years of age when compared to the workers it
half the economic landscape. In contrast, employed when it was less than five years of
young, large firms (firms that have more age. Thus, firms in India do not grow enough
than 100 employees and are not more than to create the necessary jobs and productivity
10 years old) account for only 6.2% of firms in the economy (Figure 21).
by number but contribute a quarter of the
1.56 Chapter 3 of the Survey then highlights
employment and 38% of the NVA. Large,
that restrictive labour regulations, which
but old firms (firms that have more than 100
exempt small firms from such regulations,
employees and are more than 10 years old)
and other size based incentives, which
account for only 9.5% of firms by number but
provide benefits to MSMEs irrespective
contribute half of the employment as well as
of their age, have played a crucial role in
the NVA. Thus, firms that are able to grow
providing perverse incentives for firms to
over time to become large are the biggest
remain significantly smaller in the Indian
contributors to employment and productivity
economic landscape. The Chapter, therefore,
in the economy. In contrast, dwarfs that
recommends focusing incentives on infant
remain small despite becoming older remain
firms, i.e. firms less than ten years of age,
the lowest contributors to employment and
with the appropriate grandfathering of the
productivity in the economy.
existing pattern of incentives to MSMEs.
1.55 As a cross-country comparison, the Further, the Chapter highlights using the
Chapter shows that an average firm in the labour law changes in Rajasthan that reforms
U.S. employs more than seven times as of restrictive labour regulation can foster
many workers when it is 40 years of age job creation and capital accumulation in the
Figure 21: Growth of jobs and productivity with age for firms in India, Mexico and U.S.
8
4
Average Productivity
Average Employment
4
2
0 0
<5
5--9
10--14
15-19
20-24
25-29
30-34
>=35
<5
5--9
10--14
15-19
20-24
25-29
30-34
35-39
>=40
Age Age
India US Mexico India US Mexico
Source: Hsieh and Klenow (2014)

Note: Y-axis shows the average employment/gross value added at each age cohort as a multiple of the average
employment/gross value added when the firm was less than five years old.
states. The labour law changes are crucial the accelerator five years ago, it would have
also because they can enhance investment almost certainly been hit by a major financial
(Subramanian and Tung, 2016; Subramanian crisis in a few years. Painful as it may have
and Megginson, 2018). seemed, the banking sector clean up and the
IBC framework are important foundations
The role of the financial sector
that will now reap benefits when the
1.57 The investment-led growth model investment-driven growth model is put into
implies a rapid expansion in the financial motion as the incentives get aligned towards
system by a factor of magnitude – both banks better quality lending (Sarkar, Subramanian
and capital markets. In turn, this runs up and Tantri, 2019).
the risk that such a rapid expansion could
be disrupted by a major financial crisis that 1.58 Now that the foundations for expansion
derails the savings-investment dynamic. This have been laid, it is now time to significantly
is no idle concern as illustrated by the Asian lower the cost of capital. Figure 22 shows
Crisis of 1997-98. Some South-East Asian how the real rate of interest has increased
countries appeared to be recreating the East significantly in India over the years. In fact,
Asian miracle in the nineties, but were unable a cross-country comparison shows that the
to sustain the virtuous cycle because of large cost of capital remains quite high in India
scale misallocation of capital. Our own (see Figure 23), which affects investment
experience of rapid credit expansion from prospects in the country.
2006 to 2012 illustrates the same risk, where The risk-return trade-off in the
the quality of credit sharply deteriorated economy
when the quantity was expanded. In this
context, recent efforts to clean up the banks 1.59 Another aspect that constrains the
and establish a bankruptcy process should savings-investment driven model for growth,
be seen as valuable investment that must be jobs and exports pertains to the incentive
completed. If India had attempted to press structure prevailing for risk-taking in the
Figure 22: Real rates of interest (Jan 2012 – May 2019)

8
7
6
Real Base Rate - SBI (%)
5
4
3
2
1
0
-1
-2
Jan-12
Jan-13
Jan-14
Jan-15
Jan-16
Jan-17
Jan-18
Jan-19
Sep-12
Sep-13
Sep-14
Sep-15
Sep-16
Sep-17
Sep-18
May-17
May-12
May-13
May-14
May-15
May-16
May-18
May-19
Source: State Bank of India and Survey Calculations

Figure 23: Cross-country comparison of Cost of Capital across some sectors
Real Estate (General/Diversified) Retail (Grocery and Food)

14.0% 20.0%
12.0%
15.0%
10.0%
8.0%
10.0%
6.0%
4.0% 5.0%
2.0%
0.0% 0.0%
India China US Europe Japan India China US Europe Japan
Trucking Engineering/Construction
25.0% 12.0%
20.0% 10.0%
8.0%
15.0%
6.0%
10.0%
4.0%
5.0% 2.0%
0.0% 0.0%
India China US Europe Japan India China US Europe Japan
Source: Damodaran(2019)
economy. The following aspects of the risk- to foster investment.

return trade-off need attention.
1.61 Optimal tax policy plays a crucial role
1.60 As investment represents a forward- in this regard. Countries across the world
looking activity, investors eventually make recognise the need to evolve tax system that
their decisions to invest based on the risk- can foster innovation. Therefore, tax policy
adjusted return they expect. In other words, and its implementation for start-ups must be
if two projects offer the same return but rationalised to foster innovative investments
one of them is riskier, then investors choose in the Indian economy. Several studies have
the less risky project to invest. Therefore, also suggested that capital gains tax can
systematically lowering the risks faced by have significant economic consequences for
investors in India is critical for the success individual investors in terms of its lock-in
of the investment-driven model for economic effects and associated deterring incentives
growth. Risk pertains to the possibilities of to use capital gains into riskier investments
upside, when a project performs well, and (Meade, 1990). Design of optimal tax
downside, when the project fails. So, the policy also aims to raise revenue efficiently
implementation of the IBC is crucial in this and fairly, while encouraging the bonafide
regard as it puts into process a framework for taxpayers and punishing the malafide ones.
reconfiguration of assets following business However, achieving this optimality is not an
failure. However, the after-tax return for easy task. Therefore, to foster investment,
successful projects crucially affects the risk- getting this balance right is extremely critical
return trade-off and thereby becomes critical in the Indian context.
1.62 Growth in the new economy cannot be 1.63 Ranked third in the world in the start-
fostered without an ecosystem that rewards up ecosystem, a growing number of domestic
innovation and entrepreneurship (Acharya Indian enterprises are developing solutions
and Subramanian, 2009; Acharya, Baghai aimed at managing and solving urban
and Subramanian, 2013, 2014; Chava et al., challenges. While a majority of these are tech-
2013; Sapra, Subramanian and Subramanian, start-ups concerned with e-commerce and
2013). Startups and innovative ventures consumer products and services, 2018 was
face significantly greater uncertainty than touted as the year of food start-ups. Figure 24
traditional “brick-and-mortar” firms. Yet, shows statistics that depict the vibrant start-
policy ambiguities that create collateral up ecosystem that has developed in India.
damage for genuine risk-takers can affect B2C start-ups concerned with easing public
investments by dampening the animal spirits service delivery and driving efficiencies,
in the economy. whether in waste, water or energy, are slowly
Figure 24: Trends in India’s start-ups (2018)
Fundraising(Value No. of VC Deals Firms that raised most Sectors that raised
$bn) (Volume) capital in 2018($bn) most capital in 2018
8 7.5 600 ($bn)
OYO Rooms 0.9 Retail 2.09
7 477
500 Byju's Classes 0.5
439 Food 1.65
6
400 360 Paytm Mall 0.45 FinTech 1.4
5 4.3 Zomato 0.37 Enterprise… 1.22
4 3.5 300 Swiggy 0.31 Auto 0.67
3 Paytm 0.3 HealthTech 0.59
200
2 BigBasket 0.3 EdTech 0.57
100 Udaan 0.28 Energy 0.52
1
0 0 Pine labs 0.2 Artificial… 0.42
2016 2017 2018 2016 2017 2018 PolicyBazaar 0.2 Mobile 0.38
Unicorn Club Unicorn Aspirers Mergers and

Total Post- Acquisitions
Total Post- Time taken Funding($bn) money Target Acquired Value ($
Funding($bn) money to become valuation($ by bn)
valuation($ an bn) Flipkart Walmart 16
bn) unicorn(yrs) Rivigo 0.17 0.92 Embibe RIL 0.18
Billdesk 0.16 0.83 Saavn RIL 0.10
(RHS)
BookMyShow 0.23 0.78 Ridlr Ola Cabs 0.05
Flipkart 6.1 15.51 3 BigBasket 0.56 0.72 Minjar Nutanix 0.05
Delhivery 0.26 0.60 Mettl Mercer 0.40
OYO Rooms 1.35 4.18 5 TicketNew PayTm 0.40
Sharechat 0.12 0.50
Ola 2.8 4 2 UrbanClap 0.11 0.47 Liv.ai Flipkart 0.40
Byju's 0.74 3.02 4 CarDekho 0.28 0.45 Tapzo Amazon 0.40
Classes CarTrade 0.25 0.40 Walnut CapitalFloat 0.30
Snapdeal 1.8 2.47 3 CapitalFloat 0.11 0.35
Paytm Mall 0.653 2.01 Less than 1
Zomato 0.58 2 5
Swiggy 0.46 1.21 3
Quikr 0.37 0.88 7
PolicyBazaar 0.37 0.44 10
Source: Sarkar (2018)
but surely emerging. Figure 25 highlights this for private investment, especially in the
fact as private investment into B2C start-ups new economy, is therefore critical to enable
is much higher than that into B2B start-ups. the virtuous cycle of investment, demand,
1.64 Continuing the creation of an ecosystem exports, growth and jobs.
Figure 25: Funding in B2C startups higher than in B2B startups

10
9
8
7
US$ billion
6
5
4
3
2
1
0
2014 2015 2016 2017 2018
B2B B2C
Source: Goyal (2019)
CHAPTER AT A GLANCE
 During the last five years, India’s economy has performed well. By opening up several pathways
for trickle-down, the government has ensured that the benefits of growth and macroeconomic
stability reach the bottom of the pyramid.
 To achieve the objective of becoming a US$5 trillion economy by 2024-25, India needs to sustain
a real GDP growth rate of 8%. International experience, especially from high-growth East Asian
economies, suggests that such growth can only be sustained by a “virtuous cycle” of savings,
investment and exports catalysed and supported by a favourable demographic phase. Investment,
especially private investment, is the “key driver” that drives demand, creates capacity, increases
labour productivity, introduces new technology, allows creative destruction and generates jobs.
 Exports must form an integral part of the growth model because higher savings preclude domestic
consumption as the driver of final demand. Similarly, job creation is driven by this virtuous
cycle. While the claim is often made that investment displaces jobs, this remains true only when
viewed within the silo of a specific activity. When examined across the entire value chain, capital
investment fosters job creation as production of capital goods, research & development and
supply chains generate jobs.
 In postulating the above growth model, the Survey departs from traditional Anglo-Saxon
thinking by viewing the economy as being either in a virtuous or a vicious cycle, and thus never
in equilibrium.
 By presenting data as a public good, emphasizing legal reform, ensuring policy consistency,
and encouraging behaviour change using principles of behavioural economics, the Survey
aims to enable a self-sustaining virtuous cycle. Key ingredients include a focus on policies that
nourish MSMEs to create more jobs and become more productive, reduce the cost of capital, and
rationalise the risk-return trade-off for investments.
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Policy for Homo Sapiens, Not
Homo Economicus: Leveraging the
02
CHAPTER
Behavioural Economics of “Nudge”
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We cannot rely totally on rational thinking to
gain information, as it is not without its bias.
Decisions made by real people often deviate from the impractical robots theorized
in classical economics. Drawing on the psychology of human behaviour,
behavioural economics provides insights to ‘nudge’ people towards desirable
behaviour. This chapter illustrates how the Swachh Bharat Mission (SBM) and
the Beti Bachao Beti Padhao (BBBP) have successfully employed behavioural
insights. Using such learning, the chapter lays out an ambitious agenda for
social change: (i) from BBBP to BADLAV (Beti Aapki Dhan Lakshmi Aur Vijay
Lakshmi); (ii) from Swachh Bharat to Sundar Bharat; (iii) from “Give it up” for
the LPG subsidy to “Think about the Subsidy”; and (iv) from tax evasion to tax
compliance. First, a key principle of behavioural economics is that while people’s
behaviour is influenced significantly by social norms, understanding the drivers of
these social norms can enable change. In India, where social and religious norms
play such a dominant role in influencing behaviour, behavioural economics can
therefore provide a valuable instrument for change. So, beneficial social norms
can be furthered by drawing attention to positive influencers, especially friends/
neighbours that represent role models with which people can identify. Second,
as people are given to tremendous inertia when making a choice, they prefer
sticking to the default option. By the nearly costless act of changing the default
to overcome this inertia, desired behaviour can be encouraged without affecting
people’s choices. Third, as people find it difficult to sustain good habits, repeated
reinforcements and reminders of successful past actions can help sustain changed
behaviour.
THE INFLUENCE SPECTRUM children, respecting the human rights of

OF PUBLIC POLICY fellow citizens or saving for retirement.
Some policies subtly influence by fostering
2.1 Public policy affects all aspects of our the right incentives while others mandate
lives. Public policy influences people to act in desired behaviour or ban undesirable ones.
a socially desirable way, be it driving safely, 2.2 Public policies can, therefore, be
conserving natural resources, educating graded on a spectrum capturing how strongly
they influence (or coerce) behaviour (see incentivize good behaviour or dis-incentivize
Figure 1). On one extreme is laissez faire, bad behaviour, such as subsidies for
i.e. doing nothing and leaving individuals/ renewable energy and taxes on tobacco.
firms to chart their own course. Laissez faire
works well when markets achieve socially 2.3 Recently, behavioural economists have
desirable outcomes on their own. Where discovered the efficacy of a new class of
markets fail, laissez faire fails. For instance, “nudge” policies that lie between laissez faire
individuals/firms in a free market would and incentives. Such policies leverage insights
not restrain pollution. Public policy – in the from human psychology to influence the choice
form of regulation – mandates people to act architecture of people. Nudge policies gently
in a socially desirable manner. Sandwiched steer people towards desirable behaviour even
between these extremes are policies that while preserving their liberty to choose.
Figure 1: From Minimal Influence to Coercion
Laissez faire Nudge Incentivize Mandate
2.4 Adam Smith, in his book the ‘Theory 2.5 As individuals suffer from tremendous
of Moral Sentiment’, noted that a wide range inertia when they have to make a choice, they
of human choices are driven and limited by tend to stick to the default option (Thaler
our mental resources i.e., cognitive ability, and Sunstein 2008; Samson 2014). The
attention and motivation. Behavioural nearly costless act of changing the default
economics relies on this essential insight on an enrolment form harvests this inertia
from human psychology that real people for people’s own good. At the same time,
do not always behave like robots, rational this form of paternalism preserves people’s
and unbiased individuals that form the right to choose as the choice architecture
basis of classical economic theory called makes it easy for an individual to opt out
“homo economicus” (Thaler, 2000). To a of the scheme. For example, studies have
homo economicus, the choice architecture shown that enrolment rates in a healthcare or
is irrelevant, as she will make the optimal retirement savings plan improve dramatically
choice irrespective of the way the choices if the plan is designed as an opt-in by default
are presented to her. However, real people embedded with the option to opt-out, as
respond to the choice architecture. For opposed to voluntary enrolment by opting in.
example, a large fraction of individuals 2.6 Understanding these principles of
opt for the default choice, irrespective of behavioural economics, therefore, can bridge
their intrinsic preferences. This is because the gap between people’s preferences and
individuals suffer from a cognitive bias the choices they make, and thereby enable
called “anchoring bias”, viz., once a default informed policymaking. Many governments,
option is presented to them, they anchor including the U.S., the U.K. and Australia,
on to it (Tversky and Kahneman, 1974). have set up dedicated units to use behavioural
Anchoring bias, along with several others insights for effective policymaking.
that we describe in this chapter, drives a Innovative interventions across the world
wedge between people’s intrinsic preferences that utilize the principles of behavioural
and the choices they eventually make. economics are tabulated in Table 1.
Policy for Homo Sapiens, Not Homo Economicus 31
Table 1: Innovative Global Behaviour Change Interventions
Sector Problem Intervention Observations

Pension Policy People tend to go with Instead of employees Automatic enrolment
(USA) defaults. When the default checking a box to enrol in increased savings by up to
in a saving plan is non- savings plans, employees 40 per cent (Beshears et. al,
enrolment, most people check a box to not enrol; 2005)
do not enrol even when i.e. the default option is to
they want to. be enrolled.
Tax Compliance People need reminders and People were sent People who owed most tax
(UK) positive reinforcement to variations of text were also most responsive
sustain socially desirable messages on how their to messages asking them to
behaviour. taxes make a difference to pay. Compliance increased
public services. without increase in tax
surveillance costs (UK
Cabinet Office, Behavioural
Insights Team, 2012).
Agriculture Inertia makes people To tackle farmers’ Fertilizer use increased by
(Africa) procrastinate important, procrastination in buying 70 per cent (Duflo et al.,
time-sensitive decisions fertilizer (possibly because 2011). Early home delivery
even when they are aware of the hassle of traveling increased fertilizer use by
of the consequences of to town), home delivery 70 per cent. The effect was
delay. of fertilizer early in the as much as a 50 per cent
season was attempted. price subsidy would have
accomplished.
Savings People save much less People were offered Nearly 30 per cent of those
(Philippines) than they want to because specially designed savings who were offered the
of lack of adequate self- accounts that locked up account adopted it. Saving
control in spending. funds until a self-specified balance increased by 81 per
target was met. cent in a year (Ashraf et al.,
2006).
Savings (Bolivia, People save much less People were sent periodic Reminders increased the
Peru, Philippines) than they want to because and timely reminders amount saved by six per
of inertia and lack of about their self- cent (Karlan et al., 2010).
positive reinforcement. determined saving goals.
Education Many parents Parents were informed Information dissemination
(Madagascar) underestimate the returns about the average income increased children’s test
to spending another year gains from spending scores by 0.37 standard
at school. They think one more year in school deviations, particularly
schooling is worthless for children from for those parents who had
unless the child is able backgrounds like their underestimated the return to
to go all the way through own. education (Nguyen, 2008).
high school. Many allow
their children to drop out
with even fewer years of
schooling than they can
afford.
2.7 Behavioural economics is, however, nudges. In fact, many incentive and mandate-
not a panacea to policymaking; its potential based policies may be clubbed with a nudge
needs to be understood and put in perspective. effect to increase their efficacy.
Nudge policies cannot and should not supplant
every incentive-based and mandate-based
SUCCESSFUL APPLICATIONS
policy. For example, a policy that merely OF BEHAVIOURAL INSIGHTS IN
nudges people to refrain from assaulting INDIA
others will fail as such situations warrant 2.8 In India, policies to alter behaviour
strict decree or, at least, a stronger push than a have spanned the influence spectrum, as is
mere nudge. However, the majority of public shown in Figure 2.
policy issues are amenable to incorporating
Figure 2: Policies spanning the influence spectrum in India
Level of influence
Policy
Laissez faire Nudge Incentivize Mandate
Give It Up
Aadhaar
Jan DhanYojana
Beti Bachao, Beti Padhao

Taxes on tobacco
Compulsory voting in
panchayat elections in some
states
Ban on alcohol in some states
2.9 Many Indian schemes that employ Swachh Bharat Mission (SBM)
insights from behavioural economics have
met with success. The Swachh Bharat 2.10 SBM was launched on 2nd October,
Mission (SBM) and the Beti Bachao, Beti 2014 to achieve universal sanitation coverage.
Padhao (BBBP) scheme are cases in point. It is not the first programme to address
Behavioural economists have long touted sanitation concerns. However, there were no
the power of the “social norm” as most dramatic shifts in the access rates until SBM
people want to behave or be seen to behave as is shown in Figure 3. SBM is the first one
in congruity with these norms (Dolan et to emphasize behaviour change as much as, if
al., 2010). People are more likely to stop not more than, construction of toilets. Within
defecating in the open if their neighbours stop five years of the launch of SBM, household
or are more likely to value their girl children access to toilets has increased to nearly 100
if that is touted as the social norm. per cent in all states.
Figure 3: National Sanitation Coverage before and after SBM
Source: Ministry of Drinking Water and Sanitation (MoDWS)

Note: Data for 1981-2011 is as per Census.
2.11 SBM has achieved success in not status of 90.7 per cent of villages that were
only providing toilets but also in ensuring previously declared and verified as ODF by
that these toilets are used. An independent various districts/states. This is also evident
verification of SBM through the National in the maps/charts below depicting the state-
Annual Rural Sanitation Survey (NARSS) wise increase in coverage of individual
2018-19 has found that 93.1 per cent of household latrines (IHHL) from 2015-16 to
rural households had access to toilets, 96.5 2018-19 (Figure 4) and the percentage of
per cent of the households in rural India villages in each state that have been declared
who have access to a toilet use it. This re- and verified ODF (Figure 5).
confirmed the Open Defecation Free (ODF)
Figure 4: Coverage of Individual Household Latrine (IHHL)
2015-16 2018-19
Source: MoDWS
Figure 5: Verified ODF Villages

2015-16 2018-19
Source: MoDWS
2.12 The above figures highlight increased with behavioural nudges that push
the tremendous success of SBM. As is female literacy rates up and discourage
highlighted in Figure 2, the principles of early marriages of girls. In this respect, the
behavioural economics were applied in BBBP scheme, which we describe next as
SBM. Figures 6 to 8 examine the role of these a scheme aimed at empowering the girl
principles in the success of SBM. Measures of child, complements SBM strongly as factors
female literacy and early marriages of girls, related to gender empowerment are seen to
which associate strongly with rigid social be significantly correlated with toilet access
norms, correlate powerfully with access and and usage. This interplay can be effectively
usage of toilets across states. This shows used to improve the efficacy of both the
that toilet access and usage can be suitably schemes.
Figure 6: Correlation between Access to Toilets with Female Literacy and Female Age at Marriage
Source: MoDWS, Census 2011, NFHS 2015-16

Figure 7: Correlation between Use of Toilets (given access)
with Female Literacy and Female Age at Marriage
Source:MoDWS, Census 2011, NFHS 2015-16
Figure 8: Correlation between IHHL Coverage with

Female Literacy and Female Age at Marriage
Source: MoDWS, Census 2011, NFHS 2015-16

Box 1: Use of Behavioural insights in the SBM

SBM, as a nation-wide cleanliness drive, was launched
on 2nd October, 2014, the birthday of India’s most revered
‘role model’ Mahatma Gandhi. The day was chosen to
leverage the values propagated by him and thereby create
a mass movement on the lines of ‘satyagraha’ for a cleaner
India. The symbol used for SBM invokes Gandhiji’s ideas.
Behavioural economics emphasises the role of context
in influencing choices and decisions, which has been
effectively adopted by the SBM campaign.
To initiate behavioural change in usage of toilets, more than five lakh swachhagrahis, foot soldiers
of the SBM, were recruited; the similarity with satyagrahis is intentional to reinforce the message.
As each village has at least one swachhagrahi, who is a local, these swachhagrahis were able to
leverage their social ties within their villages to effect change. People are more likely to listen to
and emulate someone they know, which is why local ambassadors of change are more effective in
getting through to people than mass media campaigns.
Further, SBM relies on community-based approaches to sanitation. Behaviour change techniques
such as Participatory Rural Appraisal and Community-led Total Sanitation induce people to come
together, appraise their community’s open defecation situation and plan the next course of action.
This makes sanitation a community-level concern rather than an obscure campaign of a distant
government. Non-conformers, therefore, find their act more visible to their community. The fear
of community scorn, or a desire to fit in, or both, have led many to renounce open defecation.
SBM used yet another behavioural insight – that people internalize messages better when these
messages make them feel a certain way. Arcane concerns about hygiene and disease appeal to few;
it is natural that those who have defecated in the open all their lives without consequence would
fail to absorb the message that open defecation can have deleterious effects. On the other hand,
appealing to people’s emotions, for example by attaching a sense of disgust to open defecation,
has a better chance of moving people to change.
Many swachhagrahis delivered the message that open defecation is tantamount to eating one’s
own excreta, as flies sit on excreta left in open spaces and then sit on food. The act of provoking
disgust or shaming people for open defecation has been controversial; some have considered it
disrespectful. That may well be the case, but it does not take away from the fact that campaigns
that elicit emotional reactions are more effective than those that deliver plain, recondite messages.
Beti Bachao, Beti Padhao (BBBP) in quick succession to arrest this trend.
2.13 As is well known, India’s child sex ratio 2.14 BBBP Scheme was launched on 22nd
had been consistently falling for decades. January, 2015 to address the issue of decline
Between the 2001 and 2011 censuses, 21 out in Child Sex Ratio and related issues of
of 29 states registered a decline in child sex empowerment of girls and women. The
ratio. India’s sex ratio at birth1 (SRB) was campaign was flagged from Panipat, Haryana,
on a steady decline until the first decade of which had the worst child sex ratio at 834
the twenty-first century, when a number of among Indian states as compared with the
initiatives, including BBBP, were launched national average of 919 (as per Census, 2011).
________
1 Sex Ratio at Birth = (Total Number of Live Female Births/Total Number of Live Male Births)*1000
The choice of Panipat in the battle against the to launch to reinforce the stress on gender
socially ingrained bias against the girl child empowerment and establish the social norm
was also symbolic through the association of ‘girls are valuable’.
with the famous battles fought at Panipat
2.16 It is, of course, difficult to attribute the
in 1526, 1556 and 1761. As we highlight
improving child sex ratio to a single scheme,
later, one of the principles of behavioural
especially because awareness programmes
economics is to adapt the message to match
do not create results overnight. However, the
“mental models” of people. The symbolism
timing of the launch of these schemes and the
captured by the choice of Panipat in Haryana
inter-state variation in existing social norms
helped significantly in matching the message
may be used to assess the impact of BBBP.
to the relevant mental model.
Consider the large states of Uttar Pradesh,
2.15 The scheme was initially launched in Madhya Pradesh, Rajasthan, Chhattisgarh,
100 districts in 2014-15, and was expanded Andhra Pradesh and Jharkhand, all of which
to 61 additional districts in 2015-16. The had registered declining child sex ratios
initiative was expanded to all districts of the between the 2001 and 2011 censuses. Around
Country on March 8, 2018 from Jhunjunu, the launch of the BBBP in 2015-16, they
Rajasthan. The date and location was had among the poorest sex ratios at birth,
again selected carefully to ensure that the as evident in Figure 9. But by 2018-19, all
symbolism behind the message matched these states showed a reversal of the trend,
the relevant mental model. Rajasthan was registering an increase in SRB between 2015-
chosen as the State improved by 34 points 16 and 2018-19 (Figure 10). BBBP has had an
from 888 girls per 1000 boys in 2011 to 922 impact particularly on large states with very
per 1000 boys in 2017-18 to indicate that poor child sex ratios – states that plausibly
good performance receives a reward. Also, also needed the greatest pivot in their social
International Women’s Day was chosen norms.
Figure 9: Sex Ratio at Birth
2015-16 2018-19
Source: Derived from Health Management Information System (HMIS), Ministry of Health and Family Welfare
Note: SRB figures are calculated using average of BBBP districts.
Figure 10: States with an improvement in Sex Ratio at Birth from 2015-16 to 2018-19
Source: Derived from Health Management Information System(HMIS), Ministry of Health and Family Welfare
2.17 The impact of BBBP in the 161 districts 2015-16 to 2018-19. On an average, the sex
where it was initially implemented is shown ratio for 161 districts has improved from 909
in Figure 11. The SRB has improved in 107 in 2015-16 to 919 in 2018-19.
districts within a period of 4 years viz., from
Figure 11: Change in Sex Ratio at Birth from 2015-16 to 2018-19 in 161 BBBP Districts
Source: Derived from Health Management Information System (HMIS), Ministry of Health and Family Welfare
Box 2: Effective Use of “Social norm” in BBBP

The success of the BBBP Scheme demonstrates a powerful use of
the insight on ‘social norm’ in its 'Selfie with Daughter' initiative.
This scheme was launched to address a highly imbalanced child
sex ratio in India. People’s attitude towards the girl child needed to
change – people needed to stop viewing girls as burdens and start
celebrating them instead. The selfie campaign showcased examples
of parents around the country who were doing exactly that. The
celebration of the girl child quickly became the norm. Most people
wanted to conform, and more and more parents posted selfies with
their girls. Started by one proud father in a village in Haryana, the
campaign went viral and #SelfieWithDaughter became a worldwide
hit.
Two elements enabled the campaign’s success: first, telling people what the norm is, and second,
showcasing the thousands of other people who were acting in line with that norm.
The strategy addresses a cognitive bias called ‘failure bias’ (Baumeister and Bratslavsky, 2001). The
failure bias is the tendency to focus on failures rather than successes, mostly because failures have
greater visibility. Because failures
get the spotlight, people tend to
think that failing is the norm, or at
least that failing is more prevalent
than it really is. Therefore, in the
context of BBBP, focus must be
on people who treat their girls
fairly; this corrects the failure bias
and makes the social norm of fair
treatment of girls unequivocally
clear.
BBBP’s work is far from over,
of course, as posting a selfie is
not tantamount to subverting
entrenched orthodox mind-sets
overnight, but its leverage of
social norms is certainly a step in
the right direction.
The Power of Clear Messaging culturally identifiable names gives a clear

message of the objectives of the programme
2.18 Apart from the SBM and BBBP – one of the principles of behavioural
programmes that have successfully economics is that the messaging needs to be
employed the power of messaging, several clear and simple and aligned to a mental
other programmes have utilised this power. model. This is evident from the names used
The success of any programme depends for various recent schemes, some of which
upon the level of involvement of all the are tabulated in table 2 below.
relevant stakeholders. Use of socially and
Table 2: Use of clear messaging for Schemes

Name of the Scheme Literal Meaning of the Objective of the Scheme
Name
Cultural/Societal aspect used
Namami Gange Namami Gange means ‘I pray To arrest the pollution of Ganga
to Ganga’ as the river Ganga River and revive the river.
is revered in our culture.
POSHAN Abhiyan Poshan means holistic Multi-ministerial convergence
nutrition mission to ensure a malnutrition
free India by 2022.
Ujjwala Means ‘bright, clear’ To safeguard the health of women
by providing them with clean
cooking fuel – LPG.
PM Mudra Yojana Mudra means “currency, Provides loans upto 10 lakh to the
coins” non-corporate, non-farm small/
micro enterprises.
Jan DhanYojana Jan Dhan implies “money of Financial inclusion program
the people” to expand access to financial
services.
Ayushman Bharat Ayushman means “Being Universal and affordable access to
Blessed with long life” good quality health care services.
PRINCIPLES FOR APPLYING economics, there is still ample scope for

BEHAVIOURAL INSIGHTS TO leveraging these insights to enhance the
PUBLIC POLICY efficacy of programmes in India. To outline
such applications, Figure 12 describes
2.19 While several Indian programmes the seven key principles of behavioural
have applied the principles of behavioural economics that public policy must employ.
Figure 12: Principles of Behavioural Economics

Principle 1:
Leverage
Principle 7: Default Rules
Make Principle 2:
Messages Make it Easy
Mimic Mental to Choose
Models
Principle 3:
Principle 6: Emphasize
Leverage Loss Social Norms
Aversion
Principle 5: Principle 4:
Reinforce Disclose
Repeatedly Outcomes
2.20 The cognitive biases, the principle that and the relevant applications are summarized
can be applied to alleviate the cognitive bias, below in Table 3.
Table 3: Using Behavioural Principles to Overcome Cognitive Biases
Cognitive Behavioural General application across all programs

bias principle
Anchoring Principle 1: • Choose the right default; default choice should maximise welfare.
bias Leverage • Make the default ‘opt-in’ for welfare programs like insurance, retirement
default rules savings, organ donation, etc.
• Make the default ‘opt-out’ for purchasing add-on services, enrolling for
a subsidy, etc.
Principle 2: • Keep options few in number and easy to comprehend.
Make it easy • Reduce logistical and administrative impediments to choosing.
to choose • Offer micro-incentives.
Failure bias Principle 3: • Emphasize the number of people who vote, save regularly, file taxes on
Emphasize time, etc. – the enhancers of good behaviour.
social norm • Wherever possible, clarify the insignificant role of detractors/ negative
influencers to avoid “failure bias”.
• Focus on influencers that people can relate to, for example those in the
same geography or age group.
Principle • Disclose the realized benefits of good behaviour.
4: Disclose
outcomes
Sunk cost Principle 5: • Remind people of past good behaviour, for example, that they saved
bias Reinforce regularly for the last three months, to invoke the sunk cost fallacy;
repeatedly people tend to continue their past behaviour, especially when reminded
about the same.
• Elicit a pre-commitment for desired behaviour, and if possible, enable
immediate action as per the commitment.
Loss Principle 6: • Design incentives to reward good behaviour ex ante with threat to
aversion bias Leverage revoke reward later if behaviour fails to match expectations.
loss aversion
Flawed Principle • Train people to shift to new rules of thumb, for example, “fluids out – so
mental 7: Make fluids in” to increase fluid intake during diarrhoea.
models and messages
confirmation match • Make the rules of thumb catchy, easy to remember and intuitive.
bias mental
models
AN ASPIRATIONAL AGENDA section draws on the principles outlined

FOR PATH-BREAKING CHANGE above to create an aspirational agenda for
path-breaking change. The section combines
2.21 The successful application of
(i) suggestions for transforming some of
behavioural insights, both in India and
the existing programmes into revolutionary
elsewhere, illustrates how their power can be
ones aimed at removing social ills; and
tapped in several other programs to enhance
(ii) ways to radically improve existing
policy impact. To this purpose, the current
programmes.
Box 3: Citizen@75-Using Behavioral Economics to Avoid the Seven Social Sins

The destiny of a nation is shaped by its citizens. India @75 is envisaged as a ‘New India’ where
every individual realizes his or her full potential and looks for opportunities to contribute
rather than claim entitlements. A new spirit of independence needs to be imbibed from all
extrinsic and intrinsic fetters to shape the future of India. Mahatma Gandhi’s Seven Social Sins,
published in Young India on October 22, 1925, provide deep insights into the role of social and
political conditions shaping human behavior. Each of these is a statement of principle that can
be interpreted and utilized for nudging people towards desirable behaviour.
Sin 1: Politics
without
principle
Sin 7: Worship
Sin 2: Wealth
without
without work
sacrifice
Sin 3: Pleasure
Sin 6: Science without
without conscience
humanity
Sin 5: Sin 4:
Commerce Knowledge
without without
morality character
Social Sins of Related Applications

Gandhiji Principles of
Behavioral
Economics
Politics without Leverage loss Growing perceptions of criminalization of politics, misuse

principle aversion of public office and lack of effective governance has led to
increased apathy towards participation in political processes.
Studies from behavioral economics and public administration
show that policy makers and legislators exhibit loss-aversion
in decision-making and seemingly harsh policy decisions do
not garner enough support.
Behavioral insights to address the loss aversion of policymakers
can improve policy and legislative outcomes and uphold
‘Politics with principle’.
This would also enhance broader participation in politics and
contribute to a vibrant democracy.
Wealth without Disclose “Work is worship” – Indian ethos has always worshipped the
work outcomes fruits of one’s own efforts. Work also leads to dignity and self-
reliance.
The perception of getting things for ‘free’ as an entitlement has
to be reoriented towards discharging our obligations towards
society by rendering productive work and contributing to
national growth.
The Principles of behavioral economics, viz. disclose the
realized benefits of good behavior and the adverse outcomes
of bad behaviour, on the one hand, and emphasizing social
norms, on the other hand, offer insights towards enhancing
productivity and tax compliance.
Pleasure without Leverage When less deserving people claim benefits of a development
conscience default rules programme, it is an act of pleasure without conscience or a
sense of responsibility. Such claiming of benefits neglects
welfare concerns of their relatively unfortunate fellow
counterparts. To learn to give and take, to live selflessly, to be
sensitive, to be considerate, is our challenge.
The behavioural principle of leveraging default rules like
making the default ‘opt-out’ for availing subsidy, etc. can
be employed to nudge people towards confident displays
and conduct of altruism. The “Give it up” campaign can use
this principle more effectively to broaden its adoption to
surrendering all types of subsidies.
Knowledge Match With globalizing societies witnessing an information explosion

without character messages to today, a lack of moral element underlying this information
mental models bears the risk of desensitizing societies to ethics of harmony
and brotherhood.
Gender based violence, internet trolling, and rise of drug
abuse amongst teenagers show how people, while mindlessly
becoming more aware about the world around them, are
ironically becoming less self-aware of their actions and
outcomes of the same.
People can be nudged with messages matching their mental
models to make them realize that such biases exist and that
soft skills like self-control, altruism, patience, and trust are as
important as cognitive skills.
Commerce Emphasizing Ethics are moral principles that govern a person’s actions and
without morality social norms reflect beliefs about right and wrong, just and unjust in terms
of human behaviour.
These morals are shaped by social and cultural norms and
religious practices.
Emphasizing social norms is a powerful way of shaping choices

and navigating human actions towards desired behaviour.
Highlighting information regarding people who exhibit
good behaviour and clarifying insignificant role of negative
influencers can help enhance conformity and deter unethical
social behaviours.
The National Corporate Social Responsibility Awards of
Ministry of Corporate Affairs is an initiative in this direction.
These awards emphasize ethical behaviour and acknowledge
companies that have positively impacted both business and
society.
Science without Making it easy Science and Technology has a huge potential to simplify and
humanity to choose benefit human lives.
Chapter 10 in this volume dwells on an application of technology
to improve the effectiveness of welfare programmes.
Chapter 4 shows how data can be created as a public good
within the legal framework of data privacy using technology.
Using the behavioral principle of “Making it easy to choose”,
technology can make things simple to understand, cut
through layers of processes and target the benefit to the actual
beneficiary.
Worship without Reinforce Practicing religion without developing an embedded sense of

sacrifice repeatedly sacrifice, empathy and humility to serve the needs of other
people is self-defeating.
Across all religions, positive mythological insights about
gender and caste equality as well as universal brotherhood
have been available and deeply understood in Indian society
since the ages. So, repeatedly reinforcing examples of people
following these positive sentiments as truly spiritual people
can help establish the correct social norm that “serving man
is serving God.”
This may also be seen in the MARD (Men Against Rape and
Discrimination) campaign underlying which is the sacrifice of
the male ego in a patriarchal society for the larger good of
gender equality.
The Good Samaritan guidelines of the Central Government
and the policy adopted by several State governments, where
people who help road accident victims receive a monetary
incentive and an appreciation certificate, leverage behavioral
insights to reinforce the correct social norm of selfless service
of mankind.
Transforming Gender Equations: Therefore, this campaign can be labelled

From BBBP to BADLAV (Beti Aapki BADLAV (Beti Aapki Dhan Lakshmi Aur
Dhan Lakshmi Aur Vijay Lakshmi) Vijay Lakshmi) to represent the 'change'
towards gender equality. By drawing on the
यत्रनार्यस्तुपूज्यन्तेरमन्तेतत्रदे वता:||
imagery of the forms of Goddess Lakshmi
2.22 While the BBBP campaign has helped, that symbolises wealth (Dhan Lakshmi)
gender inequality needs a revolutionary and victory (Vijay Lakshmi), the message
campaign that utilises the benefits of of treating women as the forms of Lakshmi
behavioural economics. Our scriptures needs to be emphasized. Box 3 outlines
worship women as the embodiment of Shakti ideas for utilising the power of role models
and exhort, as captured in the shloka above, from Indian mythology to create the social
that societies where women are respected norm that “women are equal to men.”
prosper. Given the importance of messaging Table 4 details the explicit use of the seven
as highlighted before, the campaign must behavioural principles outlined above to
draw on cultural and social norms because empower BADLAV and thereby create the
they affect behaviour so crucially in India. new norm.
Box 4: Drawing on Mythological role models to reinforce the message of

BADLAV (Beti Aapki Dhan Lakshmi Aur Vijay Lakshmi)
Indian women have enjoyed a position of respect and reverence in ancient Indian society.
Ardhanareshwar – a half male-half female representation of Lord Shiva – captures the equality
between men and women. The Rigveda identified many women sages as treasures of knowledge
and foresight: the prophetess Gargi, who questioned the origin of all existence in her Vedic hymns
and the great Maitreyi, who rejected half her husband’s wealth in favour of spiritual knowledge. The
long philosophical conversations between sage Agasthya and his highly educated wife Lopamudra
are legendary. Men in ancient Indian society were identified with their mothers, Yashoda-Nandan,
Kaushalya-Nandan, Gandhari-Putra, as well as their wives/consorts, Janaki-Raman, Radha-Krishna.
Since such positive mythological insights about gender equality are readily available and deeply
understood in Indian society, these can be used as part of a revolutionary BADLAV programme for the
following:
a) to explicity state the new norm of gender equality,

b) to focus attention on all those who adopt the new norm, and
c) to continuously reinforce the norm over time.
The last step is crucial because people’s memories are short-lived. They need to be reminded of what
is socially acceptable behaviour and repeatedly shown examples of their conforming neighbours, until
the norm becomes entrenched in society. Seeing is believing, i.e. only when people can see counter-
stereotypical role models of gender equality often, will their beliefs start to change. A marketing
campaign by the U.S. government leveraged this idea perfectly when they sought to recruit women for
“men’s jobs” in factories. They supported their marketing effort by caricaturing a cultural icon –Rosie
the Riveter – a female taking a “man’s job” without losing her femininity.
Telling people what the others are doing is most effective when people can relate to the ‘others’.
People are more likely to alter their behaviours if the ‘others’ belong to their community. Information
campaigns promoting gender equality should emphasize, for each group of people, what the others
from their own geography or ethnic identity are doing in this direction. This would help the “What is”
to become the “What should be” because of people’s innate desire to follow the herd, compete with
them and/or gain social approval.
Table 4: Using Behavioural Principles for BADLAV

Principle Applying the principle to BADLAV
1. Make it easy • Simplify procedures to make it easier for women to, inter alia, report incidences
to choose of harassment and discrimination, to open bank accounts, to get government
documents such as passports, visas etc.
2. Emphasize • Prominent women, including many female and male Hollywood and Bollywood
social norms stars, played an important role in raising the profile of the recent “Me too”
movement, thereby contributing to changing the norm and illustrating that change
in social norm is possible.
• Instead of highlighting the number of top companies that have few women on
their boards, it is more effective to highlight how many do. Similarly, showing
how prevalent and pervasive gender based violence is, runs the risk of normalising
it; instead emphasising on how many people are not perpetrators or reinforcing
injunctive norms against it can be more helpful in shaping correct norms towards
gender equality.
• Research shows that girls and women who observed female village chiefs exhibit
behaviour that highlights them as equal to men. Villagers who had exposure to at
least two female chiefs rated male and female leaders equally. Therefore, women
village leaders must be advertised as role models as people can relate to proximate
“others”. Mass media must be utilised for regular efforts to change the social norm
via BADLAV.
3. Disclose • Publishing gender rankings or audits in public domain, whether for numbers of
outcomes women in legislatures, in political parties, in bureaucracy or on company boards,
can prompt organisations to take action to avoid bad publicity or looking worse
than their competitors. Mandating organisations to report the “Gender pay gap” can
reinforce this trend.
4. Reinforce • Having multiple visually descriptive posters in every corridor of workplaces and
repeatedly public places regarding what constitutes sexual harassment at workplace can
reinforce the norm of it not being acceptable. Similarly, regular TV advertisements
that reinforce the positive norm of gender equality can help to reinforce repeatedly.
5. Leverage loss • Evidence from field studies and experiments shows that among men and women
aversion of equal abilities, men often choose to compete twice as often as women. Reward
structures can be modified to ameliorate the higher aversion of women to
competition. For instance, application fees for women applicants in jobs can be
waived. Removing demographic information from job applications can also help.
6. Make • Women consistently tend to place more value on flexibility at workplace. Companies
messages match that offer flexibility as the default norm have many more women applicants and
mental models employees.
• Women are less likely to apply for jobs perceived as “male-labelled.” Skill training
and apprenticeship programmes can be redesigned with appropriately gendered
wording to attract female applicants in male dominated professions.
• Stereotypes regarding innate ability linked to gender and/or race can impact
standardized test performance. Gender stereotype threats (filling demographic
information before tests) can influence test scores of girls and boys differentially.
These insights are crucial for building gender and race sensitive curriculum and
evaluation procedures in schools.
From Swachh and Ayushman Bharat to how this rate has improved after the adoption
Sundar Bharath of sanitation practices. When people realize
2.23 A strong way to reinforce behaviour is the tangible outcomes of their actions, they are
by getting people to pre-commit to a certain more likely to sustain their behaviour. This is
course of action. Studies find that if people of tremendous importance for SBM because it
pre-commit to doing something, they are relies on a sustained change in behaviour, not
much more likely to do it. For instance, a a one-time change. To drive the point home,
simple act of asking people if they will vote, swachhagrahis may also help individual
enrol in a smoking cessation programme or households reflect on the incidence of illness
save money, increases the likelihood that in their own families in, say, the last six months
people will act in accordance with their goals. or since the time they quit open defecation.
SBM swachhagrahis may use this strategy to If people find that their health outcomes are
make people pre-commit to sanitation goals. better after adopting the new practice, they are
Further, the swachhagrahis may also assist likely to persist in that practice.
people in assessing themselves periodically, 2.25 Taking our learning from the power of
say once a month. An assisted reflection behavioural economics in the Swachh Bharat
session in the community or on a one-on-one scheme, the way forward is to develop an
basis with the local swachhagrahi can prompt all-encompassing behavioural economics
people to think about whether they acted as architecture for the entire health sector as
planned and how many times they detracted. health signifies inner beauty. Given the
These reflection sessions should culminate in unique characteristics of the health sector
a commitment about how people plan to act i.e. information asymmetry between the
in the near-term future – whether they will doctor and the patient, hyperbolic tendencies
refrain from open defecation next month or of health consumers, and high variability of
not. health care expenditures, people often make
2.24 Further, people often respond to decisions in health care that are not in their
disclosure of outcomes; they are more likely best interest. This ranges from failing to enrol
to sustain their new behaviour if told about in health insurance to which they are entitled,
tangible benefits that they can internalize; to engaging in harmful behaviour like smoking
not aggregate statistics that they may not care and drug abuse. A potentially richer set of
about. For example, a swachhagrahi may behavioural tools than provided by traditional
disseminate information about the incidence economic theory is necessary to understand
of sanitation-related illness in her village and and influence health care behaviour.
Table 5: Using Behavioural Principles for Sundar Bharat
Principle Applying the principle
1. Leverage • Giving individuals default flu shot appointment time can increase influenza
default rules vaccination rates.
• Providing smart insurance plan defaults can significantly simplify health insurance
choice.
2. Make it easy • Asking consumers the factors that are most important to them while choosing a
to choose health plan and restricting the plan to these factors can make choice easier and
thereby enhance take-up of health insurance.
• Minor behavioural alterations in school and college canteen menus (giving
interesting names to healthy options, putting them near the cash counter, making
the process of buying unhealthy options more time taking) can increase uptake of
nutritious food.
3. Emphasize • Adolescents often overestimate how much alcohol or drugs their peers take
social norms making heavier consumption to be perceived as a socially desirable behaviour.
Campaigns focusing on number of people who don’t drink or take drugs may be
more effective.
• Youth may be more responsive to a drug prevention program after the death of a
celebrity from drug overdose.
• Giving out messages in information campaigns such as “90 per cent of doctors
agree that vaccines are safe” can significantly reduce public concern about
childhood vaccine, establish the social norm that vaccinations are safe and enhance
vaccination.
• Presenting information on how many people in the neighbourhood have chosen
to take up the health insurance plan and the benefits it has offered to families with
similar disease in that area can increase enrolment rates.
4. Disclose • Disclosing to people about the realized benefits of hand-washing and, or family
outcomes planning practices experienced by other people in their community, can enable
them to take up these health practices.
5. Reinforce • Sending messages to patients that asked the patient to write down the day and time
repeatedly they planned to get their next vaccination can boost uptake of vaccines.
• Doctors asking patients coming to hospitals for a signed pledge or a verbal
commitment, preferably in the presence of someone the signee respects, called
“accountability partner” to take up Yoga and walks can encourage such healthy
lifestyle practices. A monthly appreciation (joint coupon rewards) for following
the pledge, after being certified by the “accountability partner”, can sustain such
behaviour.
• Many people suffering from critical diseases do not take their medicines regularly.
Use of simple text messages & pill bottles that light up if not opened at the right
time can increase drug adherence. Delivering an appreciation certificate at the end
of the month for following their prescription schedule can sustain adherence.
6. Leverage • People often find it difficult to achieve goals like weight loss or ceasing to smoke.
loss aversion People voluntarily made to post bonds (deposit contracts) or lottery tickets on a
website that will be returned to them if they achieve their goals, but are forfeited
otherwise, can help them achieve these difficult goals.
7. Make • Control of diarrhoea suffers from a flawed mental model: the perception that the
messages solution is to decrease the child’s fluid intake and to keep the child ‘dry’, implying
match mental less use of Oral Rehydration Solution. Information campaigns on adoption of ORS
models can overturn this flawed mental model.
• Message boards in public hospitals and medical advertisements on media must
emphasize gains from smoke cessation and breastfeeding to foster preventive
action. Similarly, messages for sexually transmitted diseases and breast cancer
must focus on the loss to deter and encourage early diagnosis respectively.
• The Mother’s Absolute Affection (MAA) Programme campaign leverages role
of influencers (the relationship between mother-in-law and the daughter-in-law)
and the idea of commitment devices (“Vaada” i.e., promise) to reinforce the idea
of breastfeeding the child within one hour of birth. Cultural tailoring of health
messages in this area can nudge them to adopt breastfeeding.
Think about the Subsidy it up. While this represents a good beginning,
2.26 “Give It Up” encouraged Above- the potential to expand this number remains
poverty line (APL) households to voluntarily large. It can be further observed that north
surrender their LPG subsidies – for every eastern states like Arunachal Pradesh,
household that “gave it up,” a BPL household Nagaland, Manipur and Mizoram have
would receive a gas connection. The lack higher rate of subsidy surrender as compared
of economic incentives in this programme to larger states availing much more subsidy.
means the campaign relies entirely on the Like BBBP and SBM, “Give It Up” also
better judgment of people to voluntarily give relies on a change in behaviour. In fact, Give
up their subsidies. It Up’s task is less arduous than BBBP and
2.27 As Figure 13 shows, while the “Give It SBM – while the latter programmes require
Up” campaign heralded a significant change in continuous effort to dislodge mind-sets
the form of voluntary giving up of subsidies, that have prevailed for decades, “Give It
the overall response to the campaign could be Up” requires only a one-time action that is
improved from the one crore who have given inconsequential to most affluent households.
Figure 13: State-wise percentage of APL Consumers who surrendered LPG Subsidy
WB MH UP
2% 6% 4%
TN
3%
KL
4% KA NG
5% 14%
TG
4%
JH
GJ 2%
5%
RJ AP AR OR
5% 2% 10% 2%
CG
3%
BR
3% PB
5%
MZ MP MN
16% 3% 10%
Source: Data from Ministry of Petroleum & Natural Gas

2.28 Behavioural economics tells us that others act. Information campaigns do not,
even if people are truly interested in giving however, adequately emphasize what the
up their subsidies; their actions may differ (metaphorical) neighbours are doing. The
from their intent as they need to be moved Give It Up website has a “scroll of honour” to
to action with a gentle nudge. A good choice felicitate participants, but this feature relies
architecture can aid in closing this gap on people to go looking for the social norm,
between intention and action. For campaigns instead of actively advertising the social
like Give It Up, the default choice matters norm. A click on the “scroll of honour” makes
immensely. People have a strong tendency the user choose between three gas companies,
to go with the status quo. Many governments as the lists are maintained on these companies’
have leveraged this insight to change the websites. To find a name on these long lists,
default option and thereby increase efficacy one needs to enter one’s consumer number.
of their programmes. “Give It Up” needs to Since no one is likely to know anyone else’s
employ this insight. Given their inertia, of consumer number, people cannot find their
the nineteen crore people who did not give friends, relatives or neighbours.
up their subsidy, many may have intended
to give up their subsidy but have simply not 2.31 People act positively when they see
been nudged to action. others act positively, and particularly when
they can relate to such individuals. In fact,
2.29 Give It Up, however, incorporates people can relate to others through even
other behavioural insights. It is easy and seemingly innocuous traits such as a shared
nearly effortless to give up one’s subsidy – an geographical locality. The “scroll of honour”
intuitive online interface ensures the process does not leverage this crucial insight, as people
takes only a few minutes. This is essential simply cannot find others they may know or
because every additional minute that it takes can relate to. Maintaining a centralized list
to give up the subsidy increases the chances of names (independent of the gas company)
that one will drop out in the middle of the and displaying the photographs of other
process. participants in the same locality may increase
the efficacy of the “scroll of honour.” Table 6
2.30 The campaign also attempts to describes the applications of the behavioural
leverage the power of social norms, but with principles to implement the “Think about the
limited success. People act when they see Subsidy.”
Table 6: Using Behavioural Principles for “Think about the Subsidy”

1. Leverage For campaigns like Give It Up, the default choice matters immensely. People have a strong
default rules tendency to go with the status quo. The default option can be modified so that households above
a certain income threshold have to opt in to continue their subsidies with the default option being
“opt out” of the subsidy. It is critical to ensure that people find it extremely easy – through only a
text message, a phone-call or a few clicks – to opt in to continue their subsidy.
2. Make it easy For people who donate impulsively, reducing the friction between the moment when their intention
to choose to give up the subsidy appears and when they feel they can take action can make them more likely
to give up the subsidy. Prepopulating fields of subsidy giving up forms can make it more likely
that people will submit applications. Mobile phones and apps can also make impulsive giving up
easier.
3. Emphasize Making people feel good about giving up subsidies can help establish the correct social norm. To
social norms discourage the middle-class and the comparatively rich people from enrolling for subsidies like
kerosene, cooking gas etc., the government could, in its advertisements of the particular schemes,
state that the scheme is intended to help the poor who make X per cent of the population and who
earn less than R Y per month.
Advertisements could suggest that by not enrolling, the rich are becoming contributors to
eradication of extreme poverty from the country.
Social networks could support live “Give it Up” events where participation is acknowledged with
visual changes to people’s online profiles.
Creating quick outlets such as a simple phone app or physical kiosks for exercising our general
intentions of donating small amounts can build the overall social norm of being charitable.
Increasing visibility of donors can encourage giving up of subsidies, especially for people who
think and donate based on their alignment with the causes they choose to support. Highlighting
the noble act of giving in general using respected leaders in the world, and not just giving up a
subsidy could increase the visibility of a more deliberate approach to giving.
4. Disclose Displaying the names and photographs of people who give up subsidy on the website and while
outcomes filling the form can bolster the act of giving it up.
5. Reinforce Immediately and vividly showing givers the effect of them giving up the subsidy can make giving
repeatedly feel really good. Givers could view personal photos of the people benefitting from the subsidy or
a video with a beneficiary saying thank you.
During tax filing time, people could fill an extra field in the form about whether they would like
to give up their subsidy (a form of tax payment) for the cause of the nation. Givers could sign up
for personalized reminders to bring attention to their giving up objectives throughout the year.
6. Leverage Loss aversion can be used to explain why majority of LPG users have not given up their subsidy.
loss aversion This reinforces the policy of setting the subsidy schemes default to opt-out with a fairly easy
process to opt in.
Asking individuals to pledge a certain amount of subsidy when they feel most inspired, possibly
when watching a social movie in the theatre, with the payment coming later can encourage giving.
They can be prompted to set a giving goal in advance to track their progress.
7. Match Behavioural techniques can help achieve desirable outcomes from subsidy programmes and in
messages to turn reduce the effective costs of subsidy.
mental models Sometimes individuals do not take up vaccinations because they either forget the location of the
clinic or the time of appointment. Fiscal subsidies to make people take up vaccinations can be
made more cost effective if such set of individuals are reminded more frequently about the time
and locationor encouraged to make a concrete plan about when and where they will get their
vaccination.
Jan Dhan Yojana accounts but to enable access to credit,

2.32 While the Jan Dhan Yojana opened insurance, pension schemes and other
a large number of bank accounts in a short facilities offered by the formal banking
span of time, its success relies on people sector. Going forward, the programme offers
using these accounts regularly. The tremendous scope to employ behavioural
programme’s mandate is not only to open insights.
Table 7: Using Behavioural Principles to enhance impact of Jan DhanYojana

1. Leverage • Make auto enrolment into a savings plan the default while offering people the
default rules option to opt out.
2. Make it • Regulator must ensure that products for the poor do not confound with too many
easy to choose options. The Government’s Jeevan Jyoti Bima Yojana is an example of a straight
forward product that implements this option.
3. Emphasize • Information campaigns should highlight the number of people who use their bank
social norms accounts in the local village. Every person can be sent an SMS at the end of the
month about his/her transactions, those of others in his village, and his relative
standing in the village on this metric. This simple strategy can further the social
norm for use of Jan Dhan account.
4. Disclose • Holders of dormant accounts may be periodically reminded of the number of people
outcomes in their neighbourhood who actively use their accounts. To regular users, even a
simple SMS such as “You made three withdrawals this month – congratulations”
in the vernacular language, followed by a happy emoticon, may remind people of
the norm and sustain their usage of bank accounts.
5. Reinforce • Reminding people about the savings that they have done can in the past can help
repeatedly reinforce good behaviour. By simply asking people whether they plan to save next
month, the intention to save can be reinforced. Committing people to how much
they plan to save can also help reinforce the intention to save.
6. Leverage • A propitious time to get people to save more is when salary increases. At such
loss aversion times, people are less likely to consider increased savings as a loss than at other
times of year. This feature can be combined with default rules to automatically
increase enrolment into the savings while offering people the option to opt out of
such automatic increases.
7. Make • Money set aside for, say, education will unlikely be used for another purpose,
messages whereas ‘general’ money not earmarked for any purpose is spent much faster.
match mental People may be asked to choose their own names such as “home savings plan” or
models “education savings plan.” All outgoing communications from banks should stress
the chosen name to reinforce savings.
Improving Tax Compliance honourable.” A start has been made through

2.33 The great philosopher, Plato, the budget speech of February 2019, which
convincingly argued centuries ago: “What publicly and explicitly thanked tax payers,
is honoured in a country is cultivated there.” perhaps for the first time, thereby seeking to
Consider military service in India, which honour honest tax payers.
employs one of the largest group of armed 2.34 Across countries, research has
personnel in the world (over 14 lakhs). highlighted that tax evasion is driven
While the economic incentives offered to significantly by tax morale, viz., the intrinsic
army personnel are attractive, a large section motivation of taxpayers in a country to pay
joins the armed forces because serving in taxes. Tax morale itself is driven primarily by
the armed forces is considered honourable. two perceptive factors: (i) vertical fairness,
Similarly, in order to enhance tax compliance, i.e. what I pay in taxes is commensurate to
behavioural insights need to be employed to the benefits I receive as services from the
modify the social norm from “evading taxes Government; and (ii) horizontal fairness,
is acceptable” to “paying taxes honestly is i.e., differences in the taxes paid by various
sections of society. For instance, citizens Such information can propagate the
perceive vertical fairness to be low if they social norm that “paying taxes honestly is
find their tax payments being squandered in honourable.”
wasteful public expenditure or by corruption.
2.36 As people often indulge in conspicuous
Similarly, perceptions of horizontal fairness
consumption to convey their social status,
suffer when the employee class is forced to
top 10 highest tax payers within a district
contribute disproportionately to income taxes
can be highlighted and accorded due
while the class of self-employed gets away
recognition. This may take the form of
paying minimal taxes. Both perceptions
expedited boarding privileges at airports,
contribute to high tax evasion in a country.
fast-lane privileges on roads and toll booths,
2.35 To correct vertical unfairness that special “diplomatic” type lanes at immigration
can lead to tax evasion, the Government counters, etc. Further, the highest taxpayers
should utilise the behavioural insight that over a decade could be recognised by naming
people identify with their neighbourhood. important buildings, monuments, roads,
Signboards showing “tax money at work” trains, initiatives, schools and universities,
in constructions projects in a panchayat/ hospitals and airports in their name. The
district explicitly convey to citizens that their idea is to create exclusive membership of
tax money is used in valuable public goods, “clubs” that exude not only social status
thereby lowering perceptions of vertical but also honour. Such steps can also help
unfairness. Similarly, highlighting the tax propagate the social norm that “paying taxes
paid by other taxpayers, especially self- honestly is honourable.” Table 8 describes
employed individuals, in the panchayat/ the applications of the behavioural principles
district through SMS, billboards etc., can to enhance tax compliance.
correct perceptions of horizontal unfairness.
Table 8: Using Behavioural Principles to enhance tax compliance

1. Leverage Automatic deduction of tax and directing all or portion of refunds into savings accounts can be
default rules used to encourage savings, including retirement savings.
Sending messages to individuals suggesting that not declaring taxes is a deliberate and intentional
choice on their part can help them overcome status quo bias and improve compliance.
2. Make it Filing of tax forms even for zero payment of tax.
easy to choose Removing barriers to filing taxes- procrastination, hassle of filling forms, or failing to understand
the terms- can improve compliance.
Automated tax collection can make individuals pay less attention to tax collected (Salience
effects).
3. Emphasize Providing information about peer behaviour can make taxpayers adjust their reported income.
social norms Messages in the form of moral appeals to taxpayers regarding payment of taxes may have
limited effects.
Tax amnesties might reduce tax compliance if taxpayers perceive amnesties as unfair. Amnesties
can decrease the government’s credibility and the taxpayers’ intrinsic motivation to comply by
setting the incorrect social norm.
4. Disclose Public shaming of individuals who don’t pay taxes can reduce non-compliance if they are
outcomes reintegrated immediately. However, persistent public shaming can be detrimental for compliance
because of stigmatisation effects.
If cheaters feel that the probability of their detection has increased, voluntary disclosure
programs for tax payments can increase tax evasion incidence as these programs may offer the
possibility to avoid strict punishments.
5. Reinforce Repeatedly sending fairness driven and normative messages added to standard reminder letters
repeatedly that referred to the facts that (a) most people in your local community pay their taxes on time
and (b) the person concerned was in the very small minority who had not yet done so can help
reduce late tax payments.
6. Leverage Tax withholding followed by refunds at the time of tax filing may increase tax compliance
loss aversion and total taxes paid. Taxpayers are more concerned about tax deduction claims when they owe
additional tax (loss) at the time of filing than when they expect a refund (gain).
Framing tax cuts: tax cuts presented as a bonus (gain) are more likely to be spent than tax cuts
presented as a rebate (loss).
7. Match Reminding tax payers that public goods can only be provided in return for tax compliance
messages to (reciprocity appeal) can boost tax morale.
mental models
Box 5:Tax evasion, wilful default, and the Doctrine of Pious Obligation
In Hinduism, non-payment of debts is a sin and also a crime. The scriptures ordain that if a person’s
debts are not paid and he dies in a state of indebtedness, his soul may have to face evil consequences.
Therefore, it is the duty of his children to save him from such evil consequences. This duty or obligation
of a child to repay the debts of the deceased parent is rested upon a special doctrine, known as “The
Doctrine of Pious Obligation”.
Under Islam, Prophet Muhammad advocated – “Allaahummainnia’oodhibika min al-ma’thamwa’l-

maghram (O Allaah, I seek refuge with You from sin and heavy debt).” A person cannot enter Paradise
until his debt was paid off. All of his wealth could be used to pay the debt and if it is insufficient then
one or more heirs of the deceased could voluntarily pay for him.
The Bible says, “Let no debt remain outstanding except the continuing debt to love one another -
Romans 13:8” and “The wicked borrows and does not repay, but the righteous shows mercy and gives
-Psalm 37:21.”
Thus, the repayment of debt in one’s own life is prescribed as necessary by scriptures across religions.
Given the importance of religion in the Indian culture,the principles of behavioural economics need
to be combined with this “spiritual/religious norm” to reduce tax evasion and wilful default in the
country.
IMPLEMENTING THE the Subsidy”, and from tax evasion to tax

ASPIRATIONAL AGENDA FOR compliance. The possibilities, however,
BEHAVIOURAL CHANGE to employ the principles of behavioural
economics to policymaking, especially
2.37 The previous section outlines an in India where social norms so crucially
ambitious agenda for behavioural change, influence behaviour are enormous. To avail
from BBBP to BADLAV, from Swachh these benefits, the following measures are
Bharat to Swasth Bharat, from “Give It suggested for implementation.
Up” for the LPG subsidy to “Think about
2.38 First, the proposal to set up a behavioural can significantly enhance the efficacy of
economics unit in the Niti Aayog must be the program. A simple application of this
immediately activated. Care, however, must approach is in the Government communication
be taken in setting up the unit as applying the that goes to citizens. For example, recent
principles of behavioural economics seems experience of the Department of Revenue
innocuously and misleadingly simple; after showed that perceptions of “tax terrorism”
all, everyone can claim to be an expert in often had more to do with the language
understanding human behaviour. However, employed in the communication than any
as research in behavioural economics Government action in reality. Therefore,
itself clearly highlights, there is a world of by the mere act of altering the language, it
difference between anecdotes and averages. may be possible to change the relationship
While insights gathered from careful research between the Department and the taxpayer
rely on averages, everyday experience is from adversarial to collaborative.
often driven by anecdotes. As anecdotes
are more likely to represent outliers than 2.40 Third, as several programs are
averages, behavioural policymaking driven administered by state governments, the
by anecdotal evidence can create more behavioural economics team can work with
damage than good. Therefore, the temptation various state governments not only to inform
to appoint those who are not experts in this them about the potential benefits but also help
area must be avoided. them to improve the efficacy of the programs.
2.39 Second, every program must go through 2.41 While social norms impact behaviour
a “behavioural economics” audit before its significantly in India, the power to employ
implementation. This audit may adhere to the behavioural change to alter these norms has
principles of behavioural economics outlined not been adequately tapped. Implementing
above to conduct its audit. Such an audit the agenda in this chapter would be a valuable
and the modifications undertaken, therein, step in this direction.
CHAPTER AT A GLANCE
 Decisions made by real people often deviate from the impractical robots theorized in
classical economics
 Drawing on the psychology of human behaviour, behavioural economics provides

insights to ‘nudge’ people towards desirable behaviour.
 The key principles of behavioural economics are ‘emphasising the beneficial social
norm’, ‘changing the default option’ and ‘repeated reinforcements’.
 Swachh Bharat Mission (SBM) and the Beti Bachao Beti Padhao (BBBP) have
successfully employed behavioural insights.
 Insights from behavioural economics can be strategically utilised to create an aspirational

agenda for social change: (i) from BBBP to BADLAV (Beti Aapki Dhan Lakshmi Aur
Vijay Lakshmi); (ii) from Swachh Bharat to Sundar Bharat; (iii) from “Give It Up” for the
LPG subsidy to “Think about the Subsidy”; and (iv) from tax evasion to tax compliance.
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327(5970): 1204-5. Mind: How Reminders Increase Savings.”
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Ashraf, Nava, Karlan Dean, and Wesley Yin. Bureau of Economic Research. https://www.
2006. "Tying Odysseus to the Mast: Evidence nber.org/papers/w16205.pdf.
From a Commitment Savings Product in
the Philippines." The Quarterly Journal of Matjasko, Jennifer L., John H. Cawley,
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2016. "Applying Behavioral Economics to
Baumeister, Roy F., Ellen Bratslavsky, Catrin Public Health Policy: Illustrative Examples
Finkenauer, and Kathleen D. Vohs. 2001. and Promising Directions." American Journal
"Bad is Stronger than Good." Review of of Preventive Medicine 50 (5): S13-S19.
General Psychology 5 (4): 323-370.
Nguyen, Trang. 2008. “Information,
Behavioral Insights Team, Cabinet Office. Role Models and Perceived Returns to
2012. Applying behavioural insights to reduce Education: Experimental Evidence from
fraud, error and debt. London: Cabinet Office Madagascar,” MIT Working Paper. https://
Behavioural Insights Team. www.povertyactionlab.org/sites/default/files/
Beshears, J., James Choi, David Laibson, and documents/Nguyen%202008.pdf.
Brigitte C. Madrian. 2005. "Early Decisions: Samson, Alain. 2014. "A simple change that
A Regulatory Framework." Swedish could help everyone drink less." Psychology
Economic Policy Review 12 (2): 41-60. Today.
Desmond, Chris, Kathryn A. Brubaker, Smith, Adam. 1759. The theory of moral
and Andrew L. Ellner. 2013. "Decision- sentiments. London: Printed for A. Millar,
making strategies: ignored to the detriment and A. Kincaid and J. Bell.
of healthcare training and delivery?" Health
psychology and behavioral medicine 1(1): Thaler, Richard H. 2000. "From Homo
59-70. Economicus to Homo Sapiens." Journal of
Economic Perspectives 14 (1): 133-141.
Datta S., and S. Mullainathan. 2014.
"Behavioral Design: A New Approach to Thaler, Richard H, and C. R. Sunstein. 2008.
Development Policy". Review of Income and Nudge: Improving decisions about health,
Wealth Series 60 (1): 7-35. wealth, and happiness. New Haven, CT: Yale
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Dolan, P., M. Hallsworth, D. Halpern, Dominic
King and I. Vlaev. 2010. "MINDSPACE: Tversky, A. and D. Kahneman. 1974.
Influencing behvaiour through public “Judgment under Uncertainty: Heuristics and
policy". Discussion Document. UK Cabinet Biases”, Science, New Series, 185 (4157):
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org.uk/sites/default/files/publications/
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MINDSPACE.pdf.
Behavior. World Development Report 2015.
Ferraro, P., and M. Price. 2013. "Using Washington, DC: World Bank. http://www.
Non-Pecuniary Strategies to Influence worldbank.org/content/dam/Worldbank/
Behaviour: Evidence from Large Scale Field Publications/WDR/WDR%202015/WDR-
Experiment." The Review of Economics and 2015-Full-Report.pdf.
Nourishing Dwarfs to become Giants:
Reorienting policies for MSME Growth1
03
CHAPTER
¬ iw.kZen% iw.kZfene~&iw.kkZr~ iw.kZeqnp~&;rsA

From the complete, the complete is born.
From a seed, a mature tree is born.
MSMEs that grow not only create greater profits for their promoters but also
contribute to job creation and productivity in the economy. Our policies must,
therefore, focus on enabling MSMEs to grow by unshackling them. Job creation
in India, however, suffers from policies that foster dwarfs, i.e. small firms that
never grow, instead of infant firms that have the potential to grow and become
giants rapidly. While dwarfs, i.e., firms with less than 100 workers despite being
more than ten years old, account for more than half of all organized firms in
manufacturing by number, their contribution to employment is only 14 per cent
and to productivity is a mere 8 per cent. In contrast, large firms (more than 100
employees) account for three-quarters of such employment and close to 90 per
cent of productivity despite accounting for about 15 per cent by number. The
perception of small firms being significant job creators pervades because job
destruction by small firms is ignored in this calculus: small firms find it difficult
to sustain the jobs they create. In contrast, large firms create permanent jobs in
larger numbers. Also, young firms create more jobs at an increasing rate than
older firms. Size-based incentives that are provided irrespective of firm age and
inflexible labour regulation, which contain size-based limitations, contribute to
this predicament. To unshackle MSMEs and thereby enable them to grow, all size-
based incentives must have a sunset clause of less than ten years with necessary
grand-fathering. Deregulating labour law restrictions can create significantly
more jobs, as seen by the recent changes in Rajasthan when compared to the rest
of the states.
INTRODUCTION form of financial and social inclusion to not

only the individual but also his/her entire
3.1 Job creation in large numbers remains family. Chapter 7 in this volume of the Survey
an urgent imperative to provide financial and predicts that the working-age population will
social inclusion for our young population. grow by roughly 97 lakh per year during the
After all, a well-paying job provides the best coming decade and 42 lakh per year in the
___________
1
Disclaimer: In this chapter, the term “dwarfs” for firms that remain small despite being old is contrasted to “infants” for
firms that are small because they are young. This usage is purely for firms and has no correlation with such usage for
individuals and is therefore not intended to harm any sensibilities, whatsoever.
58 Economic Survey 2018-19 Volume I
2030s. If we assume that the labour force context. Firms that are both small and older
participation rate (LFPR) would remain at than ten years are categorized as dwarfs as
about 60 per cent in the next two decades, these firms have continued to be stunted in
about 55-60 lakh jobs will have to be created their growth despite surviving for more than
annually over the next decade. In this context, 10 years.2
this chapter examines how policies followed
3.3 Figures 1(a) to (c) show the share of
over the last seven decades stifle the growth
dwarfs in the number of firms, the share in
of Micro, Small & Medium Enterprises
employment and their share in Net Value
(MSMEs) in the economy. MSMEs that
Added (NVA). This analysis has been
grow not only create greater profits for their
conducted using firm-level data from the
promoters but also contribute to job creation
Annual Survey of Industries (ASI) for the
and productivity in the economy. Our policies
year 2016-17, which is the latest available.
must, therefore, focus on enabling MSMEs
While dwarfs account for half of all the firms
to grow by unshackling them. The chapter
in organized manufacturing by number, their
then lays out the policy map for re-orienting
share in employment is only 14.1 per cent.
the policy stance to foster the growth of
In fact, their share in NVA is a miniscule
MSMEs and thereby greater job creation and
7.6 per cent despite them dominating half
productivity in the economy.
the economic landscape. In contrast, young,
THE BANE OF DWARFISM AND large firms (firms that have more than 100
ITS IMPACT ON JOBS AND employees and are not more than 10 years
PRODUCTIVITY old) account for only 5.5 per cent of firms
by number but contribute 21.2 per cent of
Domination of ‘Dwarfs’ in number the employment and 37.2 per cent of the
3.2 A startling fact is how the bane of dwarfs, NVA. Large, but old, firms (firms that have
which are defined as small firms that never more than 100 employees and are more
grow beyond their small size, dominates the than 10 years old) account for only 10.2
Indian economy and holds back job creation per cent of firms by number but contribute
and productivity. For the purposes of the half of the employment as well as the NVA.
analysis in this section, firms employing less Thus, firms that are able to grow over
than 100 workers are categorized as small time to become large are the biggest
and firms employing 100 or more workers as contributors to employment and productivity
relatively large. Though a firm employing 100 in the economy. In contrast, dwarfs that
workers is definitely not large in the global remain small despite becoming older remain
context, as we show below, firms employing the lowest contributors to employment and
100 workers are relatively large in the Indian productivity in the economy.
____________
2
Disclaimer: In this chapter, the term “dwarfs” for firms that remain small despite being old is contrasted to “infants” for firms
that are small because they are young. This usage is purely for firms and has no correlation with such usage for individuals
and is therefore not intended to harm any sensibilities, whatsoever.
Nourishing Dwarfs to become Giants: Reorienting policies for MSME Growth 59
Figure 1(a). Share of dwarfs versus others Figure 1 (b). Share of dwarfs versus
in number of firms (as of 2016-17) others in employment (as of 2016-17)
55.8
60.0
46.1
50.0
50.0
Share in workers
40.0
40.0
26.2
30.0 30.0 21.2
20.0 20.0
10.2 7.9
10.0 4.7
7.3 5.5 10.0 4.9 3.9 6.2
0.0 0.0
Firm Size (Number of Employees) Firm size (Number of Employees)
Share of Young firms Share of Old firms Share of young firms Share of old firms
Source: ASI Firm level data Source: ASI Firm level data
Figure 1(c). Share of dwarfs versus others in Net Value Added (as of 2016-17)
60.0 51.3
50.0
37.2
Share in NVA
40.0
30.0
20.0
5.6
10.0 1.3 2.7 2.0
0.0
0 to 49 50 to 99 Above 99
Firm Size( Number of Employees)
Share of Young firms Share of Old firms

Source: ASI Firm level data
3.4 When examined purely according to definitely dominate the economic landscape
size, we note that the proportion of small in India. Crucially, however, small firms
firms in organized manufacturing is around accounted for only 23 per cent of the total
85 per cent. In contrast, large firms account employment in organized manufacturing in
for only around 15 per cent of all the firms in 2016-17 while the large firms accounted for
organized manufacturing. These proportions over 77 per cent of the total employment.
have not changed much over time as seen These proportions remain similar to those in
in 2010-11 (Figure 2 (a)). Thus, small firms 2010-11 (Figure 2(b)). Even more tellingly,
the share of small firms in Net Value Added dominate the most numerically but create the
(NVA) from organized manufacturing was least jobs and remain the most unproductive.
only 11.5 per cent whereas the share of large Thus, the contribution of small firms to output
firms in NVA was 88.5 per cent in 2016-17; and employment in the manufacturing sector
these proportions are not different in 2010-11 is insignificant though they account for close
either (Figure 2(c)). Even among the small to 85 per cent of all firms.
firms, firms with less than 50 employees
Figure 2(a). Distribution of number of Figure 2(b). Distribution of employment

factories by firm size across firms by firm size
77.1
80 72
80 71.9 72.3
70
70
Share in workers
60
60
50
50
40 40
30 30 16.8
12.1 12.0
16 15.7 20 12.8 11.2 10.1
20
10 10
0 0
Firm Size (Number of Employees) Firm Size(Number of Employees)
2010-11 2016-17 2010-11 2016-17

Figure 2(c). Distribution of NVA Share by firm size
100 84 88.5
80
Share in NVA
60
40
20 8.6 6.9 7.4 4.6

0
0 to 49 50 to 99 Above 99
Firm Size (Number of Employees)
2010-11 2016-17
3.5 The above findings dispel the levels of net job creation (Li and Rama, 2015).
common notion that small firms generate the This common perception also stems from
most employment. Small firms may generate the fact that the effect of size confounds the
a higher number of new jobs. However, they effect of age. Specifically, most young firms
destroy as many jobs as well. Thus, higher are small (though most small firms are not
levels of job creation in small firms co-exist young, at least in the Indian context). Absent
with job destruction, thereby leading to lower careful distinction between the effect of age
versus that of size, the notion that small firms than 10 years of age account for about 30 per
create jobs has prevailed because it is the cent of employment and about half the NVA.
young firms, who also happen to be small, In fact, we crucially note that the share in
create the most jobs. To establish this fact, employment as well the share in NVA trend
the proportion of firms, share of employment downwards with an increase in firm age.
and share of NVA by age has been examined. This is despite the fact that young firms are
on average smaller than older firms. Thus,
Effect of Size compared to Effect of age young firms account for a disproportionate
3.6 As compared to the small firms, it is share of employment and productivity
the young firms that contribute significantly (Figure 3).
to employment and value added. Firms less
Figure 3(a). Proportion of firms by firm Figure 3(b). Employment share by firm
age age
25.0 20.0 18.7
20.8
15.8
20.0
17.0 15.0 13.0
15.6
15.0 14.0 11.4 10.7
Share in workers
10.4 10.0 7.6

10.0 6.6
6.7
5.3 4.1
5.0 3.1 2.2 5.0 3.4 3.7
1.4 1.0 0.8 1.7 1.7 1.9 1.6
0.0 0.0
-5.0
-5.0
Firm Age Firm Age

Figure 3(c). NVA share by firm age

30.0
24.0
25.0
19.3
20.0 16.4
Share in NVA
15.0
9.3
10.0 7.0
5.4 4.5
5.0 3.6 3.0
2.2 1.3 1.9 2.2
0.0
-5.0
Firm Age
Cross-Sectional Comparison the employment when the enterprise is newly

set up. In contrast, the average employment
3.7 What is the impact of the above size level for 40-year old firms in India was only
distribution of firms on jobs and productivity? 40 per cent greater than the employment when
Figure 4 compares growth of employment the enterprise is newly set up. Thus, once
and productivity with firm age in three they survive for forty years, the average 40-
countries: U.S., Mexico and India (Hseih year old firm in the U.S. generates five times
and Klenow, 2014). The comparison is (=7/1.4) as much more employment than
done using both organized and unorganized the average 40-year old Indian firm. Even
manufacturing firms. For India, the data Mexico does far better on this dimension
include both from the ASI and the surveys than India. The average employment level
of unorganized manufacturing organized by for 40-year old firms in Mexico is double
the National Sample Survey Organization that of the employment when the enterprise
(NSSO). The left and the right panels use the is newly set up. Thus, once they survive for
size and productivity as of age five or younger forty years, the average 40-year old firm in
as the base for comparison. The average Mexico generates 40 per cent more (=2/1.4)
employment level for 40-year old enterprises employment than the average 40-year old
in the U.S. was more than seven times that of
Indian firm.
Figure 4(a). Change in employment with firm Figure 4(b). Change in productivity with firm
age age
8
4
Average Productivity
Average Employment
4
2
0 0
<5
5--9
10--14
15-19
20-24
25-29
30-34
>=35
<5
5--9
10--14
15-19
20-24
25-29
30-34
35-39
>=40
Age Age
India US Mexico India US Mexico

Source: Hseih and Klenow (2014)
3.8 A similar tale unfolds with productivity up. Thus, once they survive for forty years,
as well when we compare these three countries the average 40-year old firm in the U.S. is
for the effect of aging of firms on productivity. 2.5 times (=4/1.6) more productive than the
The average productivity level for 40-year average 40-year old Indian firm. Mexico does
old enterprises in the U.S. was more than four far better than India on this dimension as
times that of the productivity of an enterprise well. The average productivity level for 40-
that is newly set up. In contrast, the average year old firms in Mexico is 1.7 times that of
productivity level for 40-year old firms in the productivity of an enterprise that is newly
India was only 60 per cent greater than the set up.
productivity of an enterprise that is newly set
3.9 Thus, the comparison with other The lack of productivity and growth inhibits
countries highlights that both employment the ability of the dwarfs to create jobs.
creation and productivity do not grow
adequately as firms age in India. Impact of Labour Regulation
3.12 India has a plethora of labour laws,
THE ROLE OF POLICY IN regulations and rules, both at the centre and
FOSTERING DWARFISM the state levels that govern the employer-
3.10 In this section, we highlight that our employee relationship. Each of these
policies – across the board – protect and legislations exempts smaller firms from
foster dwarfs rather than infants. The key complying with these legislations. Table 1
distinction here is that while infant firms are shows the size thresholds applicable to each
small and young, dwarfs are small but old. piece of labour regulation. For instance, the
Thus, while infant firms can grow to become Industrial Disputes Act (IDA), 1947 (Chapter
large firms that are not only more productive VB) mandates companies to get permission
and generate significant employment, dwarfs from the Government before retrenchment
remain small and contribute neither to of employees. This restriction is, however,
productivity nor to jobs. applicable only to firms with more than 100
employees. Thus, firms with less than 100
3.11 As we show below, these policies create employees are exempt from the need to get
a “perverse” incentive for firms to remain permission from the Government before
small. If the firms grow beyond the thresholds retrenching their employees. Given the
that these policies employ, then they will be transaction costs inherent in complying with
unable to obtain the said benefits. Therefore, such regulations, naturally a large majority of
rather than grow the firm beyond the said firms would prefer to be below the threshold of
threshold, entrepreneurs find it optimal to start 100 employees. Thus, such labour legislation
a new firm to continue availing these benefits. creates perverse incentives for firms to
As economies of scale stem primarily from remain small. In this sense, labour legislation
firm size, these firms are unable to enjoy such complements other benefits provided to small
benefits and therefore remain unproductive. firms in providing such perverse incentives.
Table 1. Size based Limitations posed by Key Labour Legislations

S.No. Labour Acts Applicability to Establishments
1 Industrial Disputes Act,1947, Chapter V relating to Employing 100 or more workers
strikes, lockouts, retrenchment, layoff
2 Trade Union Act, 2001-Registration of trade Membership of 10 per cent or 100
unions workmen whichever is less
3 Industrial Employment (Standing Orders) Act, 100 or more workmen
1946
4 Factories Act,1948 10 or more workers with power and 20 or
more workers without power
5 Contract Labour (Regulation & Abolition) Act, 20 or more workers engaged as contract
1970 labour
6 The Minimum Wages Act, 1948 Employment in the schedule having more
than 1000 workers in the State
7 Employees’ State Insurance Act,1948 - ESI 10 or more workers and employees
Scheme monthly wage does not exceed `21000
8 Employees’ Provident Fund & Miscellaneous 20 or more workers
Provisions Act, 1952
Source: Compiled from Ministry of Labour and Employment
Comparing productivity indicators in Answers were then scored as “1” if they

“inflexible” versus “flexible” states reduced transaction costs, “0” if they did
not, and (for two questions) “2” for a further
3.13 To examine the impact of labour reduction, with a maximum score of 50.
regulations, states are classified as flexible This index has been updated by covering
and inflexible based on the restrictiveness the labour reforms initiated by the States till
of their labour regulations. For this purpose, 2013-14.
we build on the state-level survey that
was conducted by OECD in 2007.3 This 3.14 No major labour reforms were initiated
survey covered eight major labour related by the states from 2007 to 2014. In 2014,
legislations and indicators: IDA, 1947, Rajasthan was the first State that introduced
Factories Act, 1948, State Shops and labour reforms in the major Acts. Thereafter
Commercial Establishments Acts (State Act), many States followed on the path of Rajasthan.
Contract Labour (Regulation & Abolition) The year 2014 is, therefore, fixed as the cut off
Act, 1970, the role of inspectors, the year to classify and rank States as Flexible and
maintenance of registers, the filing of returns Inflexible. Flexible states include those states
and union representation. 21 States were that score 20 or more out of a maximum score
surveyed and the responses were compiled of 50, i.e., states that have reduced transaction
by the OECD into an index that reflects the costs by at least 40 per cent. Other states are
extent to which procedural changes have denoted as Inflexible. Figure 5 shows that
reduced transaction costs by limiting the Assam, Jharkhand, Kerala, Bihar, Goa,
scope of regulations, providing greater Chhattisgarh and West Bengal are classified
clarity in the application of regulations, as inflexible states while the other 14 states
or simplifying compliance procedures. are classified as flexible.
Figure 5. Classification of States as Flexible & Inflexible based on labour restrictions
Overall Score
30
27
24 Index High: Flexible States
21
18
15 Index Low: Inflexible States
12
WB
AP/ TL
Pub
MP
MH
Kerala
Ch'garh
Raj
K'tka
TN
Assam
Guj
Del
UP
H'yana
HP
Odisha
U'khand
Goa
J'khand
Bihar
Source: OECD Economic Survey, 2007 updated with Survey calculations.
3.15 A comparison between the indicators Flexible States makes it amply clear that
for labour, capital and productivity of flexibility in labour laws creates a more
manufacturing firms in the Inflexible and conducive environment for growth of industry
___________
3
OECD Economic Surveys: India. Volume 2007, Issue no. 14.
and employment generation. The comparison Flexible states than in the Inflexible states.
of various indicators between Inflexible and Moreover, the linear trend lines in each case
Flexible States using ASI data is displayed in indicate that the number of workers, capital
Figure 6. and NVA are increasing at a faster pace in
Flexible States than in the Inflexible states.
3.16 The Flexible States contribute
disproportionately more, on average, to labour, 3.17 Moreover, due to rigidity in the labour
capital and productivity when compared to laws, employers in Inflexible States prefer
the Inflexible States. The aggregate number substituting labour with capital. This can be
of workers, capital and NVA are significantly seen from (a) negative rate of growth in total
higher on average in the Flexible States than number of workers in the state and average
in the Inflexible States. The average number number of workers per factory, and (b)
of workers per factory, capital per factory positive rate of growth in total fixed capital in
and wages per factory are also higher in the the state and average fixed capital per factory.
Figure 6. Comparison between Inflexible vs. Flexible States

(a) Total Number of Workers in the State* (b) Total Fixed Capital in the State*
8 Inflexible Flexible Inflexible Flexible

200
7
Total fixed capital (₹ '000 crore)
Total No. of workers (lakh)
160
6
5 120
4
80
3
40
2
1 0
2010-11
2011-12
2012-13
2013-14
2014-15
2015-16
2016-17
2010-11
2011-12
2012-13
2013-14
2014-15
2015-16
2016-17
(c) Total NVA in the State* (d) Average Number of Workers per Factory
75 Inflexible Flexible 70 Inflexible Flexible

Average No. of workers per factory
65
Total NVA (₹ '000 crore)
60
60
45
55
30
50
15 45
0 40
2010-11
2011-12
2012-13
2013-14
2014-15
2015-16
2016-17
2010-11
2011-12
2012-13
2013-14
2014-15
2015-16
2016-17
(e) Average Wages per Factory (f) Average Fixed Capital per Factory
105 Inflexible Flexible
Inflexible Flexible 24
Av fixed capital per factory (₹ crore)

Av. wage per factory (₹ lakh)
95
22
85 20
75 18
16
65
14
55
12
45 10
2010-11
2011-12
2012-13
2013-14
2014-15
2015-16
2016-17
2010-11
2011-12
2012-13
2013-14
2014-15
2015-16
2016-17
Source: ASI data (2011-17).
* shows mean values per state per year
3.18 Thus, the evidence comparing the or Gujarat, are 25.4 per cent more productive
Flexible states to the Inflexible states with than their counterparts in states like West
respect to the rigidity of their labour laws Bengal or Chhattisgarh that continue to
clearly shows that the inflexible states are have labour rigidities (Dougherty, Frisancho
suffering in all dimensions. They are unable and Krishna, 2014). In this context, the
to create enough employment, cannot attract case study of Rajasthan is examined, which
adequate capital into their states and their implemented labour reforms in 2014-15. The
wages are lower as their productivity is factory level data from ASI from 2011 to
lower. Furthermore, these parameters are 2017 is analyzed to see the effect of the said
either deteriorating or growing at a slower labour law amendments.
pace in the Inflexible states when compared
to the Flexible states. 3.20 As described in Table 2, the major
reforms undertaken by the State of Rajasthan
Impact of the labour law change in included the amendments in IDA, 1947,
Rajasthan Factories Act, 1948, The Contract Labour
(Regulation & Abolition) Act, 1970 and the
3.19 Studies have found that on average, Apprentices Act, 1961. The summary of the
plants in labour-intensive industries and major amendments made in these legislations
in states that have transited towards more to make the labour market more flexible are
flexible labour markets, such as Uttar Pradesh stated in Table 2.
Table 2. Summary of labour reforms in Rajasthan
Labour Acts Amendments introduced in Rajasthan as part of Labour Reforms

Industrial Disputes Act, • To form any union, requirement of membership as a proportion of
1947 total workmen increased from 15 per cent to 30 per cent.
• No government nod required for companies employing up to 300
workers for retrenching, laying off or shutting down units. Earlier
limit was 100 workers.
• A worker should raise an objection within three years. There was
no timeline set in the earlier version with regard to discharge or
termination.
Factories Act, 1948 • Threshold limit increased from 10 or more workers with power to 20
or more workers with power.
• 20 or more workers without power to 40 or more workers without
power.
• Complaints against the employer about violation of this Act would
not receive cognizance by a court without prior written permission
from the State government.
The Contract Labour • Applicable to establishments that employ 50 or more workers on
(Regulation and contract against the earlier 20 or more workers.
Abolition) Act, 1970
Apprentices Act, 1961 • Fix the number of apprentice-training related seats in industry and
establishments.
• The stipend for apprentices will be no less than the minimum wage.
• To encourage skilling, government to bear part of costs of
apprentice training.
Source: Ministry of Labour & Employment and Survey compilation
3.21 The effect of the amendments in labour of India. However, following the law change,
laws in Rajasthan on various outcomes are the number of firms with 100 employees
evaluated in Figures 7 and 8 using data from or more have increased at a significantly
ASI. Figure 7 shows the time-series of the higher rate in Rajasthan than in the Rest of
average number of factories having more than India. This figure illustrates in essence the
100 employees for Rajasthan and the Rest of
difference-in-difference that is estimated: the
India1. The measure for the Rest of India4
before-after difference for Rajasthan vis-à-
is averaged over all the states. As the law
changes occurred in 2014-15, we examine vis the same estimate for the Rest of India.
this variable from two years before to two As the law change that Rajasthan effected
years after the law change. In 2014-15, the did not occur for the Rest of India, Figure 7
average number of firms with 100 employees clearly shows that the law change increased
or more are similar for Rajasthan and the Rest the number of larger firms.
Figure 7. Average number of factories employing at least 100
workers in Rajasthan and Rest of India
Rajasthan Rest of India
1,130 1,680
1,080 1,630
1,580
1,030
1,530
980
1,480
930
1,430
880 1,380
830 1,330
2013 2014 2015 2016 2017
Source: Survey Computations using ASI, 2013-2017.

_____________
Note: Averages are computed for Rajasthan and for the Rest of India (RoI) separately.
4
Rest of India includes 20 biggest states of India namely, Assam, Bihar, Chhattisgarh, Delhi, Goa, Gujarat, Haryana, Himachal
Pradesh, Jharkhand, Karnataka, Kerala, Madhya Pradesh, Maharashtra, Odisha, Punjab, Andhra Pradesh &Telangana, Tamil
Nadu, Uttarakhand, Uttar Pradesh, and West Bengal. These states cumulatively constitute over 95 per cent to Net Value
Added.
3.22 Figure 8 shows explicitly the change Rajasthan has increased significantly vis-à-
in Compound Annual Growth Rates (CAGR) vis the Rest of India. Table 3 shows the results
two years before and two years after the of estimating this difference-in-difference in
law change. We compare the number of a panel data setup including tighter controls
operating factories employing more than for various confounding factors. The results
100 employees in the state, average number remain unchanged from those seen in
of workers per factory in a state, total output Figure 8. Thus, overall the evidence clearly
in the state and total output per factory in demonstrates that each of these outcomes
the state. It can be clearly seen that, for all was positively impacted by the labour law
variables, CAGR post labour reforms in change in Rajasthan.
Figure 8. Impact of Deregulation of Labour market in Rajasthan

(as reflected in CAGR of the variables)
a) Number of factories with >100 employees (b) Total output
Before Reform After Reform Before Reform After Reform

9.33%
12%
5.52%
4.56% 5.71%
4.80%
3.65%
3.13%
Rajasthan Rest of India Rajasthan Rest of India
(c) Number of workers per factory (d) Total output per factory
Before Reform After Reform Before Reform After Reform

11.18% 11.24%
4.17%
2.14% 2.60%
6.71%
Rajasthan Rest of India
1.43%
-8.89% Rajasthan Rest of India
Source: Survey Computations using ASI, 2011-2017.

Note: Averages are computed for Rajasthan and for the Rest of India separately.
Table 3. Difference-in-Difference estimates of Labour Law Amendments in Rajasthan
Variables Log (No of Log Log (No of Log Log (Total Log Log
Factories (No. of Workers (Total Output per (Total (Wages
with >100 Workers) per Output) Factory) Wages) per
employees) Factory) Factory)
Difference-
in-difference 0.04*** 0.02** 0.05*** 0.04*** 0.05*** 0.04*** 0.05***
estimate
(0.01) (0.01) (0.01) (0.01) (0.01) (0.01) (0.01)
Observations 146 146 146 146 146 146 146
R-squared 0.9924 0.9957 0.9605 0.9933 0.9735 0.9921 0.9655
State FE Yes Yes Yes Yes Yes Yes Yes
Year FE Yes Yes Yes Yes Yes Yes Yes
Source: Computations based on ASI data.
Robust standard errors in parentheses
Note: *** and ** denote statistically significant at 99 and 95 per cent level of significance.
Impact of Small Scale Reservation reach an investment upper limit quantified in

terms of investment in plant & machinery.
3.23 The policies targeted at the small firms As Table 4 shows, all these policies promote
referred to as the MSMEs include priority small firms irrespective of their age.
sector lending, incentives/exemptions till they
Table 4. Incentives Available to Small Scale Firms (irrespective of their age)
Scheme Objective
Priority Sector Lending Direct and indirect finance at subsidized interest rates shall include
all loans given to micro and small enterprises, irrespective of their
age.
Credit Guarantee Fund Scheme This scheme makes available collateral-free credit to the micro and
small enterprises, irrespective of their age.
Purchase Preference Policy A group of items (Group IV) are reserved for exclusive purchase
from small scale units, irrespective of their age. Group V items are
to be purchased from MSMEs, irrespective of their age, up to 75 per
cent of the requirement.
Price Preference Policy For selected items that are produced by both small scale and large
scale units, price preference is provided to small firms, irrespective
of their age. This price preference amounts to a 15 per cent premium
over the lowest quotation of the large-scale units.
Benefits in tendering MSMEs, irrespective of their age, can avail benefits such as
availability of tender sets free of cost, exemption from payment of
earnest money deposit, exemption from payment of security deposit.
Raw Material Assistance This scheme aims to help MSMEs, irrespective of their age, with
Scheme of National Small financing the purchase of raw material (both indigenous and
Industries Corporation (NSIC) imported).
Marketing Assistance Scheme Provides assistance to MSMEs, irrespective of their age, for
the following activities: organization of exhibitions abroad, co-
sponsoring of exhibitions organized by other organizations,
organizing buyer-seller meets, intensive campaigns and marketing
promotion activities.
GST Composition scheme Scheme allows MSME firms, irrespective of their age, to pay GST
at a flat rate. The turnover limit for businesses availing of the GST
composition scheme is set at `1.5 crore.
Exemption under Central Small scale units below a turnover of `4 crore, irrespective of their
Excise law age, manufacturing good specified in SSI are eligible for exemption.
3.24 The Small Scale Industries (SSI) positive value indicates that a firm in the
reservation policy was introduced in 1967 (size, age) cohort is likely to manufacture the
to promote employment growth and income de-reserved product while a negative value
re-distribution. Given the predominance of indicates that a firm in the (size, age) cohort
dwarfs in the Indian economy and the low is likely to manufacture the reserved product.
productivity and employment generation, as The figure clearly shows that dwarfs, i.e.,
shown above, it is crucial to examine the role firms that are small and old, are significantly
of the SSI reservation policy. more likely to manufacture reserved
products than any other category of firm.
3.25 Figure 9 below plots the share of
Also, larger firms (above 50 employees) and
establishments manufacturing de-reserved
younger firms are significantly more likely
products minus the share of establishments
to manufacture de-reserved products than
manufacturing reserved products within
smaller firms.
a (size, age) cohort in the year 2007. A
Figure 9. Use of Small Scale Reservation by Firms of Different Size and Age
Difference
Between
Reserved and
De-Reseved
3.0%
2.0%
1.0%
0.0%
11-12 -1.0%
-2.0%
5-6
Age 0
Size
Source: Martin, Nataraj & Harrison, 2014.
Notes: The chart plots the share of establishments manufacturing de-reserved products minus the
share of establishments manufacturing reserved products within a (size, age) cohort as of 2007. A
positive value indicates that a firm in the (size, age) cohort is likely to manufacture the de-reserved
product while a negative value indicates that a firm in the (size, age) cohort is likely to manufacture
the reserved product.
3.26 From 1997 to 2007, several product across various product categories. It is clear
categories reserved for small-scale firms from the figure 6 that plant and machinery
were eliminated in a phased manner. Martin, increased the most among incumbent firms
Nataraj & Harrison (2014) analyse the just below the threshold in the 9-10 million
impact of this phased de-reservation on job category. In contrast, plant and machinery
creation and destruction among incumbents
decreased among incumbent firms below the
and entrants by their size and age. Figure 10
thresholds in the 0.1-0.5 million and 0.5-1.5
examines whether the size based reservation
million categories. Thus, this analysis at the
was limiting in the first place or not. As
MSMEs were defined based on the size of their threshold clearly suggests that small-scale
plant and machinery, this figure examines the reservation limited the incumbent firms that
change in the plant, property and equipment intended to grow before de-reservation but
among the incumbent firms; the vertical line could not do so without losing out the benefits
in the figure shows the threshold averaged provided by the reservation.
Figure 10. The Impact of Small Scale Reservation at the Threshold
3.27 Figure 11 shows the impact of the each age cohort, job destruction was the
phased elimination of small scale reservations maximum among the smallest firms (1-4
on employment (from Martin, Nataraj & employees) and least among the firms with
Harrison, 2014). This figure clearly shows 50-99 employees. In contrast, within each age
that while small firms lost jobs following cohort, job creation was the maximum among
de-reservation, large firms created jobs. In the largest firms (500+ employees) and least
fact, across all age categories, the effect of among the firms with 50-99 employees. This
de-reservation on net job creation (negative figure also shows that across the various size
in the case of job destruction and positive categories, the effect of de-reservation on net
in the case of job creation) monotonically job creation decreased with firm age.
increased with firm size. Specifically, within
Figure 11. Impact of Removal of Small Scale Reservations on

Employment by Size and Age
Effect of De-
Reservation on
1 Employment
0.5
0
-0.5
-1
-1.5
1-2
5-6
9-10
500+
Age
250-499
100-249
13-15
50-99
20-49
10-19
5-9
Negative
0-4
Positive
Size
3.28 Figures 12 and 13 display the category respectively (from Martin, Nataraj
impact of the phased elimination of small & Harrison, 2014). Figure 12 shows the
scale reservations on employment for both impact by size categories while Figure 13
incumbents and entrants by their size and age shows the impact by age categories.
Figure 12. Use of Small Scale Reservation by Firms of Different Sizes

Notes: The chart plots the point estimate and the 95% confidence interval for the effect of the
de-reservation of products on employment. The chart shows the effect for both new entrants and
incumbents by different size categories.
3.29 Figure 12 provides several key created more employment than small firms.
takeaways. First, on average, after the Across both new entrants and incumbents,
elimination of reservations, large firms – the small firms destroyed jobs while the large
be it new entrants or incumbents – have firms created jobs. Second, net job creation
(negative in the case of job destruction and created the maximum employment as seen
positive in the case of job creation) increased in the effect of entrants with more than 500
with firm size for both new entrants and employees. Finally, the growth in employment
incumbents. Specifically, job destruction was was both by the entrants that started producing
the maximum among the smallest incumbent the de-reserved products, especially the
firms (1-4 employees) and least among the large incumbents that were constrained
incumbent firms with 50-99 employees.5 by the ceilings on production owing to the
In contrast, job creation was the maximum SSI reservation policy. Among firms with
among the largest entrant firms (500+ at least 50 employees, job creation by
employees) and least among the entrant firms entrants was greater than job creation by
with 50-99 employees. Third, large entrants incumbents.
Figure 13. Use of Small Scale Reservation by Firms of Different Ages

Notes: The chart plots the point estimate and the 95% confidence interval for the effect of the
de-reservation of products on employment. The chart shows the effect for both new entrants and
incumbents by different age categories.
3.30 Figure 13 provides the following or older) lost jobs; however, the effect was
takeaways. First, when the effects of de- insignificant for the younger incumbents. In
reservation on incumbent firms are examined contrast, younger entrants (firms that are 12
by their age, i.e., when one averages across years or younger) created jobs; however, the
all size categories among firms of a particular effect was insignificant for the older entrants.
age, a very different picture emerges from
3.31 Overall, when benefits reserved for
that observed in Figure 12. Specifically,
small firms are eliminated, younger and
across all age categories, incumbent firms
larger entrants create the most jobs while
either lost jobs or did not create jobs. The
older and smaller incumbents destroy the
oldest incumbents (firms that are 13 years
_____________
5
As the coefficient is the log of labour, the economic magnitude has to be calculated as exp(coefficient) – 1. For instance for
the 1-4 category, the economic magnitude is calculated as exp(-1.1)-1 = -67%.
maximum jobs. Together with the fact that Fourth, the inefficient allocation of resources
older and smaller firms utilize the reservation results in price of manufactured products in
policies the most, this evidence highlights restricted economy being too high, which
further that benefits provided to small scale then renders these products uncompetitive in
firms irrespective of their age create perverse a global economy.
incentives for firms to remain dwarfs and
3.34 Overall, the evidence clearly shows that
thereby limit their contribution to jobs.
infants, not dwarfs, contribute significantly to
In contrast, infant firms, especially new
job creation and productivity in the economy.
entrants, create the most jobs. These findings
As young firms are usually small though all
are consistent with the evidence provided
small firms are not young, there is a strong
by Li and Rama (2015), who show that in
correlation between firm size and firm age.
developing countries young firms experience
Earlier data on firm age was not so easily
rapid gains in productivity and employment
available. So, the effect on employment of
making them one of the most important
firm age could not be distinguished from the
sources of economic growth.
effect of firm size. But, with availability of
3.32 Santana and Pijoan-Mas (2010) find such data that distinguishes firm size and age,
that the distortions brought forth by size the evidence for both U.S. and India clearly
dependent policies like SSI reservation shows that young firms, not smaller firms,
have resulted in substantial misallocation produce more jobs (Haltiwanger, Jarmin
of resources and productivity losses to the and Miranda, 2012 for the U.S. and Martin,
Indian economy. They provide empirical Nataraj & Harrison, 2014 and Li and Rama,
evidence that the lifting of the SSI reservation 2013 for India).
policy would increase output per worker by
3.2 per cent, capital per worker by 7.1 per
WAY FORWARD
cent and aggregate Total Factor Productivity 3.35 MSMEs that grow not only create
(TFP) by 0.8 per cent in India. When focused greater profits for their promoters but also
only within the manufacturing sector, lifting contribute to job creation and productivity in
of the SSI reservation policy would increase the economy. Our policies must, therefore,
output per worker would increase by 9.8 per focus on enabling MSMEs to grow by
cent, capital per worker by 12.5 per cent and unshackling them.
TFP by 3.6 per cent.
3.36 The evidence provided above highlights
3.33 The misallocation of resources due that dwarfs, i.e., small firms that have
to SSI reservation policy originates from continued to remain small despite aging,
four sources (Santana and Pijoan-Mas, have low productivity and low value added in
2010). First, SSI policies substantially lower manufacturing. In contrast, infants, i.e., small
the average capital to labour ratio when firms that are small when they are young but
compared to the efficient level. Second, can grow to become large firms as they age,
because of the lower capital accumulation, have high productivity and higher value added
the overall demand for labour and the market in manufacturing. Therefore, while dwarfs
wage rate are much lower due to SSI policies consume vital resources that could possibly
than the efficient level. Third, SSI policies be given to infant firms, they contribute less
result in inefficient allocation of managerial to creation of jobs and economic growth as
talent, which in turn affects productivity. compared to infant firms. This necessitates
re-calibration of policy towards supporting Under MSME’s PSL targets, it is necessary
infant firms as detailed below: to prioritize ‘start ups’ and ‘infants’ in high
employment elastic sectors. This would
3.37 Incentivizing ‘infant’ firms rather
enhance direct credit flow to sectors that can
than ‘small’ firms: With the appropriate
create the most jobs in the economy. The table
grandfathering of existing incentives, they
below shows the high employment elastic
need to be shifted away from dwarfs to
sub-sectors and their employment elasticity.
infants. When such incentives are provided to
firms irrespective of their age, the incentives Table 5. Employment Elasticity of Various
create “perverse” incentives for firms to stay Subsectors in Manufacturing
small. Such perverse incentives would not be Employment
there if age is the criterion. Misuse of the age Subsector Elasticity
based criterion can be easily avoided using Rubber and Plastic Products 0.85
Aadhaar. For instance, if a promoter starts a Electrical and Optical
new firm, utilizes the benefits for ten years Equipment 0.48
when the age-based policy is available and Transport Equipment 0.27
then closes the firm to start a new one to
Electricity, Gas and Water
avail the age-based benefits through this new Supply 0.22
firm, then the Aadhaar of the promoter can
Machinery 0.15
alert authorities about this misuse. Therefore,
given the benefits of Aadhaar, the age-based Basic Metals and Fabricated
policies can be implemented to ensure Metal Products 0.10
removal of the perverse incentives. Once Chemicals and Chemical
small firms know that they would receive Products 0.07
no benefit from continuing to remain small Textiles, Textile Products,
despite aging, their natural incentives to Leather and Footwear 0.02
grow would get activated. This will generate Other Non-Metallic Mineral
economic growth and employment. Products 0.02
Wood and Products of wood 0.01
3.38 Re-orienting Priority Sector Lending
Source: Derived from KLEMS data from 2005-06 to
(PSL): As per extant policy, certain targets
2015-16
have been prescribed for banks for lending
to the Micro, Small and Medium (MSME) 3.39 Sunset Clause for Incentives: With
sector that exacerbates perverse incentives to appropriate grandfathering, every incentive
firms to remain small. As per PSL guidelines, for fostering growth should have a ‘sunset’
7.5 per cent of Adjusted Net Bank Credit clause, say, for a period of five to seven years
(ANBC) or Credit Equivalent Amount of after which the firm should be able to sustain
Off-Balance Sheet Exposure, whichever is itself. The policy focus would thereby remain
higher is applicable to Micro enterprises.6 on infant firms.
_______________
6
As on 28th December 2018,for classification under priority sector, no limits are prescribed for bank loans sanctioned to
Micro, Small and Medium Enterprises engaged in the manufacture or production of goods under any industry specified in
the first schedule to the Industries (Development and Regulation) Act, 1951 and as notified by the Government from time
to time. The manufacturing enterprises are defined in terms of investment in plant and machinery under MSMED Act 2006.
Bank loans to Micro, Small and Medium Enterprises engaged in providing or rendering of services and defined in terms of
investment in equipment under MSMED Act, 2006, irrespective of loan limits, are eligible for classification under priority
sector, w.e.f. March 1, 2018.
3.40 Focus on High Employment Elastic high Spillover Effects such as Tourism:
Sectors: The manufacture of rubber and Developing key tourist centres will have
plastic products, electronic and optical ripple effects on job creation in areas such
products, transport equipment, machinery, as tour and safari guides, hotels, catering
basic metals and fabricated metal products, and housekeeping staff, shops at tourist spots
chemicals and chemical products, textiles etc. It is possible to identify 10 tourism spots
and leather & leather products, are the sub- in each of the larger 20 states and 5 spots
sectors with highest employment elasticities. in the 9 smaller states and build road and
air connectivity in these tourist attractions,
To step up the impact of economy growth on
which would boost economic activity along
employment, the focus has to be on such high
the entire route and would also reduce the
employment elastic sectors.
migration of the rural labour force who form
3.41 Focus on Service Sectors with a major proportion of the total labour force.
CHAPTER AT A GLANCE
MSMEs that grow not only create greater profits for their promoters but also contribute to
 job creation and productivity in the economy. Our policies must, therefore, focus on enabling
MSMEs to grow by unshackling them.
Job creation in India, however, suffers from policies that foster dwarfs, i.e., small firms that

never grow, instead of infant firms that have the potential to grow and become giants rapidly.
While dwarfs, i.e., firms with less than 100 workers despite being more than ten years old,
account for more than half of all organized firms in manufacturing by number, their contribution
 to employment is only 14 per cent and to productivity is a mere 8 per cent. In contrast, large
firms (more than 100 employees) account for three-quarters of such employment and close to
90 per cent of productivity despite accounting for about 15 per cent by number.
The perception of small firms being significant job creators pervades because job destruction
by small firms is ignored in this calculus: small firms destroy jobs as much as they create. In

contrast, large firms create permanent jobs in larger numbers. Also, young firms create more
jobs at an increasing rate than older firms.
Size-based incentives that are provided irrespective of firm age and inflexible labour regulation,

which contain size-based limitations, contribute to this predicament.
To unshackle MSMEs and thereby enable them to grow, all size-based incentives must have a

sunset clause of less than ten years with necessary grand-fathering.
Deregulating labour law restrictions can create significantly more jobs, as seen by the recent

changes in Rajasthan when compared to the rest of the States.
Direct credit flow to young firms in high employment elastic sectors to accelerate employment

generation by re-calibrating Priority Sector Lending (PSL) guidelines.
Focus must be on service sectors such as tourism, which has high spillover effects on other
 sectors such as hotel & catering, transport, real estate, entertainment etc. Identifying and
promoting tourist spots for development will help create jobs.
REFERENCES Manuel Garcia-Santana, Josep Pijoan-Mas.

n.d. "Small Scale Reservation Laws and the
Chang-Tai Hsieh, Peter J. Klenow. 2014. "The Misallocation of Talent." Working Paper
Life Cycle of Plants in India and Mexico." wb2010_1010,CEMFI.
The Quaterly Journal of Economics.
Sean Dougherty, Veronica Frisancho,k
John C. Haltiwanger, Ron S. Jarmin, Javier Krishna. 2014. "The costs of employment
Miranda. 2012. "Who Creates Jobs? Small protection." Ideas for India, April 30.
vs. Large vs. Young." NBER Working Paper
No. 16300. Yue Li, Martin Rama. 2015. "Firm Dynamics,
Productivity Growth, and Job Creation in
Leslie A. Martin, Shanthi Nataraj, Ann Developing Countries: The Role of Micro-
Harrison. 2014. "In with the Big, Out with the and Small Enterprises." The World Bank
Small: Removing Small-Scale Reservations Research Observer, Volume 30, Issue 1.
in India." NBER Working Paper No. 19942.
Data “Of the People, By the People,
For the People”
04
CHAPTER
“Cross the river by feeling the stones.”

- Deng Xiaoping
Navigating in an uncertain, wobbly world requires constant monitoring of
the path followed by the economy using real-time indicators. Thus, data can
serve as the stones that enable one to cross the river. Concurrent with the data
explosion of recent years, the marginal cost of data has declined exponentially
while its marginal benefit to society has increased manifold. Therefore, society’s
optimal consumption of data is higher than ever. While private sector does a
good job of harnessing data where it is profitable, government intervention is
needed in social sectors of the country where private investment in data remains
inadequate. Governments already hold a rich repository of administrative, survey,
institutional and transactions data about citizens, but these data are scattered
across numerous government bodies. Utilising the information embedded in
these distinct datasets would inter alia enable government to enhance ease
of living for citizens, enable truly evidence-based policy, improve targeting in
welfare schemes, uncover unmet needs, integrate fragmented markets, bring
greater accountability in public services, generate greater citizen participation
in governance, etc. Given that sophisticated technologies already exist to protect
privacy and share confidential information, governments can create data as
a public good within the legal framework of data privacy. In the spirit of the
Constitution of India, data should be “of the people, by the people, for the
people.”
THE ECONOMICS OF DATA AND is being generated at an unprecedented scale.

SOCIAL WELFARE The global data infrastructure has largely
proved reliable, fast and secure enough to
4.1 In recent years, the world has witnessed handle this deluge of data (Mckinsey, 2011).
an information explosion – exponential
increases in the amount of published data. As 4.2 Concurrent with this data explosion,
people increasingly use digital services to talk the marginal cost of data has declined
exponentially and the marginal benefit to
to each other, look up information, purchase
society of using this data is higher than ever.
goods and services, pay bills, transact in
financial markets, file taxes, avail welfare 4.3 As people shift their day-to-day
services and engage with local leaders, data activities online, they leave digital footprints
Data “Of the People, By the People, For the People” 79
Figure 1: Falling Marginal Cost of Data
Increasing skills
Falling prices of and resources to
data storage process data
rapidly
Nearly costless
Increasing ways to
efficiency of
disseminate
data gathering
Falling data
marginal
cost of data

of these activities. Put differently, people colossal quantities of data in a reasonable
produce data about themselves and store this time. Fortunately, human and technical
data on public and private servers, every day, capital to process data has evolved in parallel
of their own accord. Data that would have to the data inundation. Data science has
involved a laborious survey to gather a few evolved as a distinct, well-funded field of
decades ago is today accumulating online at a study that is constantly innovating ways to
near-zero cost, although it is scattered across put data to efficient use. Courses in analytics
sources. have become ubiquitous. An increasing
4.4 Not everyone participates in the digital number of people are equipped with skills to
economy, of course. A majority of the poor handle large datasets. Data is still relatively
still have no digital footprint. Among those expensive to process because it tends to
who do, the range of activities undertaken be noisy, heterogeneous and inconsistent
online is quite limited. However, the cost of across sources, but technology is incessantly
gathering data is still much lower than it was developing solutions to these problems.
a few decades ago. Even if a door-to-door 4.6 Once processed, the cost of
survey is the only way to gather a certain disseminating insights is negligible – it
kind of data, we possess cheap technologies is nearly costless to transfer information
to log data online in real time, circumventing through the internet. However, dissemination
an otherwise laborious paper-based survey of data entails another cost – that of ensuring
followed by a tedious data entry process.
data privacy and security. Before data is
4.5 Alongside the decreasing cost of disseminated, it needs to be stripped of
gathering data, storage costs have decreased personal identifiers and aggregated. While
precipitously. The cost per gigabyte of this is a direct cost, an indirect cost also exists
storage has fallen from U61,050 in 1981 to – the cost of misuse of data. Accidental data
less than U3.48 today. However, the surfeit of leaks may bring forth legal consequences and
data and a limitless capacity to store it is of substantial financial implications. However,
no use unless one can make sense of these technology has largely kept pace to mitigate
these risks. to. The government can thereby deliver a

better experience to the citizen by bringing
4.7 Together, the advancements in
disparate datasets scattered across various
gathering, storing, processing and
ministries together.
dissemination have lowered the marginal
cost of data to unprecedented levels. Figure 1 4.9 If the information embedded in
summarises this phenomenon. Concurrently, these datasets is utilised together, data
the marginal benefit of data is higher than offers potential to reduce targeting error in
ever. A district education officer can make welfare schemes. For example, consider
better decisions if he knows, for each school a hypothetical individual who is affluent
in his district, attendance rates of students enough to own a car but is able to avail BPL
and teachers, average test scores and status welfare schemes, though unwarranted. When
of school toilets. Similarly, parents can datasets are unconnected, the vehicle registry
make better decisions about which school does not speak to, say, the public distribution
to send their children to if they know the system registry. Consequently, the public
average absenteeism rate of teachers in their distribution system continues to subsidise
village and can compare the rate to that in this individual erroneously. However, if the
the neighbouring village. A multitude of two datasets are integrated, such inclusion
scenarios exist in which harnessing the
error can be minimised, saving valuable
marginal unit of data can lead to sharp
Government resources. In the same way,
increases in public welfare.
exclusion errors can be rectified.
4.8 Consider data that the Government
4.10 In fact, the declining cost of data has
maintains about its citizens. Currently, much
spawned new benefits that did not exist a
of the data is dispersed across different
few years ago. Consider, for example, an app
registries maintained by different ministries.
that informs farmers of the prices of produce
This is why every time a citizen has to access
across the country. There was a time when,
a new service, they are asked to collect all the
documents to prove their identity and prove even if the app existed, it would have been
their claim on the process. For example, to useless – knowing that prices are higher in
get subsidies or benefits due to a farmer, the next district would not have mattered to a
such as free electricity, an incomplete list of farmer as he would have had no way to access
documents include the Ownership Certificate those prices without substantial costs in
issued by Village Administrative Officer, transport, storage and distribution (including
Chitta Adangal (extract from land registry), the cost of a dozen middlemen). Today, with
a Patta (Record of Rights) or Sale Deed, No platforms such as e-NAM (the electronic
Objection Certificate from any Government National Agriculture Market, we possess
Project nearby and other documents to prove the technology to allow farmers to make the
that one is a farmer on that land. The effort sale online, locking in the higher price with
involved in this application mostly doesn’t delivery to follow seamlessly. In this way,
involve any new audits or inspections from data has the potential to integrate markets
any government department. The citizen faces nationally, reduce the need for middlemen,
the inconvenience of having to retrieve data reduce prices for end consumers and increase
trapped in paper files within the government prices for farmers. Figure 2 summarises these
system to unlock a benefit she is entitled costs and benefits.
Figure 2: Increasing Marginal Benefits and Decreasing Marginal Cost of Data
Increasing marginal benefit

Marginal benefits Marginal costs
Evidence-based policy Gathering data
Accountability in public Storing data
Decreasing marginal cost

services Processing data
Better targeting of welfare Disseminating data
programmes
Nationally integrated markets
Product innovation
WHY MUST DATA BE TREATED market. If the marginal benefit to a farmer of

AS A PUBLIC GOOD? acquiring price information is higher than the
marginal cost of that information, he would
4.11 The decline in marginal cost of data pay for that information. Consequently, the
clubbed with an increase in marginal benefit private sector would cater to his need by
means that the optimal quantum of data that gathering and selling him the information
society should consume is much higher than he wants. This would eventually lead to
before. If so, economic theory predicts that a nationally integrated agriculture market
the economy should have, by now, seen a with one price. However, India does not yet
surge in efforts to harness and use data. This have such a nationally integrated agriculture
has indeed happened, but only partially. market, which should have happened if the
marginal benefit of data today is indeed
4.12 Private sector investment in data- higher than the cost. Why has the corporate
related endeavours is higher than ever sector’s data wave not found a parallel in the
before. A 2017 Forbes survey found that 53 agriculture sector?
per cent of companies actively use big data
to make decisions (Dresner, 2017). The 4.14 The economics of data we considered
trend holds across industries as disparate as so far is as it pertains to society, not to an
healthcare and financial services, and across individual agent, be it a farmer or a firm.
geographies and company sizes. In fact, in the The economics facing a private company
last two decades, the world has witnessed the that contemplates providing data to farmers
emergence of companies, such as Facebook, is different from that facing a social
Amazon, Instagram, etc., who earn revenue planner. To the private firm, the prospect of
exclusively from people’s data. a nationally integrated agriculture market,
and the resulting social welfare, is a positive
4.13 But, there are several areas where externality. It is not a benefit that accrues to
data is not as ubiquitously harnessed and the firm as the firm cannot, in practice, charge
used. Consider, for example, the agriculture the numerous agents in the economy who
would experience welfare gains. Therefore, incentive structure faced by the private sector,
the private firm’s marginal benefit is not as depending on the nature and sensitivity of
high as society’s marginal benefit. Because data. Indeed, in the agriculture sector, the
the firm does not internalize the benefit of Government has done exactly this by creating
social welfare, the optimal amount of data the e-NAM, as it is unlikely that the private
that the firm would gather and disseminate sector would come up with a solution like
falls short of the social optimum. this on its own.
4.15 Second, data comes in many forms Ensuring data privacy while creating
with each form offering a different benefit. data as a public good
Data linked to an individual can range from
4.18 In the endeavour to create data as a
extremely intimate – such as their biometric
public good, it is very important to consider
details, to the extremely public – such as their
the privacy implications and inherent
name. It includes data that is generated by
fairness of data being used. Needless to say,
human actions, and data that is derived through
the processes required for ensuring privacy
analysis, typically involving an algorithm.
of intimate data is very different from that
For example, whether an individual has paid
required for anonymized or public data. The
his taxes is a generated data point. But, using
key difference in dealing with these different
the tax records and other data points, a credit
types of data is the knowledge and consent
bureau may assign the individual a credit
of the data principal. Even if not explicitly
score, which is a derived data point. Data that
mentioned every time data is talked about in
is not linked to a specific individual but is still
this chapter, it is assumed that the processing
available at an individual level of granularity,
of data will be in compliance with accepted
is called Anonymized data. Anonymized
privacy norms and the upcoming privacy law,
data is critical in some areas such as medical
currently tabled in Parliament.
research. Data neither linked to an individual,
nor at an individual level of granularity is Economies of scale and scope in the
known as public data, such as the census. data generation process
4.16 While the private sector has done an 4.19 Apart from the obvious necessity
impressive job of harnessing some kinds of that data must be accurate, the need for
data – the kind that can be converted into a Government-driven data revolution is
a private profit – government intervention motivated by three key characteristics that
is required in other areas where private data must possess for the synergistic benefits
investment in data remains inadequate. to accrue. Specifically, the data generation
The social sectors of the economy, such process exhibits significant economies of
as education and healthcare, have lagged scale and scope.
the commercial sectors in exploiting data.
Because the private sector cannot internalize 4.20 First, when it comes to data, the whole
the social benefits of data in these sectors, the is larger than the sum of its parts, i.e., it is
market for data in these sectors has so far not more useful when it is married with other
developed. data. Consider, for example, the merging of
disparate datasets maintained by different
4.17 To ensure that the socially optimum government agencies, such as transactions
amount of data is harvested and used, the data extracted from the Jan Dhan accounts
government needs to step in, either by of the Department of Financial Services,
providing the data itself or correcting the Ministry of Finance, married to demand
for MGNREGA work from the Ministry of make the necessary investments required
Rural Development. As MGNREGA can for generating data that possesses all three
be a real-time indicator of rural distress (as characteristics, viz., marries disparate
discussed in Chapter 10 in this volume), the datasets, covers a critical mass of individuals/
credit scoring done using the transactions firms, and spans a large time-series. Even
data of Jan Dhan accounts can be used to if private sector were to put such rich data
provide credit in districts/panchayats that together, this would result in a monopoly
are experiencing distress. Such combining of that would reduce citizen welfare, on the one
disparate datasets can be extremely useful in hand, and violate the principle of data by
obtaining the necessary richness required to citizens, and, therefore, for citizens.
design and implement welfare policies. 4.24 Most importantly, data carries some
4.21 Second, data needs to cover a critical of the characteristics of public goods. It
mass of individuals/firms so that comparisons is non-rivalrous, i.e., consumption by one
and correlations can be assessed among individual does not reduce the quantum
individuals/firms to generate useful policy available for others. In principle, data can
insights. Thus, to gather price data on trades be made excludable, i.e., it is possible to
across various product markets and across exclude people from accessing data, as many
the country, a very large number of producers database firms do by erecting pay walls.
and buyers need to log their transactions on However, there are some kinds of data –
a platform in real time. To induce numerous particularly data gathered by governments
on issues of social interest – that should be
agents to report transaction information
democratised in the interest of social welfare.
regularly is a task that requires significant
Such data should be made public goods. As
initial investment, which may prove
the private sector would fail to provide an
prohibitive for the private sector.
optimal amount of any non-rivalrous, non-
4.22 Finally, data must have a long enough excludable good, government intervention is
time-series so that dynamic effects can be required.
studied and employed for policymaking. 4.25 Data are generated by the people, of the
For instance, to undertake before-after people and should be used for the people. As
evaluations to assess the effectiveness of a public good, data can be democratised and
policies, data that spans a long-enough time put to the best possible use. Box 1 describes
series is critical. the Open Government Data initiative taken
4.23 Data that contains all these three by the Government, which is an illustration
features is much more valuable than three of the spirit of data as a public good. While
different and disparate datasets that possess this is an excellent start, the enormous
each of these criteria separately. Thus, the benefits that can be reaped from treating data
data generation process exhibits significant as a public good imply that Government must
economies of scope. Also, the scale of redouble its efforts in this direction.
effort required to create such data that BUILDING THE SYSTEM
exhibits all three features implies that the
data generation process exhibits significant 4.26 The data system envisioned here
economies of scale as well because the involves predominantly data that people
(upfront) fixed costs involved in generating share with Government bodies with fully
such data are significant. Private sector may informed consent or is data that is legally
not have the risk appetite or the capital to sanctioned to be collected by the state for
Box 1: Open Government Data and citizen engagement

The Union government’s Open Government Data platform allows citizens to access a range of
government data in machine-readable form in one place. The portal allows union ministries and
departments to publish datasets, documents, services, tools and applications collected by them for public
use. Excluding datasets which contain confidential information, all other datasets are made available
to the public, ranging from data on welfare schemes to surveys to macroeconomic indicators. The
platform also includes citizen engagement tools like feedback forms, data visualisations, Application
Programming Interface (APIs) etc.
Open data not only helps government officials make better decisions but also gets people involved
in solving problems. Throwing open government data to the public multiplies the number of people
analysing and deriving insights from data. Consequently, the usability of data itself increases.
To engage people meaningfully in solving problems, the Ministry of Human Resource Development
recently initiated the Smart India Hackathon – an open innovation model to discover new, disruptive
technologies that could solve India’s most pressing problems. Smart India Hackathons are product
development competitions in which participants get a problem statement and relevant data, using
which they develop a prototype software or hardware. These competitions crowd-source solutions to
improve governance and increase the efficacy of welfare schemes. None of this would be possible, of
course, without reliable data.
an explicit purpose such as tax collection, or and Box 2 for details). While the latter two
delivering welfare. The Government of India databases are in a fledgling state, the first
collects four distinct sets of data about people two are comprehensive and robustly
– administrative, survey, institutional and maintained.
transactions data (see Figure 3 for summary
Figure 3: Data collected by the Government of India
Administrative data Survey data

Birth and death records, pensions, Census data, National Sample
tax records, marriage records, etc. Survey data, etc.
Data about citizens

maintained by
governments
Transactions data Institutional data

e-National Agriculture Market data, Public school data on pupils, public
United Payments Interface data etc. hospital data on patients, etc.

Box 2: Rich data on citizens that Government can harness for the welfare of its citizens
Governments hold administrative data for mainly non-statistical purposes. Administrative datasets
include birth and death records, crime reports, land and property registrations, vehicle registrations,
movement of people across national borders, tax records etc. Governments also gather data to evaluate
welfare schemes; for example, the Ministry of Drinking Water and Sanitation gathers data on toilet
usage to assess the efficacy of the Swachh Bharat Mission.
Survey data, on the other hand, is data gathered predominantly for statistical purposes through
systematic, periodic surveys. For example, the National Sample Survey Office conducts large-scale
sample surveys across India on indicators of employment, education, nutrition, literacy etc. Because
these data are gathered for statistical analyses, the identity of participants is irrelevant and unreported,
although these identities may be securely stored at the back-end without violating any legal guidelines
on privacy.
Institutional data refers to data held by public institutions about people. For example, a government-
run district hospital maintains medical records of all its patients. A government-run school maintains
personal information about all its pupils. State-run universities maintain records of students’ educational
attainment and degrees awarded to them. Most such data are held locally, predominantly in paper-
based form. This data can be digitized to enable aggregation at the regional or national level.
Transactions data are data on an individual’s transactions such as those executed on the United Payment
Interface (UPI) or BHIM Aadhaar Pay. This is a nascent category of data but is likely to grow as more
people transition to cashless payment services.
4.27 Data collection in India is highly information gathered in the decennial

decentralised. For each indicator of social Census survey. Because these datasets are
welfare, responsibility to gather data lies unconnected (see below), each ministry only
with the corresponding union ministry and has a small piece of the jigsaw puzzle that
its state counterparts. Consequently, data is the individual/firm. However, if these
gathered by one ministry is maintained different pieces could be put together, we
separately from that gathered by another. would find that the whole is greater than
Data on an individual’s vehicle registrations, the sum of parts. As learning from global
for example, is maintained by one ministry, best practices, boxes 3 and 4 highlight the
whereas the same individual’s property case studies of Transport for London’s data
ownership records lie with another ministry. initiative and the data initiatives of the
These datasets are further distinct from the U.S. Government. Box 5 illustrates similar
individual’s educational attainment records learning from closer home: the Samagra
maintained by the state-run university he/ Vedika initiative by the Government of
she attended and from other demographic Telangana.
Box 3: Benefits of opening up Transport for London’s data

Transport for London (TfL) releases a significant amount of data – such as timetables, service status
and disruption information – in an open format for anyone to use, free of charge. Open travel data can
support travel apps and real-time alerts to save time, reduce uncertainty and lower information costs,
supporting growth in the tech economy and increasing the use of public transport. At last count, more
than 600 apps were being powered specifically using the TfL open data feeds, used by 42 per cent of
Londoners.
TfL has demonstrated that releasing data to the public can save users time to the economic value
of between £15m and £58m per year. An analysis by Deloitte found that the provision of transport
information through travel apps and real-time alerts is saving £70m-£95m per year in time, reduced
uncertainty and lower information costs. Further, release of open data by TfL has supported the
growth of London’s tech economy to the value of £14m annually in gross value added (GVA) and
over 700 jobs. It has also unlocked new revenue and savings opportunities and new ways of working
at TfL, including a £20m increase in bus usage as customers are more aware of service opportunities.
This data has been used by a range of apps, from early stage start-ups to global leading technology
platforms, saving time and reducing stress. There are currently 13,700 registered users of TfL’s open
data.
The London Infrastructure Mapping Application is a new platform that allows utilities, boroughs, the
Mayor of London and TfL to share information relevant to infrastructure investment and planning. By
bringing together a range of data, the application facilitates improved collaboration between actors,
joined-up approaches to construction and design, and better identification of future demand and
capacity constraints. Information is visualised spatially through a bespoke mapping application that
has been developed in consultation with users. Early evidence has found that the tool supports better
alignment of investment – unlocking housing growth and reducing disruption throughout London – by
allowing projects such as road works to be timed better, and saving costs through joined-up approaches
to construction (e.g. joint ducting of utility cables and pipes).
TfL is currently developing a new tool that will analyse data feeds from Tube trains to provide
maintenance staff with live information about the condition of a train. Using the tool, staff can analyse
the data and identify where faults exist or might be developing and remedy them before they cause
service issues. The tool has strong potential to make maintenance planning more efficient and prevent
costly faults leading to service delays from occurring. The in-house capability will also help TfL
save money by reducing third-party spend – currently around £46m over five years on an external
maintenance support contract.
Source: National Infrastructure Commission Report on Data as a Public Good available at https://www.nic.org.
uk/wp-content/uploads/Data-for-the-Public-Good-NIC-Report.pdf
Box 4: Data Initiatives taken by U.S. Government

On January 29, 2009, U.S. President Barack H. Obama issued a memorandum on open and transparent
government and asked his administration to establish "a system of transparency, public participation,
and collaboration". The open-government initiative mandates federal government and public agencies
to publish their data online for public use in machine-readable format. In a bid to democratise its data,
U.S. government made more than 138,000 data sets available to the public. In February 2015, the
U.S. government appointed DJ Patil as its first ever Chief Data Scientist in the Office of Science and
Technology Policy to unleash the power of data for the benefit of the American public.
Data.gov, the preeminent platform of U.S. Government shares data and meta-data from various public
agencies and has ‘value added’ features like:
(i) Ability to filter by location, data-set type, tag, format, community etc.;
(ii) A tool to integrate data-sets and create visualizations;
(iii) Engagement with public to provide feedback and participation in various forums, blogs and
communities to improve the quality of data-sets;
(iv) Resources that provide links to all federal agency API’s;

(v) Developer hub with software development kits, open-source resources and repositories of code;
(vi) Enabling of data-driven decisions through education apps (search for college, search for public
school districts), energy and environment apps (alternate fuel locator) and food and nutrition apps
(fooducate, goodguide);
(vi) A platform of cities.data.gov to publish datasets from different cities across U.S.;
(vii) disaster.data.gov web portal for collaborative efforts in disaster management, healthcare, policing,
and climate change;
(viii) Precision Medicine Initiative (PMI), a leading open data project that aims to create individualized
treatments, expand genetically based clinical cancer trials and establish a national "Cancer
Knowledge Network" to help with treatment decisions.
United States Department of Agriculture (USDA) releases regular forecasts for prices of various
agricultural commodities that are used worldwide. The projections identify major forces and
uncertainties affecting future agricultural markets; prospects for long-term global economic growth,
agricultural production, consumption, and trade; and U.S. exports of major farm commodities and
future price movements. The projections can also be used to analyse impacts of alternative policy
scenarios. This easy availability of data projections, in effect, drives agricultural markets across the
U.S.
Box 5: Federalism in learning among governments: Telangana Government’s

Samagra Vedika initiative
The Telangana Government’s Samagra Vedika initiative gives a flavour of the potential benefits of
integrating data sets. The initiative links around twenty-five existing government datasets using a
common identifier – the name and address of an individual. Seven categories of information about each
individual were linked in this aggregation exercise – crimes, assets, utilities, subsidies, education, taxes
and identity information. Each individual was then further linked to relatives such as spouse, siblings,
parents and other known associates. The initiative also puts in place all the necessary safeguards to
preclude any tampering of data or violation of privacy. The right to add or edit data in the database
varies by ministry or department. A given department can only write data for select fields – the motor
vehicles department cannot, for instance, manipulate data relating to education, even though it can
view the data.
4.28 Of late, there have been some “one-way”. Banks can now use the tokenized
discussions around the “linking” of datasets – Aadhaar Number (i.e., a proxy 64-digit
primarily through the seeding of an Aadhaar number that is based on, but not equal to
number across databases such as PAN the individual’s 12-digit Aadhaar Number)
database, bank accounts, mobile numbers, to combine duplicate records and weed out
etc. A point of clarification is in order here. benaami accounts. But, this does not mean
When one adds an Aadhaar number to an that the UIDAI or government can now read
existing database such as a database of bank the bank account information or other data
accounts, it is only one more column that is related to the individual.
added to the table. The linking is so to speak
Figure 4: Illustration: Data about a hypothetical citizen X is dispersed

across multiple, unconnected datasets
Data about whom? Citizen X
What type of data exist? Administrative Data Survey Data Transactions Data Institutional Data
Birth and Land Employ- Agri Medical Education

Death titles Tax ment Nutrition transac- records
What sub-types of data exist? records Status records
Records records status tions
Ministry Ministry Ministry Ministry Ministry Ministry of Ministry Ministry

Who holds this data? of Home of Rural of of of Agriculture of Health of HRD
Affairs Dev. Finance Labour Statistics
Note: Names of some ministries abbreviated. Data types and sub-types are illustrative examples only and not
exhaustive.
Figure 5: An enterprise architecture for Governance
4.29
Figure 4 illustrates the current system. the government is responsible for making
Data about a hypothetical citizen X is spread available the data they hold as a data
across ministries. In fact, the illustration is provider. These departments must take care
an oversimplification. For example, data to appropriately treat private data and public
about X’s medical records would lie with the data with the standards they require. This
Government-run district hospital where she data is then made available through a Data
was most recently treated. In all likelihood, Access Fiduciary to the Data Requestors.
these medical records are in paper-based Data Requestors may be public or private
form and do not get aggregated for analysis institutions but can only access the data if
at the state level, let alone the central level. they have appropriate user consent. The
Nevertheless, the illustration depicts the Data Access Fiduciary themselves have
union ministries ultimately responsible for no visibility on the data due to end-to-end
each kind of data. encryption. Such a model puts user consent
in the centre of the government’s initiative to
4.30 Figure 5 illustrates the Data Access
make Data a Public Good.
Fiduciary Architecture. Each department of
4.31 A citizen is, of course, not the only ministry should be able to view the complete
possible unit of analysis. One may want database, a given ministry can manipulate
to analyse schools, villages or hospitals. only those data fields for which it is
Different databases of villages, for example, responsible. Second, updating of data should
may be utilised together if a unique identifier happen in real time and in such a way that
for every village exists. Unfortunately, in one ministry’s engagement with the database
many cases, ministries and departments have does not affect other ministries’ access.
their own codes for a given geographical area; Third and most importantly, the database
for example each village is characterised by a should be secure with absolutely no room for
pin code assigned by the Department of Post, tampering.
a village code assigned by the Department
4.34 The prospect of empowering the
of Rural Development and a health block
government with such comprehensive,
assigned by the Ministry of Health and Family
exhaustive information about every citizen
Welfare. The lack of a common identifier
may sound alarming at first. However, this
makes it difficult to consolidate information.
is far from the truth. First, large quantities of
4.32 An initiative to address this issue is the data already exist in government records, and
Local Government Directory, an application the objective is only to use this data in a more
developed by the Ministry of Panchayati efficient way. The proposal envisioned here
Raj. A comprehensive directory of all local does not gather any new information; rather,
administrative units, the platform maps each it seeks to make available all data within
land region entity to a local Government the government for citizens, government,
body (like villages with their respective private and public institutions to utilize the
gram panchayats) and assigns location codes data subject to user consent and appropriate
compliant with Census 2011. The Local privacy and fairness related constraints.
Government Directory is a great example
4.35 Second, people can always opt out of
of Data as a Public Good. The Ministry of
divulging data to the government, where
Panchayati Raj has made important headway
possible. For example, one can choose not to
in solving a difficult problem, common to
participate in a survey or use government-run
every government and private institution
payments services. There are exceptions, of
trying to serve rural India – the lack of formal
course. People cannot buy and drive vehicles
addresses – by assigning a code to every
without a license and registration certificate;
place. Instead of simply sitting on that data,
but not requiring these data would threaten
the Ministry has also published it for all to
the enforcement of property rights, road
use. If all government databases requiring
safety and national security, which cannot
location codes are aligned with the codes in
be compromised. But for the remaining
this directory, then all databases will share
categories of data – institutional, survey and
a common location field that can help in
transactions – people have the choice.
merging data, and reduce accuracy errors in
the distribution of welfare. 4.36 Third, even if there is no viable private
market choice of certain public services, the
Utilizing technological advances to
choice to share the individually linked data
eliminate all privacy concerns
from such services will always be with the
4.33 The integrated system’s efficacy relies citizen under the Data Access Fiduciary
on three critical features. First, while any Architecture. Further, immutable access logs
for all data would be available so that citizens Gathering data: Directly digital rather
know who has seen their data and why. than paper to digital
4.37 The principle is that most data are 4.39 Unless data is in a digital, machine
generated by the people, of the people and readable format, its utility is limited. Paper
should be used for the people. Enabling the records of data cannot be accessed by all
sharing of information across datasets would stakeholders. Even if paper records of
improve the delivery of social welfare, schemes are scanned and stored in a digital
empower people to make better decisions, repository, they do not lend themselves to
and democratize an important public good. easy analysis. For data to serve its purpose, it
TRANSFORMING INDIA’S DATA needs to be transmuted into a digital, machine
INFRASTRUCTURE readable form that can be downloaded and
analysed. While most state and national level
4.38 Undoubtedly, the system outlined data is already in this form, digital records
above requires a robust data infrastructure. are not yet ubiquitous at the more granular
While combining datasets will itself reap administrative levels. For example, a citizen
rewards, the benefit is limited if data is of cannot view his village’s sanitation status on
an uncertain quality, not amenable to easy a digital database. At best, he can look up his
processing etc. Harnessing data consists of district. For many schemes, data is available
four steps – gathering, storing, processing only at the state level.
and disseminating data, each of which
offers room for improvement in India (see 4.40 The recently launched Digitize India
Figure 6). initiative is an ingenious solution to the
Figure 6: Transforming data gathering, storage, processing and dissemination
• Digitize existing paper-based data

Gathering data • Initiate digital data collection at source
• Initiate real-time storage for select data

Storing data • Reduce time lag between collection and data
entry
• Build capacities of govt. bodies to analyse data

Processing data • Involve private sector in analysis and insight
generation
• Create scheme dashboards

Disseminating data • Open district-level dashboard to the public
• Open data from third party studies to the public

tedious task of converting paper-based data citizen dashboard called St. Pete Stat, where
into digital form. The initiative crowd- citizens can view dynamically updated
sources the data entry effort by presenting information about the performance of city
volunteering citizens with snippets of scanned departments, status of development projects.
documents, which they type into a data entry The dashboard includes various interactive
portal. Correct entries earn cash rewards for tools such as an interactive map of all police
the contributor (see Box 6 for details). calls in the city.
4.41 While the scheme goes a long way to 4.43 Not all types of data are amenable to
digitize existing paper records, a parallel real-time storage, of course. Further, the
initiative is needed to convert the very incremental cost of a real-time database
process of data collection into a digital may not always justify its marginal benefit.
one, as opposed to collecting on paper first However, there are a few sectors where, if not
and converting to a digital format later. real-time, at least a high frequency of logging
Undoubtedly, the exercise of supplying every data on the server can yield substantial
hospital, gram panchayat, school or block benefits.
office with an electronic data-entry device 4.44 Education is one such example. Even
is quite ambitious, but achievable. Digital a seemingly short period of six months is a
data collection at the source ensures that long time in the life of a child – it amounts
data is logged exactly as observed, obviates to half an academic year. Say a school does
the redundancy of data entry, and eliminates not have a functional toilet for girls, leading
data entry errors. A truly digital ecosystem is girls to remain absent from school. The
achievable only when all layers of information problem needs to be rectified as soon as
that constitute the ecosystem are digitized. possible; otherwise these girls would lose out
on valuable schooldays. The block or district
Storing data
education officer should receive a daily, or at
4.42 Public service delivery can benefit least weekly, report of the status of toilets so
from real-time storage of data. The city of that in case a problem is not rectified within a
St. Petersburg, Florida, recently created a week or two, they can take the required action.
Box 6: How Digitize India works

Government departments upload scanned copies of paper records on the Digitize India platform. These
scanned documents are shredded into snippets with meaningful data. These snippets are randomly
served to digital contributors. Digital contributors are citizens who volunteer their time on the portal.
Upon receiving snippets, the contributor reads the information and types it into a data entry portal. All
converted data are verified against the corresponding snippet. Correct entries earn their contributors
reward points, which can either be redeemed for cash or donated to the Digital India initiative. Once
all snippets corresponding to a particular document are converted into digital data, the platform
reassembles the document in digital form and supplies it back to the government department. Any
Indian citizen with an Aadhaar number can participate as a digital contributor. Citizens are incentivised
through reward points and recognition as ‘digital contributors’ and may even earn certificates as ‘Data
Entry Operators’. Ingeniously, the program also features a mobile app so that even citizens without a
laptop or desktop computer can participate.
If the problem takes months to come to the 4.48 The government may also consider
notice of the block or district officer, the girl opening certain kinds of data to private
children in the school will have lost months’ players with all the necessary security
worth of learning! Digital dashboards updated safeguards. Data shared with the public on the
in real time or at least weekly would avert Open Government Data portal is completely
such harsh consequences. Similarly, consider anonymised and aggregated over a large
agriculture, where farmers need data about number of individuals. Such data precludes
weather conditions, expected rainfall, input careful statistical analyses, where individual-
and output prices in real time to make daily level observations are required. However,
decisions. Facilitating real-time access to after obfuscating all personally identifiable
such data is essential to improve agricultural information, if this data is shared with the
productivity and farmer incomes. private sector, government can harness
the skills and enthusiasm of data analytics
4.45 With the widespread adoption of ICT professionals to gain the maximum possible
approaches in public service delivery, real insights from the data.
time data collection and storage is no longer
an ambitious and distant dream but very Disseminating data
much realisable, at least in select sectors and
4.49 The Open Government Data portal is
contexts.
an effective tool to disseminate data to the
Processing data public. But, as most citizens do not have
the time or skills to employ analytical tools
4.46 A deluge of data will be created when to dissect databases, easy visualisation tools
data is collected digitally, stored in real-time, are critical. The portal has enabled several
and utilised with existing data. While this visualisation tools already, and these may be
deluge has tremendous potential to transform augmented with the following.
governance, unleashing this potential
requires skill. A district government official, 4.50 First, the Government may initiate
for example, should have the analytical skills scheme dashboards for every major
to make use of the data in that district. In the Government scheme with granular data,
absence of such skill, investing in the data all the way to the village level. Dashboards
infrastructure is of limited use. should be ready recipients of data from the
concerned government body and ready
4.47 Governments at all administrative displayers of the same data in real-time to
levels should invest in building their internal the public. The Swachh Bharat Mission is an
capacities to exploit data in real time, perform exemplar dashboard that may be replicated
analyses and translate data into meaningful for other schemes to allow citizens to track
information. While every government the physical and financial performance of
department may have a dedicated analytics or welfare schemes. Currently, these dashboards
data insights division, Ministry of Statistics exist only for a small number of schemes.
and Program Implementation and Ministry For example, ICDS Anganwadi Services
of Electronics & Information Technology can scheme, the largest scheme for women and
act as nodal departments to steer such efforts child development in India, does not have a
at the national level. publicly available dashboard.
4.51 In existing dashboards, the metrics (broken links), others display outdated data.
showcased may be augmented, especially While the investment to initiate such a
to show progress at the more granular levels dashboard is commendable, the benefits will
of administration. For example, the Swachh be greater if the state governments continually
Bharat dashboard can include information maintain these dashboards to disseminate
on the number of swachhta doots (sanitation information.
helpers) deployed at the district level or
4.53 Finally, many central ministries and
the number of information, education and
state departments commission data collection
communication (IEC) campaigns in that
initiatives to conduct needs assessments or
district. In all likelihood, the data on these
impact evaluations of schemes. Although
metrics is available with the government but
most of these studies are made public, the
is not open to the public, perhaps because the
underlying data are not. As these studies are
data is not in digital form.
carried out in partnership with government
4.52 Second, many state governments have bodies, they should be made available to the
instituted district-level dashboards based on public so that independent analyses may be
Management Information Systems (MIS) for carried out to validate the findings of these
various programmes. These states include studies.
Andhra Pradesh, West Bengal, Madhya
APPLICATIONS
Pradesh and Chhattisgarh. Except for the
Andhra Pradesh and West Bengal ones, 4.54 Once the infrastructure is in place, the
these dashboards are not easily accessible applications are innumerable. A robust data
to citizens. They require a password, which backbone can empower every stakeholder
is only available to the local administration. in society, from the Central Government to
Some dashboards are not operational anymore a local government body, from citizens to
Box 7: NREGAsoft and e-governance in MGNREGA

NREGAsoft is a comprehensive e-governance system for the MGNREGA scheme. Accessible by a
range of stakeholders, it captures the complete flow of all MGNREGA work at every level – from the
centre all the way to the panchayat. In the spirit of citizens’ right to information, the system makes
available documents like muster rolls, registration application register, job card/employment register/
muster roll issue register and muster roll receipt register, which are otherwise inaccessible to the public.
The system has no language barriers to usage; it is accessible in a number of local languages. In fact,
even the illiterate can use the interface as it leverages sounds and icons in a touch-screen kiosk model.
It is designed to be used by a range of stakeholders, from workers who are beneficiaries of the scheme
to gram panchayats to district programme coordinators to banks and post offices. Even citizens who
are not beneficiaries of the scheme may view information on the portal.
The software consists of several modules, which together comprehensively span all activities and all
stakeholders. For example, while the worker management module forms the backbone of all worker-
related services, a fund management module tracks the movement of funds from the central ministry all
the way to the workers’ pockets, a grievance redressal module helps stakeholders including the illiterate
to lodge complaints and track responses, and a bank/post office module allows financial institutions to
get wage information and enter details of money credited in accounts. Other modules assist with cost
estimation, social audit, knowledge network etc.
the private sector. A few (inexhaustive and test scores across districts (with all personal
illustrative) potential benefits are described information completely obfuscated).
below. Using test scores of students, demographic
characteristics of each district and publicly
Governments themselves as available data on the efficacy of public
beneficiaries education schemes, a private firm may be
4.55 Being able to retrieve authentic data able to uncover unmet needs in education and
and documents instantly, governments cater to these needs by developing innovative
can improve targeting in welfare schemes tutoring products tailored to the specific needs
and subsidies by reducing both inclusion of specific districts. These products would
and exclusion errors. Datasets that utilise not only create profits for the private sector,
information across various datasets can but also monetize data and generate revenues
also improve public service delivery. For for the government, in addition to improving
example, cross-verification of the income- education levels and social welfare.
tax return with the GST return can highlight 4.58 Alternatively, datasets may be sold
possible tax evasion. to analytics agencies that process the data,
Private sector firms as beneficiaries generate insights, and sell the insights further
to the corporate sector, which may in turn use
4.56 The private sector may be granted these insights to predict demand, discover
access to select databases for commercial untapped markets or innovate new products.
use. Consistent with the notion of data as a Either way, there is tremendous scope for
public good, there is no reason to preclude the private sector to benefit from the data
commercial use of this data for profit. and they should be allowed to do so, at a
Undoubtedly, the data revolution envisioned charge. Fortunately, stringent technological
here is going to cost funds. Although the mechanisms exist to safeguard data privacy
social benefits would far exceed the cost and confidentiality even while allowing the
to the government, at least a part of the private sector to benefit from the data.
generated data should be monetised to ease
the pressure on government finances. Given Citizens as beneficiaries
that the private sector has the potential to 4.59 Citizens are the largest group of
reap massive dividends from this data, it is beneficiaries of the proposed data revolution.
only fair to charge them for its use. Consider the case of Digital Locker. It is
4.57 Consider, for example, allowing the in many ways similar to the plan we have
private sector access to data about students’ outlined above. But it is restricted to certain
Box 8: The National Scholarship Portal

The Government of India has already made headway in integrating data on scholarships. The National
Scholarship Portal was initiated to harmonize all scholarship schemes implemented by various ministries
at the central and state levels. The portal serves as an umbrella platform for all scholarship related
services ranging from student application, application receipt, processing and sanction to disbursal of
funds. In addition to creating a transparent database of all beneficiaries of all government scholarship
schemes at various levels, the portal reduces hassles in discovering scholarships and facilitates direct
benefit transfer (DBT).
documents that the state issues. Citizens no One may hold a bank account with State Bank
longer need to run from pillar to post to get of India, but take a loan from HDFC. Their
“original” documents from the state such mutual fund investments may be through
as their driving licence, Aadhaar card, PAN Axis Bank, but their insurance is through
card, CBSE results, etc. These documents are LIC. They also have a credit card from
critical in the life of every resident of India. Standard Chartered and use Motilal Oswal to
These documents are most needed by those invest in some stocks directly. In such a case,
who depend on the state for welfare. They are the data needed by the individual to piece
also often the hardest to secure for the same together their own financial life is distributed
vulnerable group. across many data providers. The NBFC-AA
allows users to pull that data together, for any
4.60 DigiLocker makes all their documents
purpose the citizen requires. This may be for
available, in a verified format, in one place
personal finance management, or maybe to
on the cloud. Citizens only need an internet
apply digitally for a new housing loan. The
connected device, smartphone or computer to
NBFC-AA neither reads data nor creates an
access the locker. It helps digitize downstream
invasive 360-degree dataset. It simply enables
processes such as college admissions. For
citizens to demand their data from these
anyone who has had to retrieve a lost or
institutions in a machine-readable format, so
missing document from the government
that it can be used by them meaningfully.
or have to get photocopies “attested”, the
DigiLocker experience is immensely more WAY FORWARD
time-saving and user-friendly. They do not
have to live in the fear of their precious Through Aadhaar, India has been at the
documents being lost to the elements or other forefront of the data and technology revolution
misfortune. that is unfolding. As data for social welfare
may not be generated by the private sector in
4.61 In a similar vein, the Reserve Bank optimal quantity, government needs to view
of India has announced the Non-Banking data as a public good and make the necessary
Financial Company-Account Aggregator investments. The benefits of creating data as a
(NBFC-AA). Even in the finance industry, an public good can be generated within the legal
individual leads a complex financial life with framework of data privacy. Going forward,
their data spread across multiple providers. the data and information highway must be
Box 9: Idea of a National Health Registry

For Swachh Bharat to transform into Swasth Bharat and eventually Sundar Bharat, citizens’ health is
paramount. Prevention is far more important in this endeavour than cure. A national health register,
that maintains health records of citizens with all the necessary privacy safeguards can go a long way
in enabling health analytics for predictive and prescriptive purposes. Such a national health register
would be identified using a citizen’s Aadhar. As a doctor can access the medical history of a patient
from this national health register, this facility would be especially useful in emergency/trauma cases
and can potentially save several lives. The various components of this register can include databases for
(i) hospitals and public health centres, (ii) surveillance of syndromes, (iii) immunization information
systems, (iv) electronic laboratory reporting, and (v) sub-registries for key diseases requiring
intervention such as diabetes, hypertension, cancer, AIDS, etc. Anonymized data from the register can
be sold to private parties for analytics, which would then enhance prevention by offering predictive
and prescriptive knowledge.
viewed as equally important infrastructure its people. In the spirit of the Constitution
as the physical highways. Such a stance can of India, data “of the people, by the people,
help India leapfrog to utilise the benefits of for the people” must therefore become the
technological advances for the welfare of mantra for the government.
CHAPTER AT A GLANCE
 Given technological advances in gathering and storage of data, society’s optimal consumption
of data is higher than ever.
 As private sector may not invest in harnessing data where it is profitable, government must
intervene is creating data as a public good, especially of the poor and in social sectors of the
country.
 Governments already hold a rich repository of administrative, survey, institutional and transactions
data about citizens, but these data are scattered across numerous government bodies. Merging
these distinct datasets would generate multiple benefits with the applications being limitless.
 Given that sophisticated technologies already exist to protect and share confidential information,
data can be created as a public good within the legal framework of data privacy. In thinking
about data as a public good, care must also be taken to not impose the elite’s preference of
privacy on the poor, who care for a better quality of living the most.
 As data of societal interest is generated by the people, it should be “of the people, by the people,
for the people.”
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be60-49fd-ab1c-4984ebc3cde9/Dresner- Nissenbaum. 2014. Privacy, Big Data, and the
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Ritchie-Welpton.pdf
Ending Matsyanyaya: How To Ramp
Up Capacity In The Lower Judiciary
05
CHAPTER
“The Rule of Law and maintenance of order is the science of governance”

- Kautilya’s Arthashastra, 4th century B.C.
“No branch of knowledge and policy is of any avail if the Rule of Law is
neglected”
- Kamandak’s Nitisara, 4 century A.D.
th
Arguably the single biggest constraint to ease of doing business in India is

now the ability to enforce contracts and resolve disputes. This is not surprising
given the 3.5 crore cases pending in the judicial system. Much of the problem is
concentrated in the district and subordinate courts. Contrary to conventional
belief, however, the problem is not insurmountable. A case clearance rate of 100
per cent (i.e. zero accumulation) can be achieved with the addition of merely
2,279 judges in the lower courts and 93 in High Courts even without efficiency
gains. This is already within sanctioned strength and only needs filling vacancies.
Scenario analysis of efficiency gains needed to clear the backlog in five years
suggest that the required productivity gains are ambitions, but achievable. Given
the potential economic and social multipliers of a well-functioning legal system,
this may well be the best investment India can make.
INTRODUCTION closely linked to the ability to enforce

contracts and resolve disputes.
5.1 The relationship between economic
governance and the Rule of Law (Dandaniti) 5.2 Last year’s Economic Survey (2017-
has been emphasized by Indian thinkers 18) presented evidence of the backlog of
since ancient times. It is seen as the key cases that weighs down the Indian judiciary,
to prosperity, and a bulwark against economic tribunals and the tax department,
Matsyanyaya (i.e. law of the fish/jungle). thereby constraining economic growth. It also
It should be no surprise, therefore, that the highlighted how the government’s efforts to
Preamble to the Constitution of India defines improve the present regime, by introducing
that the first role of the State is ‘to secure for the Insolvency and Bankruptcy Code and the
all its citizens: Justice, social, economic, and adoption of the Goods and Services Tax, have
political’. In other words, it is well accepted had a profound impact on improving Ease of
that economic success and prosperity are Doing Business (EODB) in India1.
1
India was one of the biggest ‘improvers’ in the World Bank’s Ease of Doing Business Report (EODB), 2019 with its rank
jumping to 77 from 142 in the last four years.
Ending Matsyanyaya: How To Ramp Up Capacity In The Lower Judiciary 99
5.3 This progress notwithstanding, India 5.5 Given that District and Subordinate
continues to lag on the indicator for enforcing courts (D&S courts) account for 87.54 per
contracts, climbing only one rank from 164 cent of pending cases, this chapter will focus
to 163 in the latest report of EODB, 2018. In on this segment and evaluate its performance
spite of a number of actions to expedite and on parameters such as disposal time, pendency
improve the contract enforcement regime, time, case types and case clearance rate. The
economic activity is being affected by the Chapter further analyses the requirement of
long shadow of delays and pendency across additional judges and efficiency gains across
the legal landscape2. Contract enforcement the various levels of courts to achieve 100 per
remains the single biggest constraint to cent clearance rate as well as to eliminate the
improve our EODB ranking. This is ironical stock of pendency in the next five years.
for a country that has long idealized contract
5.6 The following sections provide an
enforcement. As Tulsi Ramayana puts it,
overview of the performance of D&S
“praan jayi par vachan na jayi” i.e., “one’s
courts, using metrics that quantify different
promise is worth more than one’s life”.
aspects of the litigant’s experience. These
5.4 The Indian judicial system has over include average age of cases, (both pending
3.53 crore pending cases3 (see Figure 1). At and disposed), the number of days between
first glance, this number looks very large and hearings, and the average amount of time
insurmountable, but this Chapter will argue spent on the life cycle of cases.
it is a potentially solvable problem. Indeed,
given the potential benefits, this may be the PENDENCY
best investment that the Indian economy can 5.7 The pendency of a case on a given
make. date is the time since the date of filing. The
distribution of ages of pending cases as on
Figure 1: Distribution of Pending Cases May 31, 2019 is shown in Figure 2. It reveals
among different levels of Courts in India that the distribution of pendency of both civil
Figure 2: Distribution of Pending Cases
(age-wise) in D&S courts
0-1 years 1-3 years 3-5 years 5-10 years > 10 years
100
Percentage of pending cases
90
80
70
60
50
40
30
20
All cases Civil cases Criminal cases

Source: Supreme Court of India and NJDG, 2019. Source: NJDG, As on May 31, 2019.
2
See Economic Survey 2018 Chapter 9, Volume I.
3
Source: Data for High Courts and Subordinate Courts is from the National Judicial Data Grid (NJDG) as on May 31, 2019
and data for the Supreme Court of India is from its website, as on May 1, 2019.
Figure 3: State-wise Average Pendency in D&S courts
6 All cases Civil cases Criminal cases

Average age of pending cases (years)
Chhattisgarh
Tamil Nadu
Andhra Pradesh
Punjab
Gujarat
West Bengal
Assam
Delhi
All India
Maharashtra
Odisha
Kerala
Karnataka
Bihar
Uttar Pradesh
Rajasthan
Madhya Pradesh

Source: NJDG, As on May 31, 2019.
and criminal cases is more or less the same. Figure 4: Distribution of Disposed Cases in
More than 64 per cent of all cases are pending D&S courts - 2018
for more than one year. Figure 3 shows the 0-3 years 3-5 years 5-10 years >10 years
inter-state variation in average pendency of 100
Percentage of disposed cases
cases in D&S courts. It reveals that Odisha,

90
Bihar, West Bengal, Uttar Pradesh and
80
Gujarat have higher average pendency for
both civil and criminal cases as compared 70
to the national averages whereas Punjab and 60

Delhi have the least average pendency of 50
cases. It may not be a coincidence that the All cases Civil cases Criminal cases

worst performing states are usually (albeit
Source: NJDG, 2019.
not always) also the poorest.
reveals that 74.7 per cent of the civil cases
DISPOSAL
and 86.5 per cent of the criminal cases are
5.8 Disposal time is measured as the time disposed within three years. Further, the
span between the date of filing and the date distribution of state-wise disposal rate is
when the decision is passed. The age-wise presented in Figure 5. It shows that Bihar,
distribution of the disposal time for D&S Odisha and West Bengal have higher average
courts in 2018 is presented in Figure 4. It disposal time than the national average for
Figure 5: State-wise Average Disposal Time in D&S courts (2018)
All cases Civil cases Criminal cases

Average age of disposed cases
3
(years)
0
Bihar
Odisha
West Bengal
Gujarat
Delhi
Assam
Chhattisgarh
Rajasthan
Tamil Nadu
Andhra Pradesh
Madhya Pradesh
Punjab
Maharashtra
All India
Karnataka
Kerala
Uttar Pradesh
Source: NJDG, 2019.
both civil and criminal cases. Further, Punjab 5.9 International comparison of disposal
and Delhi have the lowest average disposal rate is presented in Figure 6. The data reveals
time. These trends are consistent with the that the average disposal time for civil and
distribution of average pendency age across criminal cases in Indian D&S courts in 2018
states. Again, the states in eastern India was 4.4 fold and 6 fold higher respectively
perform poorly although Gujarat too has when compared with the average of Council
higher disposal time. of Europe members (2016). This indicates
that there is huge scope for improvement in
Figure 6: Average Disposal Time - India and
the disposal time for Indian D&S courts. The
Council of Europe
following section provides a detailed analysis
3 India COE member states of the effectiveness and efficiency of courts
using the framework of Case Clearance
Average age of disposed cases
2.5
Rate.
2
CASE CLEARANCE RATE
(years)
1.5
5.10 The Case Clearance Rate (CCR) is the
1
ratio of the number of cases disposed of in a
0.5 given year to the number of cases instituted
0 in that year, expressed as a percentage. It
Civil cases Criminal cases
may be noted that the cases disposed of
need not have been filed in the same year,
Source: NJDG, 2019 Council of Europe, European
Commission for the Efficiency of Justice (CEPEJ, as some proportion of them will typically be
2016). backlog from previous years – clearance rate
Figure 7: Institutions, Disposals, and Case Clearance Rate in D&S courts
Institution of Cases Disposal of Cases

Case Clearance Rate (RHS)
150 91
Case clearance rate (per cent)

Number of cases (lakhs)
125 89
100
87
75
85
50
25 83
0 81
2015 2016 2017 2018
Source: NJDG, 2019.
is mainly used to understand the efficiency Figure 8: International Comparison of Case

of the system in proportion to the inflow of Clearance Rate
cases.
India (2018) COE member states (2016)
5.11 Figure 7 shows the relationship
USA District Courts (2018) UK (2017)
between the institution, disposal of cases, 105
and CCR at all India level. While the number 95
of cases instituted each year in D&S courts 85
Per cent
has gone up, so has the number of disposals. 75

However, the gap between institution and 65
disposals allows cases to accumulate and 55
results in an increase in pendency. This is 45
Civil Cases Criminal Cases
because the CCR remains structurally below
100 per cent. An encouraging sign was that Source: NJDG, CEPEJ, US Courts, UK Parliament
the CCR had increased from 86.1 per cent research briefing, 2019.
in 2015 to 90.5 per cent in 2017, but then
declined to 88.7 per cent in 2018. per cent in 2016 for both civil and criminal
cases. With a CCR below 100 per cent and a
5.12 The international comparison of CCR
heavy backlog of pre-existing cases, Indian
is presented in Figure 8. It shows that the
courts suffer from increasing delays. USA’s
CCR for civil and criminal cases in India
district courts have better CCR of 98 per cent
was 94.76 per cent and 87.41 per cent
and 92 per cent for civil cases and criminal
respectively in 2018 while the COE member
cases respectively. While criminal courts in
has already achieved the CCR above 100
the UK’s England and Wales court system the concept of an input–output matrix of cases
perform relatively well, with a clearance rate at different court levels. It is recognized that
of roughly 100 per cent, their civil courts fare the disposal rate can be increased. However,
poorly in comparison to India, the USA, and productivity is assumed to be constant for the
the COE average, with a clearance rate of just purpose of this analysis.
62 per cent.
5.14 Using a simple input-output model, the
CAN THE LEGAL LOGJAM BE survey estimates the number of additional
CLEARED? lower court judges that would be needed
to stop further accretion of pendency and
5.13 There are two key issues at hand that clear the backlog. The D&S courts received
need to be dealt with in order to make the 1.5 crore additional cases in 2018 and had
judiciary more efficient. Firstly, to achieve a a backlog of 2.87 crore (as on January 1,
100 per cent clearance rate must be achieved 2018). The number of cases disposed of
so that there is zero accumulation to the in 2018 was 1.33 crore. Thus, the closing
existing pendency. Secondly, the backlog of balance in end-2018 was 3.04 crore. There
cases already present in the system must be are currently 17,891 judges compared to the
removed. The following analysis is done to sanctioned strength of 22,750. On average, a
solve the above mentioned issues by using judge disposes 746 cases. Chart 1 shows the
Chart 1: Additional Judges required in D&S courts (At Current Efficiency)
Pendency (As on Dec’17) Institution of cases (Jan-Dec’18)

2.87 crore 1.5 crore
Total Workload (Dec’18)

4.37 crore
Total Disposal cases (Jan-Dec’18) Pendency (As on Dec’18)

1.33 crore 3.04 crore
Court characteristics (Dec’18)

Judge Strength:
• Sanctioned: 22,750
• Working: 17,891 (79%)
Annual Disposal Rate (per judge): 746
Clearance Rate: 89%
Additional judges required to Additional judges required to clear

achieve 100% clearance in a year all backlog in 5 years
*.1-.1,8<).,;!'= " #,424.

9
:

: ~ 8,152
(117+0)/5325+04+6. &#%
$

Source: Court News-Supreme Court, NJDG, 2019 and Survey calculations.

calculation for the requirement of additional This is already within the present sanctioned
judges in D&S courts. In order to reach 100 strength for High Courts. To clear all backlogs
per cent CCR in 2018, the D&S courts needed in the next five years, the High Courts need a
2,279 additional judges. This is within the further 361 additional judges.
sanctioned strength! However, in order to
5.16 As of October 2018, Supreme Court
clear all the backlog in the next five years,
judges were working at 90 per cent of
further 8,152 judges are needed. This is no
their sanctioned strength. With a high case
more than a rough calculation, but it shows
clearance rate of 98 per cent, each judge
that efficiency gains are also required.
disposes 1,415 cases per year on average.
5.15 Applying the same framework to The backlog of cases as on October 2018
higher courts, we found that the numbers are was 56,320. In order to reach 100 per cent
even smaller (note that the data sets here are CCR, the Supreme Court would have needed
from July-June). As of June 2017, High Court only one extra judge in 2018. To clear all
judges were working at 62 per cent of their backlog in the next five years, an additional
sanctioned strength. With a case clearance eight judges are required. In May 2019,
rate of 88 per cent, each judge achieved an three additional judges were appointed to
average disposal rate of 2,348 cases per year. the Supreme Court raising their number to
The backlog of cases as on June, 2018 was the full sanctioned strength of 31. To clear
44.40 lakh. In order to reach 100 per cent backlog, the Supreme Court needs to increase
CCR, they needed just 93 additional judges. its sanctioned strength by six.
Chart 2: Additional Judges required in High Courts (At Current Efficiency)
Pendency (As on June’17) Institution of cases (July’17- June’18)

40.22 lakh 17.93 lakh
Total Workload (June’18)

58.15 lakh
Total Disposal (July’17- June’18) Pendency (As on June’18)

15.75 lakh 44.40 lakh
Court characteristics (June’18)

Judge Strength:
• Sanctioned: 1,079
• Working: 671 (62%)
Annual Disposal Rate (per judge): 2,348
Clearance Rate: 88%
Additional judges required to achieve Additional judges required to clear

100% clearance in a year all backlog in 5 years
: )-2,-2+9=(82-< %> ###1*0.
; ; ~ 361

&228*1'/6436*15*7- !"#%
$
Source: Supreme Court Annual Report, 2018 and Survey calculations.

Chart 3: Additional Judges required in the Supreme Court (At Current Efficiency)
Pendency (As on Dec’17) Institution of cases (Jan- Oct’18)

55,558 33,743
Total Workload (Oct’18)

89,331
Total Disposal (Jan- Oct’18) Pendency (As on Oct’18)

33,011 56,320
Court characteristics (Oct’18)

Judges Strength:
• Sanctioned: 31
• Working: 28 (90%)
10 Month Disposal Rate (per judge): 1,179
Clearance Rate: 98%
Additional judges required to Additional judges required to

achieve 100% clearance in a clear all backlog in 5 years
"##$#" " %(#')

& & ~8
" "!# !$ $" "!#

(Criteria met in May 2019)
Source: Supreme Court Annual Report, 2018 and Survey calculations.

Note: For calculation of additional judges to clear all backlog in five years, disposal rate is adjusted for full year.
5.17 The main point of this analysis is that Case Types

a major hurdle to economic growth and
5.19 The types of civil and criminal
social well-being can be stabilized through
cases, based on their subject matter and
a relatively small investment in the legal
the legislation under which they have been
system. The numbers above are illustrative, filed, can result in significant variation along
but it shows that the much debated judicial with the metrics used in this chapter. The
logjam is solvable. complexity and gravity of a case type can
determine the stages and process that it must
HOW SHOULD THEADDITIONAL
go through. A snapshot of the distribution of
JUDGES BE ALLOCATED? common pending case type for both civil and
5.18 In order to optimally allocate these criminal cases at the national level in D&S
additional D&S judges, the following section courts is presented in Table 1 below:
has analysed common case types in both 5.20 Table 1 reveals that as on May 31,
civil and criminal pendency. This will help 2019, the civil cases contribute a mere 28.38
understand which case types require per cent of total pendency while criminal
additional judges. cases contribute about 71.62 per cent in D&S
Table 1: Common Cases Types Weight in Total Pendency (As on May 31, 2019)
Common Case Types in Per cent
A. Civil cases
Civil Suit 14.00
Motor Vehicle 2.84
Civil Original Suits Marriage Petition 1.22
Land Reference 0.49
Other Civil 2.06
Total Civil Original Suits 20.60
Civil Application 1.96
Civil Execution 4.21
Civil Appeal 1.61
Total Civil Suits 28.38
B. Criminal cases
Warrant/ Summons 56.63
Criminal Original Suits Sessions Cases 5.60
Other Criminal 2.03
Total Criminal Original Suits 64.26
Pre-Trail 1.57
Criminal Applications Bail Application 1.57
Others Application 2.66
Total Criminal Applications 5.80
Criminal Appeal 1.56
Total Criminal Suits 71.62
Source: NJDG, 2019.
courts. Further, civil suit, civil execution, to understand which of these cases have a
warrant/ summons and criminal application tendency to have backlogs. This is presented
are common case types stuck in the backlog. in Table 2 below:
These contribute 14 per cent, 4.21 per cent,
5.21 Table 2 reveals that average CCR for
55.63 per cent and 2.8 per cent share in total
all civil and criminal cases in D&S courts for
backlog, respectively. We calculate case type
2018 was 94.76 per cent and 87.41 per cent
clearance rate in D&S courts for 2018, so as
Table 2: Case Type Institution, Disposal and CCR for D&S courts in 2018
Common Case Types Institution Disposal CCR (%)
A. Civil cases (Overall) 32,96,242 31,23,642 94.76
Civil Original Suits 21,77,722 21,09,102 96.85
Civil Suit 11,66,259 10,81,236 92.71
Motor Vehicle 3,71,686 3,99,873 107.58
Marriage Petition 3,06,932 2,66,649 86.88
Land Reference 30,409 58,586 192.66
Civil Application 4,02,449 3,76,400 93.53
Civil Execution 5,11,118 4,46,677 87.39
Civil Appeal 1,74,283 1,71,790 98.57
B. Criminal cases (Overall) 1,16,23,439 1,01,60,317 87.41

Criminal Original Suit 86,10,411 73,44,581 85.30
Warrant/ Summons 76,28,227 64,52,314 84.58
Sessions Cases 5,29,694 4,79,828 90.59
Criminal Applications 27,20,351 25,44,683 93.54
Pre Trail 3,76,786 3,45,299 96.71
Bail Application 11,50,573 11,12,717 93.68
Criminal Appeal 2,63,407 2,46,756 93.68
Source: NJDG, 2019.
respectively. This means that not only the we will take up in a future Economic Survey).
backlog of criminal cases is about 2.5 fold Lastly, it may be noted that ‘Motor Vehicle’
higher than civil cases, criminal case type also and ‘Land Reference’ case types have done
has lower CCR (even lower than the national quite well, maintaining a CCR of 107.58 and
CCR of 88.7 per cent). This means that the 192.66 per cent respectively in 2018. These
situation for criminal cases is distinctly areas need to maintain the current pace.
worsening. The problem is especially acute
for criminal original suits such as summons, 5.22 Some economists may take the view
warrants etc. These contribute 64 per cent of that the relatively poor performance of
the total pendency as of May 31, 2019 with the criminal justice system is of no direct
a clearance rate of 85.3 per cent. This implies consequence to the economy. However,
that the additional judges need to specialize a behavioural approach would make no
in these case types so as to speed up the distinction since human beings are seen
disposal of such cases. Note that this is a case to respond to the overall context. A culture
not merely for additional judges and legal of Rule of Law must pervade as all of the
reforms, but also for police reforms (a matter governance and cannot be improved in silos.
Figure 9: Average Number of Days Spent at a given Stage - Civil Cases
Stages in chronological order Stages which may occur at any point in a case
400
Average number of days
300
200
100
0
Admission and Denial
Alternative Dispute
Evidence
For Trial
Notice/ Summons
LCR/ R and P
Framing of Issues
Arguments
Amendments
Orders
Others
Consideration
Hearing
Written Statement/
Final Order/ Judgement

Objection/ Reply
Resolution
Source: eCourts and Daksh, 2019.
Life-cycle Analysis of its life in that stage.
5.23 The progress of a case through various 5.25 The data from eCourts shows that
stages reveals to a large extent where judicial most of the time is spent in the ʻLCR/R
delays occur and can aid policy formulation and P’ (Lower Courts Records – Records
to reduce delays and backlog. Analysis of and Proceedings) stage. Here, cases cannot
life-cycle can be used to precisely identify proceed as the court must first receive the
causes of delay, whether they are procedural case’s records from the lower court. Civil
inefficiencies or shortages of human and cases spend an average of 398 days in this
physical resources. The average per cent of stage and 369 days in the ʻHearing’ stage.
case life-cycle spent in a civil case is presented This inefficiency consumes a significant
below. For the purpose of this section, we proportion of a case’s life, and is a major
have used data from eCourts services portal factor contributing to delays and backlog. The
covering District and Sessions Courts across ʻNotice/Summons’ and ʻEvidence’ stages are
15 States, extracted between September 18, also time consuming at 322 and 325 days on
2018 and January 29, 2019. average, respectively.
5.24 Figure 9 shows the stages in 5.26 Figure 10 reveals that, as with civil
chronological order, from left to right. cases, awaiting lower court records causes
However, not all occur at specific points delays for criminal cases, being the stage in
of a stage, as some can occur at any point, which they spend the largest amount of time
such as orders. In addition, not all cases go of 243 days, on average. The ʻEvidence’ stage
through all stages, but those that go through a and ʻFraming of Charges’ stages consume
particular stage may spend a significant part 235 and 231, respectively, while all other
Figure 10: Average Number of Days Spent at a given Stage -
Criminal Cases
Stages in chronological order Stages which may occur at any point in a case
250
200
150
100
50
Consideration
Objection/ Reply
Admission and Denial
Final Order/ Judgement

For Bail
Evidence
Notice/ Warrants/ Summons
LCR/R and P
Framing of Charges
Arguments
Amendments
Orders
Others
Appearance of Accused
Hearing
stages of criminal cases take much less time. State-wise CCR

The process for both civil and criminal cases
5.28 Figure 12 shows that Gujarat and
can be significantly sped up by targeting the
Chhattisgarh have clearance rates of above
delay in these specific stages.
100 per cent in 2018. These states have
5.27 Further, Figure 11 shows that state-wise achieved a level of efficiency where they
average number of the days between hearings are not only able to cope with fresh filings
for civil and criminal cases. Its shows that but can also address backlog from previous
West Bengal, particularly for civil matters, years. Madhya Pradesh, Assam and Tamil
spends much more time between hearings Nadu have impressively high clearance
than any other state – approximately 301.4 rates of close to 100 per cent. Again, eastern
days, as compared to the average (across Indian states perform poorly. Bihar, Odisha,
15 states) of 78.1 days for civil cases. The and West Bengal have low clearance rates
average for all cases is also the highest in of 55.58 per cent, 62.18 per cent, and 78.63
West Bengal - 167.7 days between hearings, per cent respectively. Hence, we suggest that
compared to the 15-state average of 55.1 these states should be given priority in the
days. appointment of additional judges.
Figure 11: State-wise Average Number of Days between Hearings -

Civil and Criminal Cases
320 All cases Civil cases Criminal cases

240
160
80
0
Odisha
Maharashtra
Bihar
Uttar Pradesh
Tamil Nadu
Andhra Pradesh
West Bengal
All 15 States
Delhi
Gujarat
Telangana
Haryana
Karnataka
Puducherry
Punjab
Chhattisgarh

5.29 There is a great amount of variation in huge gaps between the demand for courts and
the extent to which the subordinate judiciary the current capacity of the subordinate courts
in each state is capable of dealing with the in many states – possibly a key factor in the
inflow of new cases. There are, therefore development inequalities between states.
Figure 12: State-wise Institution - Disposal Gap and CCR in D&S courts - 2018
Institution-Disposal Gap (Percentage of filings)

Case Clearance Rate (RHS) 110
40
Case Clearance Rate (per cent)
Filings accumulated ( per cent)
90
30
70
20
50
10
0 30
-10 10
Bihar
Odisha
West Bengal
Delhi
Assam
Gujarat
Uttar Pradesh
Rajasthan
Punjab
Andhra Pradesh
Tamil Nadu
Madhya Pradesh
Chhattisgarh
Maharashtra
All India
Karnataka
Kerala
Source: NJDG, 2019.

5.30 Figure 13 reveals that there is some 5.31 It may be further noted that although
correlation between vacancy and pendency. Gujarat and Madhya Pradesh have high
This is especially true for Uttar Pradesh and pendency, they have also achieved CCR
Bihar. In these states, the focus should be on of 108.59 per cent and 99.94 per cent
filling vacancies. However, note that West respectively. NJDG data suggests that this
Bengal and Maharashtra have few vacancies is due to relatively recent improvements.
but high pendency. This means that the Perhaps the efficiency gains of these states
national allocation of judges also has to be should be studied and replicated.
revisited.
Figure 13: State-wise Pendency of Cases, Vacancy of Judges CCR in D&S courts

1,250 Vacancy Pendency (RHS) CCR (RHS) 120
100
Pendency (lakhs)
1,000
Vacancy of Judges
CCR (per cent)

80
750
60
500
40
250 20
0 0
Andhra Pradesh
Delhi
Assam
Maharashtra
Odisha
Bihar
Chhattisgarh
Uttar Pradesh
Rajasthan
Tamil Nadu
Punjab
Madhya Pradesh
Gujarat
West Bengal
Kerala
Karnataka

Source: NJDG and Lok Sabha Unstarred Question No. 675, 2019.
Note: Pendancy as on June 2, 2019.
MAKING INDIAN COURTS cent. With full sanctioned strength, High

MORE PRODUCTIVE Courts would need only 4.3 per cent increase
in efficiency to clear the backlog although,
5.32 The analysis thus far has provided a given high vacancy rates, the required rate at
gauge of how many judges would be needed current working strength is 68 per cent. The
in order to increase the clearance rate at the equivalent numbers for the Supreme Court
existing efficiency rate and the nature of are 18 per cent and 31 per cent respectively.
the delays. However, there is a large scope
for improving the efficiency of the process. 5.33 Over the years, many suggestions have
As shown in Table 3, the backlog in lower been put forward by researchers and official
courts can be cleared in five years at full committees for enhancing productivity in
sanctioned strength with an efficiency gain the judiciary. Some of the suggestions are
of 24.5 per cent. At current working strength, discussed below:
it would take an efficiency gain of 58 per
Table 3: Scenario Analysis of Required Efficiency Gains

Particulars D&S courts High Supreme
Courts Court
Institution of cases in 2018 1,50,40,971 17,93,546 33,743
Disposal of cases in 2018 1,33,41,478 15,75,435 33,011
Backlog of cases 3,03,95,534 42,39,966 56,320
Sanctioned Strength of Judges 22,750 1,079 31
Working Strength of Judges 17,891 671 28
Current Disposal Rate per Judge 746 2,348 1,415*
Case Clearance Rate 89% 88% 98%
Scenario I: Constant Productivity
Total judges required to reach 100% CCR 20,170 764 29
Additional Judges required to reach 100% CCR 2,279 93 1
(above existing working strength)
Additional Judges required to clear backlog in five 10,431 454 9
years
Additional Judges required to clear backlog in five 5,572 46 6
years (above existing sanctioned strength)
Scenario II: Required Productivity Gains
Required Productivity Gains to clear backlog in five 24.5% 4.3% 18%
years at full sanctioned strength
Required Productivity Gains to clear backlog in five 58% 68% 31%#
years at current working strength
Average number of working days 244 232 190
Source: Supreme Court Annual Report 2018, Various Court Calenders 2019, NJDG 2019 and Survey calculations.
Note: Data for backlog of cases, sanctioned and working strength of judges for D&S courts, HCs and SC is as on
December 2018, June 2018 and October 2018 respectively.
*Adjusted for full year using January-October 2018 data.
# As of May 2019, SC is working at its full sanctioned strength.
a) Increase number of working days: It close for 49 days for summer vacations,
has often been pointed out that Indian 14 days for winter break, and a further
courts close down for significant periods 18 days for Holi, Diwali and Dussehra.
due to vacations. The length of these After accounting for weekends and
vacations varies a great deal from court- public holidays, it leaves 190 working
to-court, but appears to have a palpable days for the Supreme Court. In contrast,
impact on the number of working days. the average is 232 working days for High
For instance, the Supreme Court’s official Courts and 244 days for Subordinate
calendar for 2019 suggests that it would courts. There is a great deal of variation
between states, and many courts make up is not conducive to systemic reforms and
for vacations by working on Saturdays. gradual accumulation of institutional
For comparison, central government knowledge on administrative matters.
offices will be open for 244 working days In this context, it has been proposed to
in 2019 (note that the above calculations create a specialized service called Indian
exclude personal leaves). Courts and Tribunal Services (ICTS) that
focuses on the administrative aspects of
The main finding is that increasing the
the legal system. The major roles to be
number of working days may improve
played by ICTS would be (i) provide
productivity of the Supreme Court and
administrative support functions needed
in some High Courts, but is unlikely
by the judiciary (ii) identify process
to significantly impact lower courts.
inefficiencies and advise the judiciary on
Subordinate courts, which account for the
legal reforms (iii) implement the process
bulk of pendency, seem to work almost
re-engineering.
as many days as government offices.
The ICTS is not a unique model. Similar,
b) Establishment of Indian Courts and
court management services exist in other
Tribunal Services: Most judicial reforms
countries: Her Majesty’s Court and
tend to focus only on the quality and
Tribunals Services (UK), Administrative
quantity of judges, but a major problem
Office of US Courts (US), Court
lies with the quality of the administration
Administration Service (Canada).
of the courts system, particularly backend
functions and processes. This is critical c) Deployment of Technology: Technology
to reducing the process delays identified can significantly improve the efficiency
earlier in this Chapter. As a recent report of courts. One major effort in this
by the National Institute of Public direction is the eCourts Mission Mode
Finance and Policy put it, “For effective Project that is being rolled out in phases
functioning, courts require competent by the Ministry of Law and Justice. This
administration to ensure that processes has allowed the creation of the National
are followed, documents are submitted Judicial Data Grid (NJDG). The system is
and stored, facilities are maintained and already able to capture most cases, their
human resources are managed. Court status and progress. Most of the analysis
administration must support the judges in this chapter has been made possible by
in performing their core judicial function real time data made publicly available
efficiently.”4 on the NJDG and eCourts portals. The
digitalization of cases is now allowing
In the current system, the main
stake-holders to keep track of individual
responsibility for administration in
cases and their evolving status. It is not
Indian courts is assigned to the chief
possible yet to statistically measure the
judicial officer. In addition to significant
efficiency gains from this effort, but it is
demands on his/her time, this approach
certainly a big step forward.
4
Pratik Dutta et al., “How to Modernize the Working of Courts and Tribunals in India”, NIPFP Working Paper, 258, March
2019.
5.34 There are significant productivity gains that the required efficiency gains for clearing
to be derived from better administration, the backlog are ambitious but achievable if
increase in working days, and technology combined with speeding up appointments.
deployment (including likely future Given the social and economic importance of
applications of Artificial Intelligence). It is this issue, it should be given top priority by
difficult to predict the exact improvement, policy-makers.
but the purpose of this analysis is to show
CHAPTER AT A GLANCE
¾ Delays in contract enforcement and disposal resolution are arguably now the single biggest
hurdle to the ease of doing business in India and higher GDP growth.
¾ Around 87.5 per cent of pending cases are in the District and Subordinate courts. Therefore, this
segment must be the focus of reform.
¾ The study found that 100 per cent clearance rate can be achieved by merely filling out the
vacancies in the lower courts and in the High Courts (even without the productivity gains)
¾ Simulations of efficiency gains and additional judges needed to clear the backlog in five years
suggest that the numbers are large but achievable.
¾ The states of Uttar Pradesh, Bihar, Odisha and West Bengal need special attention.
REFERENCES European Union. CEPEJ. European Judicial

Systems Efficiency and Quality of Justice.
Court News. Publication. Supreme Court of
Series 26. Brussels: Council of Europe, 2018.
India. 2018. Accessed June 29, 2019. https://
www.sci.gov.in/pdf/CourtNews/COURT_ India. Ministry of Law. Department of
Justice. Lok Sabha Unstarred Question No.
NEWS_OCTOBER-DECEMBER_2017.
675. New Delhi, 2019. 1-40.
pdf.
____. Department of Justice. Ministry of
Dutta, Pratik, et.al., "How to Modernise Law. National Judicial Data Grid. Accessed
the Working of Courts and Tribunals in June 29, 2019. https://njdg.ecourts.gov.in/
India." NIPFP Working Paper Series No. njdgnew/index.php.
258, March 25, 2019. Accessed June 29, Supreme Court. Indian Judiciary: Annual
2019. https://www.nipfp.org.in/media/ Report 2017–2018. New Delhi, DELHI,
medialibrary/2019/03/WP_2019_258.pdf. 2018.
How does Policy Uncertainty affect 06
Investment? CHAPTER
Economic Policy Uncertainty in India has reduced significantly over the last decade. Coinciding
with the years of policy paralysis, economic policy uncertainty was the highest in 2011-12.
Since then, economic policy uncertainty has declined secularly. The continued decrease in
economic policy uncertainty in India post 2015 is exceptional because it contrasts sharply with
the increase in economic policy uncertainty in major countries during this period, including the
US. As is expected, episodes of greater uncertainty, such as the taper tantrum in 2013 exhibit
elevated economic policy uncertainty. Economic policy uncertainty also correlates strongly with
the macroeconomic environment, business conditions and other economic variables that affect
investment. Surges in economic policy uncertainty increase the systematic risk, and thereby the
cost of capital in the economy. As a result, higher economic policy uncertainty lowers investment,
especially because of the irreversibility of investment. Consistent with this thesis, an increase
in economic policy uncertainty dampens investment growth in India for about five quarters.
Unlike generic economic uncertainty, which cannot be controlled, policymakers can reduce
economic policy uncertainty to foster a salutary investment climate in the country. The following
policy changes are recommended. First, policymakers’ must make their actions predictable,
provide forward guidance on the stance of policy, and reduce ambiguity/arbitrariness in
policy implementation. Second, “what gets measured gets acted upon”. So, economic policy
uncertainty index must be tracked at the highest level on a quarterly basis. Finally, quality
assurance of processes in policy making must be implemented in Government via international
quality certifications.
INTRODUCTION policy action, provides forward guidance on

policy action, maintains broad consistency
6.1 What is the effect of uncertainty/
in actual policy with the forward guidance,
ambiguity in policy making on the investment
reduces ambiguity and arbitrariness in policy
climate in the economy? Consider, for
implementation creates economic policy
instance, a poorly drafted law that is riddled
certainty. Investors may enjoy the certainty
with ambiguities, amendments, clarifications
provided by such an environment and flock
and exemptions that inevitably lead to
to invest in this environment.
conflicting interpretations and spawn endless
litigation. Needless to say, such uncertainty 6.2 To examine this critical question and
can spook investors and spoil the investment frame appropriate policy responses, it is
climate in the economy. Such uncertainty in critical to understand the differences between
economic policy can be avoided. In contrast, risk and uncertainty. Both fundamentally
a nation state that ensures predictability of affect economic activity. However, while risk
can be quantified, uncertainty is inherently ʻfinance minister’, ʻlawmakers, ʻplanning

hard to measure1. As policy making relies commission’, ʻeconomic advisor’, ʻPrime
on judgment – within the framework set by Minister’s Office’, ʻPM Office’, ʻPrime
constitutional rules and other legal constraints Minister Economic Advisory Council.’
– it often involves discretion. Such discretion Only those articles that have words from all
can generate uncertainty, which can impact three categories are counted for measuring
economic activity. Among different sources economic policy uncertainty. Articles are
of economic uncertainty, economic policy taken from various newspapers, including,
uncertainty matters significantly because this Economic Times, Times of India, Hindustan
uncertainty refers to one that policymakers Times, The Hindu, Financial Express, Indian
can control and thereby influence economic Express and the Statesman using access
activity. For instance, while the monsoon world news.
impacts economic activity, policymakers
have absolutely no control over it. However, 6.4 As shown later in this chapter, EPU
economic policy uncertainty captures index picks up the period of economic policy
uncertainty that policymakers can control. uncertainty, such as the taper tantrum of
2013, and correlates very well with other
6.3 As uncertainty itself inherently cannot vulnerability indices like inflation volatility,
be quantified, economic policy uncertainty is stock market volatility, business sentiment
difficult to quantify. However, advances in index, and other macroeconomic vulnerability
data analytics, in general, and text analytics, indices.
in particular, have made it possible to quantify
uncertainty, in general, and economic 6.5 We then examine the impact of
policy uncertainty, in particular. A globally economic policy uncertainty on investment as
recognized attempt at quantifying economic it forms the core of the process of economic
policy uncertainty is the one by Baker growth. Two key features of the decision to
et al. (2016), who develop an Economic invest highlight the key role of uncertainty.
Policy Uncertainty (EPU) index for various First, investment represents a forward-
countries including India. To measure looking activity. Second, it is irreversible
economic policy uncertainty, the index is (Pindyck and Salimano, 1993; Caballero
created by quantifying newspaper coverage and Pindyck, 1993; Chen and Funke, 2003;
of policy-related economic uncertainty. The Bloom, Floetotto and Jaimovich, 2009).
index reflects frequency of articles in leading As investment is forward-looking, future
newspapers that contain the following triple: expectations play a critical role in the decision
ʻeconomic’ or ʻeconomy’; ʻuncertain’ or to invest. Specifically, an investor invests in
ʻuncertainty’; and one or more of policy related a project if the upfront costs are less than the
words ʻfiscal policy’, ʻmonetary policy’, present value of the expected rewards from
ʻPMO’, ʻparliament’. Other terms for ʻpolicy’ the investment. As uncertainty influences
include ʻregulation’, ʻdeficit’, ʻlegislation’, these expectations, irrespective of its source,
ʻreform’, ʻcentral bank’, ʻRBI’, ʻReserve it affects the decision to invest. Conceptually,
Bank’, ʻfinance ministry’, ʻpolicymakers, the Capital Asset Pricing model postulates
1 The Webster’s dictionary defines risk as the “possibility of loss or injury; peril” and uncertainty as “indefinite, indeterminate”
and “not known beyond a doubt.” Knight (1921), who did seminal work in distinguishing risk from uncertainty, distinguishes
risk and uncertainty as follows: “risk is present when future events occur with measurable probability while uncertainty is
present when the likelihood of future events is indefinite or incalculable.”
How does Policy Uncertainty affect Investment? 117
that the required return on investment ECONOMIC POLICY
correlates positively with the systematic UNCERTAINTY IN INDIA
risk underlying the investment. An increase 6.6 Economic Policy Uncertainty when
in uncertainty in the economy increases this measured using EPU index was the highest in
systematic risk and thereby increases the rate 2011-12 coinciding with the years of policy
of return required to justify the investment. paralysis. Economic policy uncertainty has
As a result, projects that generate a return reduced significantly over the last decade in
lower than this required return become India. Figure 1 shows that economic policy
unviable when uncertainty increases in uncertainty has secularly declined from July
the economy. Also, as fixed investment is 2012 onwards, though with intermittent
irreversible, uncertainty exacerbates risk- episodes of elevated uncertainty in
aversion, increases the premium demanded between. As is expected, episodes of greater
uncertainty, such as the taper tantrum in
for assuming risk, and eventually dampens
2013, exhibit elevated levels of the economic
investment. Consistent with this thesis, the
policy uncertainty index. Following the
analysis indicated that an increase in economic announcement by the Federal Reserve
policy uncertainty dampens investment of tapering of their policy of monetary
growth in India for about five quarters. One easing, investors in emerging markets faced
standard deviation increase in uncertainty uncertainty about the policies that would
leads to about one percentage point decline be adopted in these countries to control the
in investment growth rate. Thus, economic impact of this Fed policy change. Thus, the
policy uncertainty materially impacts the EPU index captures this economic policy
investment climate in the country. uncertainty as expected.
Figure 1: Economic Policy Uncertainty in India
300
Growth slowdown
250
200 Taper tantrum

EPU index
150
100
50
0
Mar-15
Nov-11
Aug-15
Jan-16
Nov-16
Jul-13
Dec-13
Jul-18
Dec-18
Apr-12
May-14
Apr-17
May-19
Oct-14
Jun-11
Sep-12
Feb-13
Jun-16
Sep-17
Feb-18
Source: http://www.policyuncertainty.com/
6.7 The index of economic policy Economic Survey 2014-15. This measure is
uncertainty for India shows peaks in few a sum of twin deficits i.e., fiscal deficit and
months of 2011 and 2012, reflecting the policy current account deficit, and inflation. Figure
paralysis during that period, which witnessed 2 shows a strong correlation of 0.8 of this
the problems of the high twin deficits vulnerability measure with EPU index. Both
and high inflation, thereby exacerbating the indices show almost same movements
macroeconomic vulnerability. The index is
over time. This also points towards aptness
also high in the second half of 2013 when the
of economic policy uncertainty index to be
economy faced the episode of “taper tantrum”
leading to volatile capital flows, depreciation used as a yardstick for measuring impact of
of rupee vis-à-vis US dollar (Figure 2). The uncertainty with investment.
peak during GST is not as sharp, maybe 6.9 Apart from this, EPU index is very
due to the fact that the discussions around strongly correlated to volatility in exchange
GST policy were happening much before rate, stock market & inflation and various
it was actually implemented in July 2017. other macroeconomic variables. There is a
This shows that the index is picking up time correlation of around 0.7 between volatility
periods characterized by increasing economic
in exchange rate and EPU index. The EPU
policy uncertainty.
index closely tracks both the deterioration of
6.8 The EPU index correlates very strongly the future expectation index and India VIX
to macroeconomic stability. To examine index which monitors the volatility in stock
this correlation, we use the vulnerability market. It is strongly correlated to inflation
measure created and employed in the rate and repo rate as well (Figures 3 to 8).
Figure 2: Correlation of EPU index with macroeconomic vulnerability
EPU index (left scale) Vulnerability measure (right scale)

200 30
180
25
160
Vulnerability measure
140 Correlation 20
120 Coefficient: 0.79
EPU index
100 15
80
10
60
40
5
20
0 0
2004-05
2005-06
2006-07
2007-08
2008-09
2009-10
2010-11
2011-12
2012-13
2013-14
2014-15
2015-16
2016-17
2017-18
2018-19
Source: RBI, CSO and Central Government Budget Documents

Note: Vulnerability index is measured as sum of Fiscal Deficit to GDP, CAD to GDP and Inflation rate.
Figure 3: Exchange rate volatility and Figure 4: Future expection index and
EPU index EPU index
250 250
200 200
EPU index
150 150
EPU index
100 100
50 50
0 0
0.000 0.010 0.020 0.030 0.040 90 100 110 120 130
Coefficient of variation of exchange rate Future expectation index
Figure 5: EPU index and India Figure 6: EPU index and Inflation
VIX volatility
250 250
200 200
EPU index
EPU index
150 150
100 100
50 50
0 0
5 10 15 20 25 30 0 0.5 1 1.5 2
VIX Standard deviation of inflation
Figure 7: EPU index and Repo rate Figure 8: EPU index and WPI inflation
250 250
200 200
EPU index
EPU index
150 150
100 100
50 50
0 0
4 5 6 7 8 9 -10 -5 0 5 10 15
Repo rate (1-quarter lag) WPI inflation (%)
Source: RBI, NIFTY, CSO and http://www.policyuncertainty.com/ (from Figure 3 to 8)

DECOUPLING OF ECONOMIC growth. Year 2018 saw sharp divergence

POLICY UNCERTAINTY IN INDIA of India’s economic policy uncertainty
SINCE 2015 index with that of global uncertainty index,
6.10 Economic policy uncertainty peaked in which increased sharply (Figure 9). Global
India during the late 2011 and early 2012 and uncertainty index increased from 112 to
has since been declining with intermittent 341 in the same year, whereas that of India
increases in between. Economic policy remained below 100.
uncertainty in India moved closely in tandem 6.11 Specifically, EPU index shows that the
with global uncertainty until 2014. However,
movements in India were almost similar to
it started diverging since early 2015 and
that of the US until 2015; however, the two
seems to have completely decoupled in 2018.
series have diverged since then. Economic
In recent times, while the economic policy
policy uncertainty in India has consistently
uncertainty has been increasing across the
world, including US, UK and China; India’s been lower than that of US since then (Figure
economic policy uncertainty has been falling. 10). The divergence has increased sharply
Uncertainty seems to have stabilized at lower since mid-2018, probably due to the rising
levels in case of India since last few years, trade tensions of US with China. The low
which is noteworthy given the recent surge in economic policy uncertainty index for India
global uncertainty, partly due to rising trade in last one year points towards resilience of
tensions between US and China, uncertainty the economy even in times of global trade
about outcome of Brexit, slower world uncertainty.
Figure 9: Comparison of India’s and global EPU index
350
EPU-India EPU-Global
300
250
EPU index
200
150
100
50
0
Jan-03
Jan-10
Jan-17
Mar-18
Mar-04
Mar-11
Aug-03
Jul-06
Nov-08
Aug-10
Jul-13
Nov-15
Aug-17
Dec-05
Dec-12
May-05
Feb-07
Sep-07
Apr-08
May-12
Feb-14
Sep-14
Apr-15
May-19
Oct-04
Oct-11
Oct-18
Jun-09
Jun-16
Figure 10: Comparison of EPU index of India with United States
300
EPU-India EPU-US
250
200
EPU index
150
100
50
0
Jan-03
Jan-05
Jan-07
Jan-09
Jan-11
Jan-13
Jan-15
Jan-17
Jan-19
Sep-03
Sep-05
Sep-07
Sep-09
Sep-11
Sep-13
Sep-15
Sep-17
May-04
May-06
May-08
May-10
May-12
May-14
May-16
May-18
GREEN SHOOTS OF TURNAROUND 2017-18. In fact, gross fixed capital formation

IN INVESTMENT ACTIVITY as a proportion of GDP, commonly referred
6.12 Figure 11 shows that after falling for to as the fixed investment rate, fell from 37
close to a decade since 2008, investment per cent in 2007-08 to 27 per cent in the
activity has turned the corner since Q1 of following ten years but has since recovered
Figure 11: Investment rate and GDP growth
41 14.0
GFCF as percentage of GDP (left scale)
39 Improvement in 12.0
investment rate GDP growth rate (right scale) Improvement in
investment rate
GFCF as percentage of GDP (%)
37 10.0
GDP growth (%)
35 8.0
33 6.0
31 4.0
29 Deceleration in 2.0
investment rate
27 0.0
25 -2.0
2005-06Q1
2005-06Q3
2006-07Q1
2006-07Q3
2007-08Q1
2007-08Q3
2008-09Q1
2008-09Q3
2009-10Q1
2009-10Q3
2010-11Q1
2010-11Q3
2011-12Q1
2011-12Q3
2012-13Q1
2012-13Q3
2013-14Q1
2013-14Q3
2014-15Q1
2014-15Q3
2015-16Q1
2015-16Q3
2016-17Q1
2016-17Q3
2017-18Q1
2017-18Q3
2018-19Q1
2018-19Q3
Source: Central Statistics Office.

Note: Quarterly GFCF rate from 2005-06 Q1 to 2010-11 Q4 has been calculated using the quarterly to annual ratio
from 2004-05 series.
to approximately 28 per cent recently. period can be attributed to policy related

While several factors led to the investment uncertainty. Hardouvelis et al (2018) find
slowdown till 2017-18, inter-alia, including that shocks to economic policy uncertainty
the twin balance sheet problem discussed in are associated with a subsequent decline
detail in Economic Survey 2016-17, we show in investment, industrial production, GDP,
that a secular trend of reducing economic
economic sentiment and the stock market.
policy uncertainty may have helped to foster
These shocks go a long way to explain not
the turnaround in investment activity.
only the direction but also the magnitude of
6.13 The continued resolution of the the changes in macro and financial variables
twin balance sheet problem following during the Greek economic crisis.
implementation of Insolvency and
Bankruptcy Code 2016 and recapitalization 6.15 The relationship of uncertainty in
of banks helped to promote investment. economic policy with investment may be
Focus on improvement in the business through two channels. First is the direct
climate via measures to improve ease of relationship of economic policy uncertainty
doing business, clarity in the policy for with investment growth and second is the
FDI liberalization may have also helped relationship of EPU with other variables
in this regard by reducing economic policy which in turn affect investment.
uncertainty.
6.16 Figure 12 shows that there is a strong
RELATIONSHIP OF ECONOMIC negative relationship between EPU index and
POLICY UNCERTAINTY WITH investment growth. There is a correlation of
INVESTMENT IN INDIA (-)0.30 between these two variables (from
Q1 of 2005-06 to Q4 of 2018-19). However,
6.14 Internationally, there are many studies
the relationship was weaker for some time
showing a significant dynamic relationship
period i.e., Q3 of 2009-10 to Q4 of 2013-14,
between economic policy uncertainty and
real macroeconomic variables. Economic when the uncertainty in the economy was
policy uncertainty as measured by EPU index declining and even the investment growth
foreshadows a decline in economic growth, rate was declining.
banking crisis (Baker et al. 2016). Anand et Figure 12: Investment growth and EPU index
al. (2014) found that high uncertainty and
20
deteriorating business confidence played a
role in the investment slowdown in India.
15
Bloom et al. (2018) found that uncertainty
GFCF growth (%)
shocks can generate drop in GDP of around

10
2.5 per cent with heterogeneous firms.
Gluen and Ion (2013) using EPU index find
5
that policy related uncertainty is negatively
related to firm and industry level investment,
0
and the economic magnitude of the effect 0 50 100 150 200 250
is substantial. Their estimates indicate
-5 EPU index
that approximately two thirds of the 32
per cent drop in corporate investments in Source: http://www.policyuncertainty.com/,
US observed during the 2007-2009 crisis CSO
6.17 Impulse response functions from the 6.18 Foreign investments are also expected
Vector Autoregressive Regression (VAR) to be negatively related to the economic
model show after a shock i.e., higher policy certainty in the economy and the data
uncertainty, the investment rate falls and then shows so as well (Figure 14 and Figure 15).
the impact withers away with time (Figure Both Foreign Direct Investment (FDI) flows
14). The impact of a one standard deviation and Foreign Institutional Investment (FII)
shock to EPU index is about 1 percentage flows are negatively correlated to EPU index,
point and it remains for many quarters (Figure implying that not only the short term inflows,
13). In fact, it can be said with sufficient but also long term capital inflows are affected
confidence that the impact remains for at by higher uncertainty in economic policy.
least five quarters (the 95 per cent confidence Impulse Response Function of VAR also
band remains below zero till five quarters). shows a significant negative impact of the
shock, which lingers on about three to four
Figure 13: Impulse Response of GFCF quarters. However, another point to note is
growth to EPU index
that the initial impact is sharper for FDI flows
1 (Figure 16 and 17).
Change (in percentage points)
0
6.19 There are various other factors
affecting investment. First important factor
-1 that affects investment decision is cost of
borrowing. Borrowing costs, with a lag, are
-2 expected to be negatively associated with
investment as they reflect higher input costs.
-3
0 2 5 8 10
As expected, fixed investment is negatively
Quarters following the shock correlated with repo rate2, weighted average
95% CI orthogonalized irf lending rate and marginal cost of lending
Source: Survey calculations. rates of SBI. Second important factor for
Figure 14: FDI growth and EPU index Figure 15: FII growth and EPU index
100 100
75 75
50 50
FDI growth (%)
FII growth (%)
25
25
0
0
0 50 100 150 200 250
-25
-25
-50
0 50 100 150 200 250 -50
EPU index EPU index
Source: http://www.policyuncertainty.com/, RBI
2
Borrowing costs here are represented by repo rate, which is the rate of interest charged by RBI to banks for their borrowings
from RBI. Although the actual borrowing cost of firms’ will be different and significantly higher than repo rate, it is expected
to move in the same direction.
Figure 16 : Impulse-response of FDI growth Figure 17 : Impulse-response of FII growth to

to EPU index EPU index
10
10

0
-10
-10
-20
-20
-30
0 2 5 8 10 0 2 5 8 10
Quarters following the shock Quarters followign the shock
95% CI orthogonalized irf 95% CI orthogonalized irf
Source: Survey calculations. Source: Survey calculations.
investment is the prices that producers get for of variation. This is because the returns that
their products. Rise in prices are expected to the foreign investors actually realize are in
trigger greater investments as businesses find foreign currency terms, which depend on
it profitable to do so as long as consumption the exchange rate. If the volatility of the
demand is sufficiently strong to overcome exchange rate is higher, it may decrease the
the impact of inflation. This is seen, as the growth of foreign inflows. It is seen that
investment growth is positively correlated the relationship between growth in FDI and
to wholesale price inflation, but negatively volatility of exchange rate is weak suggesting
to consumer price inflation. This may be that foreign investors in projects have other
due to the fact the producers would realize considerations as well. On the other hand,
producer prices which are closer to wholesale a negative relationship, is seen between
prices upon selling any product, whereas FII inflows and volatility of exchange rate.
consumers have to pay consumer prices The negative relationship suggests that the
and higher prices may dampen the demand. portfolio investments which are generally
Third important factor affecting investment short term investments are more affected by
is capacity utilization. The utilization of the volatility in exchange rate, as compared
capacity in any quarter is expected to have a
to FDI flows, which are generally for longer
positive relationship with investment growth
duration (details in annex of the Chapter).
in the following quarter, as excess unutilized
capacity in the previous quarter may lower 6.21 Can EPU index proxy for all variables
the need for new investment in the current examined for impacting fixed investment
quarter. Data shows a positive correlation in the economy? It can, if it is strongly
between investment growth and capacity correlated with these variables and results
utilization in previous quarter (details in in previous section indicate that it is indeed
annex of the Chapter). correct. EPU is positively correlated to all
6.20 The foreign component of fixed the factors discussed above- repo rate, WPI
investment, FDI and FII flows are expected inflation, volatility of exchange rate, and
to be negatively related to the volatility of Capacity Utilization (as shown in Figure
exchange rate, measured by its coefficient 3 to 8).
CONCLUSION AND POLICY policy certainty. The Government could

RECOMMENDATIONS also use labels such as “Standstill”
versus “Ratchet up” to categorize
6.22 While economic uncertainty stemming
various categories of policies according
from uncontrollable factors remains beyond
to the level of commitment about future
the control of policymakers, they can control
certainty that it can provide.
economic policy uncertainty. Reducing
economic policy uncertainty is critical 2. Second, following the adage that
because both domestic investment and foreign “what gets measured gets acted upon”,
investment are strongly deterred by increases economic policy uncertainty index
in domestic economic policy uncertainty. must become an important index that
6.23 India has secularly decreased domestic policymakers at the highest level
economic policy uncertainty since 2012 monitor on a quarterly basis. Relatedly,
and has been exceptional in reducing this following the evolved academic
uncertainty since 2015 amidst a global literature in this area, government must
environment of increases in the same. encourage construction of economic
However, policymakers need to double policy uncertainty sub-indices to capture
down on reducing domestic economic policy economic policy uncertainty stemming
uncertainty. from fiscal policy, tax policy, monetary
policy, trade policy, and banking policy.
6.24 We outline a few steps in this regard:
Tracking these sub-indices would enable
1. First, top-level policymakers must ensure monitoring and control over economic
that their policy actions are predictable, policy uncertainty.
provide forward guidance on the stance
3. Quality assurance of processes in
of policy, maintain broad consistency in
policy making, which reflect the adage
actual policy with the forward guidance,
of “Document what you do, but more
and reduce ambiguity/arbitrariness
in policy implementation. To ensure critically do what you document!” must
predictability, the horizon over which be implemented in the government. The
policies will not be changed must be actual implementation of policy occurs
mandatorily specified so that investor can at the lower levels, where ambiguity
be provided the assurance about future gets created and exacerbates economic
policy certainty. While this will generate policy uncertainty. As organizations in
some constraints in policy making, such the private sector compete and seek the
voluntary tying of policymakers’ hands highest level of quality certifications,
is undertaken in several cases including Government departments must be
the Fiscal Responsibility and Budget mandated to similarly seek quality
Management Act, the Monetary Policy certifications. This process of certification
Framework of the Reserve Bank of India. will require training of personnel in
A similar constraint placed on ensuring following quality assurance processes
no changes in policy for a specified and will significantly reduce economic
horizon would go a long way to ensuring policy uncertainty.
CHAPTER AT A GLANCE
 Economic Policy Uncertainty has reduced significantly in India over the last decade.
 Continued decline in economic policy uncertainty in India post 2015 is exceptional because it
contrasts sharply with the increase during this period in economic policy uncertainty in major
countries, especially the U.S.
 An increase in economic policy uncertainty dampens investment growth in India for about five
quarters.
 Unlike generic economic uncertainty, which cannot be controlled, policymakers can reduce
economic policy uncertainty to foster a salutary investment climate in the country.
 Forward guidance, consistency of actual policy with forward guidance, and quality assurance
certification of processes in Government departments can help to reduce economic policy
uncertainty.
REFERENCES Caballero, Ricardo J., and Robert S. Pindyck.

Uncertainty, investment, and industry
Knight, Frank H. Risk, uncertainty and profit. evolution. No. w4160. National Bureau of
Courier Corporation, 2012.
Economic Research, 1992.
Pindyck, Robert S., and Andres Solimano.
“Economic instability and aggregate Bloom, Nicholas, Max Floetotto, Nir
investment.” NBER macroeconomics Jaimovich, Itay Saporta `Eksten, and
annual 8 (1993): 259-303. Stephen J. Terry. “Really uncertain business
cycles.” Econometrica 86, no. 3 (2018):
Chen, Yu-Fu, and Michael Funke. “Option 1031-1065.
value, policy uncertainty, and the foreign
direct investment decision.” (2003). Gulen, Huseyin, and Mihai Ion. “Policy
uncertainty and corporate investment.” The
Anand, Rahul, and Volodymyr
Tulin. Disentangling India’s Investment Review of Financial Studies 29, no. 3 (2015):
Slowdown. No. 14-47. International Monetary 523-564.
Fund, 2014. Hardouvelis, Gikas A., Georgios Karalas,
Baker, Scott R., Nicholas Bloom, and Dimitrios Karanastasis, and Panagiotis
Steven J. Davis. “Measuring economic Samartzis. “Economic Policy Uncertainty,
policy uncertainty.” The quarterly journal of Political Uncertainty and the Greek
economics 131, no. 4 (2016): 1593-1636. Economic Crisis.” (2018).
ANNEX
Figure A1: Investment growth and repo rate Figure A2: Investment growth and WPI
inflation
25 25
20 20
15
GFCF growth (%)
15
GFCF growth (%)

10 10
5 5
0 0
4 5 6 7 8 9 10 -10 -5 0 5 10 15
-5 -5
Repo rate (1-quarter lag) WPI inflation (%)
Figure A3: Investment growth and capacity Figure A4 : FDI growth and exchange rate
utilization volatility
16 150.0
14
12 100.0
10
GFCF growth (%)
FDI growth (%)
8 50.0
6
4 0.0
0.000 0.010 0.020 0.030 0.040
2
0 -50.0
70 75 80 85
-2
-4 -100.0
Capacity Utilization (1 quarter lag) Coefficient of variation of exchange rate
Figure A5: FII growth and exchange rate volatility

200
150
100
FII growth (%)
50
0
0.000 0.010 0.020 0.030 0.040
-50
-100
Coefficient of variation of exchange rate
Source: RBI, CSO, Note: Capacity Utilization data is available only from 2008-09 onwards
India's Demography at 2040:
Planning Public Good Provision for
07
CHAPTER
the 21st Century
India is set to witness a sharp slowdown in population growth in the next two
decades. Although the country as a whole will enjoy the “demographic dividend”
phase, some states will start transitioning to an ageing society by the 2030s.
It will surprise many readers to learn that population in the 0-19 age bracket
has already peaked due to sharp declines in total fertility rates (TFR) across
the country. The southern states, Himachal Pradesh, Punjab, West Bengal and
Maharashtra now have fertility rates well below the replacement rate. TFR in
Bihar, Uttar Pradesh, Jharkhand, Chhattisgarh, Rajasthan and Madhya Pradesh
are above the replacement rate but are also experiencing significant declines.
As a result, the national TFR is expected to be below replacement level by
2021 (adjusted for the skewed gender ratio, it may already be there). The age
distribution, however, implies that India's working-age population will grow
by roughly 9.7mn per year during 2021-31 and 4.2mn per year in 2031-41.
Meanwhile, the proportion of elementary school-going children, i.e. 5-14 age
group, will witness significant declines. Contrary to popular perception, many
states need to pay greater attention to consolidating/merging schools to make
them viable rather than building new ones. At the other end of the age scale,
policy makers need to prepare for ageing. This will need investments in health
care as well as a plan for increasing the retirement age in a phased manner.
I. RECENT DEMOGRAPHIC this period; the slowdown in states with

TRENDS historically high population growth such as
Bihar, Uttar Pradesh, Rajasthan and Haryana
7.1 Population growth in India has been is particularly noteworthy. Population is now
slowing in recent decades from an annual growing below 1 per cent in the southern
growth rate of 2.5 per cent during 1971-81 to states as well as West Bengal, Punjab,
an estimated 1.3 per cent as of 2011-16 (Figure Maharashtra, Odisha, Assam and Himachal
1). All major states have witnessed a marked Pradesh1 (Figure 2).
deceleration in population growth during
___________
In the figures, abbreviations used for states are as follows. AP: Andhra Pradesh, AS: Assam, BR: Bihar, CG: Chhattisgarh,
1
DL: Delhi, GJ: Gujarat, HP: Himachal Pradesh, HR: Haryana, JH: Jharkhand, JK: Jammu & Kashmir, KA: Karnataka, KL:
Kerala, MH: Maharashtra, MP: Madhya Pradesh, OR: Odisha, PB: Punjab, RJ: Rajasthan, TL: Telangana, TN: Tamil Nadu,
UK: Uttarakhand, UP: Uttar Pradesh, WB: West Bengal.
India's Demography at 2040: Planning Public Good Provision for the 21st Century 129
Figure 1: Annual Population Growth Rate in India (per cent)
2.5
2.0
1.5
1.0
0.5
0.0
1941-51
1951-61
1961-71
1971-81
1981-91
1991-01
2001-11
2011-16
Source: Census 2011, International Institute for Population Sciences (IIPS) estimates.
Figure 2: Annual Population Growth Rate by State during 2011-16 (per cent)
2.0
1.8
1.6
1.4
1.2
1.0
0.8
0.6
0.4
0.2
0.0
PB
WB
TL
TN
MH
MP
RJ
BR
AS
HP
KL
AP
KA
CG
OR
JK
DL
HR
GJ
UK
JH
UP
Source: Census 2011, IIPS estimates.
7.2 A key driver of this trend has been halved from 4.5 in 1984 to 2.3 as of 2016
the steady decline in India’s total fertility (Figure 3 and Figure 4).
rate2 (TFR) since the mid-1980s. Though
the decline in India’s TFR has been more 7.3 The replacement level fertility3 is
gradual when compared to the experience of usually marked at 2.1 but, as discussed in
other emerging economies, it has nonetheless the next section, India’s TFR may already
___________
2
Total fertility rate refers to the total number of children born or likely to be born to a woman of child-bearing age in her
lifetime.
3
TFR of 2.1 children per woman is called the replacement level fertility, which is the average number of children a woman
would need to have in order for the population to replace itself
Figure 3: Number of Years Taken for TFR to Decline from over 4.0 to India’s TFR of 2.3
25
20
15
10
5
0
Sri Lanka
Thailand
Brazil
China
Bangladesh
S.Korea
Turkey
India
Singapore
Hong Kong
Source: World Bank, Sample Registration System.
Figure 4: TFR in India
5.5
5.0
4.5
4.0
3.5
3.0
2.5
2.0
1971
1974
1977
1980
1983
1986
1989
1992
1995
1998
2001
2004
2007
2010
2013
2016
Source: Sample Registration System.
be close to the effective replacement level is now below replacement level fertility in 13
fertility after accounting for its skewed out of the 22 major states (Figure 6). In fact,
sex ratio. Interestingly, India has reached TFR has reached as low as 1.6-1.7 in states
the current TFR of 2.3 at a relatively low such as Delhi, West Bengal, Tamil Nadu,
per capita income when compared to the Andhra Pradesh, Telangana, Punjab and
experience of major developed economies Himachal Pradesh. Even high fertility states
but similar to that of other Asian countries such as Bihar, Jharkhand, Rajasthan, Madhya
(Figure 5).
Pradesh, Chhattisgarh, Uttar Pradesh and
7.4 Note that there is a wide variation in Uttarakhand have seen a sharp decline in
the experience of different Indian states. TFR TFR over the years.
Figure 5: Real Per Capita GDP when TFR Reached 2.3
25000
real per capita GDP (PPP, 2011 $) US
Australia
20000
Canada France
New Zealand
Belgium UK
15000 Italy
Hong Kong Turkey
Austria
10000 Brazil
Singapore
India
5000 S.Korea Thailand
Sri Lanka
Bangladesh
China
0
1960 1970 1980 1990 2000 2010 2020
year when TFR reached 2.3
Source: World Bank, Penn World Table.
Figure 6: TFR by State in 2016
3.4
3.2
3.0
2.8
2.6
2.4
2.2 Replacement level fertility = 2.1
2.0
1.8
1.6
1.4
1.2
1.0
WB
TN
MH
PB
TL
KL
MP
BR
DL
JK
HP
AP
KA
UK
CG
OR
GJ
HR
AS
JH
RJ
UP
Source: Sample Registration System.
7.5 These developments suggest that India age-structure, and the ageing phenomenon
has entered the next stage of demographic already underway in some states. The
transition with population growth set to slow southern states, Himachal Pradesh, Punjab,
markedly in the next two decades along with West Bengal and Maharashtra are already
a significant increase in the share of working- quite advanced in the demographic transition,
age population (the so-called “demographic with (i) TFR already well below replacement
dividend” phase). level fertility; (ii) population growth mainly
7.6 However, national-level population due to momentum; (iii) more than 10 per cent
trends mask the significant heterogeneity of the population over the age of 59; and (iv)
across states in terms of fertility, mortality, at most one-third of the population below the
age of 20. In contrast, states such as Bihar, chapter. However, as an illustrative exercise,
Uttar Pradesh, Jharkhand, Chhattisgarh, Section III looks at some policy implications
Rajasthan and Madhya Pradesh are still in the for health care provision, elementary school
early stages of demographic transition. facilities and retirement age.
7.7 In light of continued urbanization, II. PROJECTING NATIONAL AND
improvements in health care, increase in STATE LEVEL POPULATION
female education, and other socio-economic
drivers of demographic change, Section II 7.8 Population and its age structure are
forecasts demographic metrics at the national projected at the national and state level up to
and state level up to 2041. Such an exercise 2041 following the methodology outlined in
would enable us to understand the pace of Box 1. For the purpose of analysis, Section II
demographic transition at the national and and III focus on 22 major states, which account
state level and assess which states are likely to for 98.4 per cent of India’s population as per
experience significant ageing. The projected Census 2011.
population and age-structure over the next two
(i) Declining Fertility Rates
decades has several implications for policy,
inter-alia for the (i) provision of health care, 7.9 Projected values for 2021-41 suggest
(ii) provision of old-age care, (iii) provision that TFR at the national level will continue to
of school facilities, (iv) access to retirement- decline rapidly and will lie below replacement
related financial services, (v) public pension level fertility at 1.8 as early as 2021 (Table 1).
funding, (vi) income tax revenues, (vii) In line with the fertility patterns witnessed in
labour force and labour participation rates, other countries, TFR is expected to stabilize
and (viii) retirement age. Detailed analysis thereafter for some time around 1.7. Such
of these issues is beyond the scope of this fertility levels would be close to the TFR
Table 1: TFR for India and Major States, 2001-2041
States 2001 2011 2016 2021 2031 2041
INDIA 3.1 2.4 2.3 1.8 1.7 1.7

Andhra Pradesh 2.3 1.8 1.7 1.5 1.5 1.5
Assam 3.0 2.4 2.3 1.8 1.8 1.8
Bihar 4.4 3.6 3.3 2.5 2.0 1.8
Chhattisgarh 3.9 2.7 2.5 1.8 1.8 1.8
Delhi 2.1 1.9 1.6 1.5 1.5 1.5
Gujarat 2.9 2.4 2.2 1.9 1.8 1.8
Haryana 3.1 2.3 2.3 1.8 1.8 1.8
Himachal Pradesh 2.2 1.8 1.7 1.6 1.6 1.6
Jammu & Kashmir 2.5 1.9 1.7 1.5 1.5 1.5
Jharkhand 4.4 2.9 2.6 1.8 1.8 1.8
Karnataka 2.4 1.9 1.8 1.5 1.5 1.5
Kerala 1.8 1.8 1.8 1.8 1.8 1.8

Madhya Pradesh 3.9 3.1 2.8 2.0 1.8 1.8
Maharashtra 2.4 1.8 1.8 1.5 1.5 1.5
Odisha 2.6 2.2 2.0 1.8 1.8 1.8
Punjab 2.4 1.8 1.7 1.6 1.6 1.6
Rajasthan 4.0 3.0 2.7 1.9 1.8 1.8
Tamil Nadu 2.0 1.7 1.6 1.5 1.5 1.5
Telangana 2.3 1.8 1.7 1.6 1.6 1.6
Uttar Pradesh 4.5 3.4 3.1 2.0 1.8 1.8
Uttarakhand 4.5 3.4 1.9 1.6 1.6 1.6
West Bengal 2.4 1.7 1.6 1.5 1.5 1.5
Source: Census, Sample Registration System, IIPS projections.
Note: Projected values for 2021-41 are based on fitted model values from 20-year trends of TFR based on estimates
from Sample Registration System. Before 2016, the values of Andhra Pradesh are assigned to Telangana.
Box 1: Methodology for Population Projections

Using the 2011 Census data as baseline, population is projected by age-structure up to 2041.
These projections are undertaken both at the national level and for 36 states and Union Territories
(UTs). The cohort-component methodology (Cannan, 1895 and George et al, 2004) is followed for
population projections at the national level and for 22 major states that account for 98.4 per cent of
India’s population using assumptions for fertility, mortality, life expectancy and sex ratio at birth.
These assumptions at the national level are derived using the assumptions for states weighted by
their share in national population. No inter-state migration is assumed since the Census 2011 data
on net inter-state migration by age-structure has not been published. International migration is not
taken into consideration. The age-sex population is smoothened and adjusted for the population
category of “age not stated” using a point formula similar to the methodology used in government’s
official projections (Office of Registrar General of India, 2006).
Population Projections for Smaller States and UTs:

The eight smaller states (Arunachal Pradesh, Goa, Manipur, Meghalaya, Mizoram, Sikkim,
Nagaland and Tripura) and six UTs (Chandigarh, Puducherry, Daman & Diu, Dadra & Nagar Haveli,
Lakshadweep and Andaman & Nicobar) account only 1.6 per cent of India’s population. Due to
constraints in obtaining reliable estimates for long-term trends in mortality and fertility, the ratio
method (Pittenger, 1976 and U.S. Census Bureau, 1952) is used for population projection. The ratio
of the small area (say a small state) to the larger area (say India) is calculated and assumed to remain
constant up to 2041. For each year, this ratio is multiplied by the projected population of the larger
area, as derived using the cohort-component methodology, to obtain the population projections for
these states and UTs.
Mortality Rate:
A log-linear model is used to project mortality using life expectancy at birth for 1970-2016
from the Sample Registration System’s Life Tables, fitted separately for male and female4:
for females
, for males
Life expectancy is projected to continue to rise during the projection period from 67.2 years in 2016
to 71.4 years in 2041 for males, and more significantly, from 70.3 years in 2016 to 75.3 years in
2041 for females5.
Fertility Rate:
TFR is projected up to 2041 using the Gompertz method (Gompertz, 1825) based on the lower (L)
and upper (U) limits of TFR and the base period TFR, where the latest available TFR is inserted:
The lower limit (L) of TFR is taken between 1.2-1.8 for different states, and the upper limit (U)
of TFR is taken to be the value of TFR in the base period, given that TFR across states is on a
downward trend currently. TFR for time period t is projected using the estimated parameters a and
b using the Ordinary Least Squares (OLS) regression.
Sex Ratio:
Both sex ratio at birth and sex differentials in survival probability are taken into consideration to
determine the sex ratio of the population. Sex ratio at birth is assumed to remain constant at the
2014-16 levels since it already stands below 1.10 in 12 out of the 22 major states and is not expected
to decline significantly in the next two decades in the remaining 10 states.
currently seen in countries such as China, Maharashtra and Himachal Pradesh, are
Belgium, Netherlands and Brazil. expected to see TFR decline further by 2021,
reaching as low as 1.5-1.6 and stabilizing
7.10 At the state level, those already
thereafter. Even states lagging behind in the
below replacement level fertility, including
fertility transition are expected to see TFR
the southern states, West Bengal, Punjab,
fall significantly below replacement level
___________
4
Since Life Tables for Delhi and Himachal Pradesh are not available for longer periods, appropriate increment in life
expectancy at birth for male and female are applied to the UN (2017) forecasts to project life expectancy at birth up to 2041.
5
Since Kerala already has high life expectancy at birth, the maximum life expectancy at birth is assumed to be equal to the
current life expectancy at birth of Japan.
to 1.8. This would be as early as 2021 in (ii) Population Growth Trajectory
Jharkhand, Haryana and Chhattisgarh, and
by 2031 in Uttar Pradesh, Rajasthan and 7.13 Demographic projections show that
Madhya Pradesh. In fact, by 2031, all states India’s population growth will continue to
would see below replacement level fertility. slow rapidly over the next two decades,
growing less than 1 percent during 2021-
7.11 This is in line with expectations of 31 and under 0.5 per cent during 2031-41
further decline in fertility for females in the (Table 2). Such population growth rates
20-30 age-group, driven by rising female would be close to the trend currently seen
education, postponement of marriage, access in countries such as Germany and France.
to family planning methods, and continued In fact, with TFR projected to fall well
decline in infant mortality. While family below replacement level fertility by 2021,
planning programs have played a major positive population growth in the next
role in reducing fertility in India in the past two decades will be due to population
decades, these socio-economic changes have momentum and the continued rise in life
manifested over the last 10-15 years. expectancy.
7.12 The projections for TFR in Table 1 7.14 Given state-level differences in initial
are based on the assumption that sex ratio at fertility levels, mortality and age composition,
birth will remain at current levels over the both the trajectory of population and population
next two decades. As of 2014-16, sex ratio growth will continue to vary across states. States
at birth remains higher than the normal range ahead in the demographic transition will see a
of 1.02-1.076 at the national level and in 17 continued deceleration in population growth
out of 22 major states. Thus, there are more and reach near-zero growth rates by 2031-41.
men than women in the population when With population peaking by 2031, Tamil Nadu’s
compared to the natural level. This implies population growth will start declining during
that the required replacement level fertility 2031-41 unless offset by inward migration.
at the national and state level is higher than Population growth will be close to zero in
the usual benchmark of 2.1, i.e., due to the Andhra Pradesh and as low as 0.1-0.2 per cent
skewed sex ratio, a woman would have to give in Karnataka, Kerala, Telangana, Himachal
birth to more than 2.1 children in order for Pradesh, West Bengal, Punjab and Maharashtra.
the population to replace itself. Our estimates
suggest that the effective replacement level 7.15 States lagging behind in the
fertility after taking into account the skewed demographic transition will also witness
sex ratio could be around 2.15-2.2 for India a marked slowdown in population growth
with a sex ratio of 1.11; around 2.2-2.25 for during 2021-41. Population growth will halve
states such as Haryana, Uttarakhand and over the next two decades in Chhattisgarh,
Gujarat with the sex ratio as high as 1.15- Uttar Pradesh, Rajasthan and Madhya
1.20; and between 2.1-2.2 for the remaining Pradesh. Bihar alone will have a population
states with the sex ratio around 1.07-1.14. growth rate of 1 per cent. Nonetheless,
Interestingly, the current TFR in 14 out of the together with Jharkhand, these states will
22 major states is already below the effective account for nearly two-thirds of the increase
replacement level fertility. in India’s population during 2021-41, with
___________
6
The average value of sex ratio at birth is around 1.05, i.e. 105 boys born per every 100 girls.
Table 2: Annual Population Growth Rate (in per cent) for India and Major States
States 2001-11 2011-21 2021-31 2031-41

INDIA 1.77 1.12 0.72 0.46
Andhra Pradesh 1.10 0.65 0.31 0.02
Assam 1.71 0.74 0.77 0.48
Bihar 2.54 1.82 1.34 1.00
Chhattisgarh 2.26 1.17 0.76 0.57
Delhi 2.12 1.00 0.62 0.30
Gujarat 1.93 1.12 0.71 0.44
Haryana 1.99 1.08 0.70 0.44
Himachal Pradesh 1.29 0.64 0.57 0.24
Jammu & Kashmir 2.36 0.88 0.82 0.49
Jharkhand 2.24 1.39 0.97 0.82
Karnataka 1.56 0.75 0.36 0.10
Kerala 0.49 0.66 0.45 0.18
Madhya Pradesh 2.03 1.36 0.81 0.64
Maharashtra 1.60 0.73 0.42 0.15
Odisha 1.40 0.82 0.63 0.38
Punjab 1.39 0.71 0.42 0.11
Rajasthan 2.13 1.47 0.96 0.75
Tamil Nadu 1.56 0.56 0.25 -0.05
Telangana N/A 0.80 0.53 0.21
Uttar Pradesh 2.02 1.48 0.93 0.73
Uttarakhand 1.88 1.30 0.70 0.50
West Bengal 1.38 0.71 0.50 0.14
Source: Census, IIPS projections.
just Uttar Pradesh and Bihar accounting for to decline and is projected to drop from as
over 40 per cent of the increase (Table 3). high as 41 per cent in 2011 to 25 per cent by
2041 (Table 4). On the other hand, the share
(iii) Changing Age Composition
of elderly, 60 years and above, population
7.16 With TFR reaching low levels and will continue to rise steadily, nearly doubling
longevity continuing to increase, India’s from 8.6 per cent in 2011 to 16 per cent by
population at the national level and in several 2041. India’s demographic dividend will peak
states will begin ageing significantly in just a around 2041, when the share of working-age,
decade from now. The share of India’s young, i.e. 20-59 years, population is expected to
i.e. 0-19 years, population has already started hit 59 per cent. With changing demographic
Table 3: Population (in millions) for India and Major States, 2011- 2041
Projected growth
States 2011 2016 2021 2031 2041
during 2021-41 (%)
INDIA 1210.6 1286.1 1346.9 1443.2 1510.2 12.1
Andhra Pradesh 49.4 51.2 52.6 54.2 54.3 3.4
Assam 31.2 32.2 33.5 36.1 37.9 12.9
Bihar 104.1 113.8 123.0 139.5 153.4 24.7
Chhattisgarh 25.5 27.3 28.5 30.7 32.4 13.8
Delhi 16.8 17.7 18.5 19.6 20.2 9.4
Gujarat 60.4 64.1 67.2 72.0 75.2 11.8
Haryana 25.4 26.9 28.1 30.0 31.4 11.7
Himachal Pradesh 6.9 7.1 7.3 7.7 7.9 8.2
Jammu & Kashmir 12.5 13.1 13.6 14.8 15.5 13.4
Jharkhand 33.0 35.7 37.6 41.2 44.6 18.8
Karnataka 61.1 63.7 65.7 68.1 68.7 4.7
Kerala 33.4 34.6 35.6 37.2 37.9 6.4
Madhya Pradesh 72.6 78.1 82.5 89.2 94.9 15.0
Maharashtra 112.4 117.0 120.6 125.7 127.6 5.8
Odisha 42.0 43.8 45.4 48.2 50.1 10.3
Punjab 27.7 28.8 29.7 31.0 31.3 5.3
Rajasthan 68.5 74.1 78.6 86.1 92.6 17.8
Tamil Nadu 72.1 74.5 76.2 78.1 77.7 2.0
Telangana 35.2 36.7 38.0 40.0 40.9 7.4
Uttar Pradesh 199.8 216.2 229.3 250.7 269.0 17.3
Uttarakhand 10.1 10.9 11.4 12.2 12.8 12.3
West Bengal 91.3 94.8 97.8 102.7 104.2 6.5
composition, India’s age-structure by 2041 states, would have less than one-fourth of the
will resemble that of China and Thailand as population under the age of 20 but about one-
seen during the current decade. fifth or more population over the age of 59
by 2041.
7.17 All major states are projected to witness
a decline in the share of young population 7.18 Even states in earlier stages of
and an increase in the share of elderly demographic transition, such as Bihar, Uttar
population over the next two decades. Pradesh, Jharkhand, Chhattisgarh, Madhya
States ahead in the demographic transition, Pradesh and Rajasthan, will see a significant
such as Himachal Pradesh, West Bengal, decline in the share of young population,
Maharashtra, Punjab and most of the southern though these shares will remain relatively
Table 4: Population by Age Structure (per cent share of population)

for India and Major States, 2011-2041
0-19 years 20-59 years 60 years and above
States 2011 2021 2031 2041 2011 2021 2031 2041 2011 2021 2031 2041
INDIA 40.9 34.5 28.8 25.2 50.5 55.8 58.8 58.9 8.6 9.7 12.4 15.9
Andhra
34.8 28.4 24.4 21.4 55.1 59.6 60.2 58.6 10.1 12.0 15.4 20.0
Pradesh
Assam 42.7 35.4 29.1 26.8 50.6 56.7 60.1 58.8 6.7 7.9 10.9 14.4
Bihar 49.4 43.5 35.1 30.1 43.2 48.9 55.9 58.3 7.4 7.7 9.1 11.6
Chhattisgarh 42.3 36.0 30.5 27.2 49.9 55.0 58.0 58.5 7.9 8.9 11.6 14.4
Delhi 37.2 29.2 23.5 20.2 56.0 61.1 61.9 58.5 6.8 9.7 14.6 21.2
Gujarat 38.7 33.2 28.6 25.1 53.3 56.8 58.2 57.9 8.0 9.9 13.2 17.0
Haryana 40.3 33.5 28.4 24.9 51.0 57.1 59.5 59.3 8.7 9.5 12.1 15.8
Himachal
35.3 29.0 24.5 22.0 54.5 58.8 59.3 56.9 10.3 12.2 16.1 21.1
Pradesh
Jammu &
43.7 33.8 24.5 23.0 48.9 57.1 62.9 59.8 7.4 9.1 12.6 17.2
Kashmir
Jharkhand 45.9 38.8 31.0 28.0 46.9 52.8 58.5 58.7 7.2 8.4 10.6 13.4
Karnataka 35.8 29.8 25.0 21.7 54.7 59.0 60.5 59.3 9.5 11.1 14.5 19.0
Kerala 31.3 27.6 24.9 23.3 56.2 56.2 54.7 52.8 12.6 16.2 20.5 23.9
Madhya
43.8 38.0 31.8 27.3 48.4 53.7 57.6 59.3 7.9 8.3 10.6 13.4
Pradesh
Maharashtra 36.2 29.5 24.1 21.2 53.9 59.0 60.9 59.0 9.9 11.5 14.9 19.7
Odisha 38.2 32.6 28.3 26.1 52.3 56.7 58.2 57.3 9.5 10.8 13.4 16.6
Punjab 35.8 28.2 23.8 21.0 53.9 59.5 60.2 58.4 10.4 12.3 16.0 20.6
Rajasthan 45.5 38.3 31.5 27.3 47.1 53.4 58.0 59.5 7.5 8.2 10.4 13.3
Tamil Nadu 32.3 27.0 23.2 20.6 57.3 59.7 59.2 56.9 10.4 13.3 17.6 22.6
Telangana 37.0 30.0 26.0 23.0 53.8 59.4 60.5 58.8 9.2 10.6 13.5 18.2
Uttar Pradesh 47.6 39.4 32.6 27.7 44.6 52.7 57.9 60.3 7.8 7.9 9.5 12.0
Uttarakhand 42.2 35.2 29.4 24.1 48.8 55.1 58.6 60.6 9.0 9.7 12.1 15.3
West Bengal 37.1 29.1 24.2 21.9 54.4 59.8 60.6 58.4 8.5 11.1 15.2 19.7
high and as large as 30 per cent in Bihar rise through 2041 in states lagging behind
by 2041. Meanwhile, the share of elderly in the demographic transition, particularly
population in these states will still be below Bihar, Uttar Pradesh, Madhya Pradesh and
15 per cent through 2041. Rajasthan. In principle, the latter states with
rising working-age population could meet the
(iv) Implications for Working-Age
labour deficit in many of the former ageing
Population
states. Current migration trends broadly
7.19 While most of the discussion on follow this pattern, and a study of this
demographic dividend revolves around the phenomenon will be the subject of a future
share of working-age population, changes Economic Survey.
in the size of working-age population plays
a key role in determining the size of labour III. POLICY IMPLICATIONS
force and direction of inter-state labour OF AGEING
migration. (i) Elementary Schools
7.20 Given changing age composition,
7.22 As of 2016, population in the 5-14
India’s working-age population will continue
age-group, which roughly corresponds to the
to increase through 2041, rising by 96.5
number of elementary school-going children,
million during 2021-31 and by 41.5 million
has already begun declining in India and
during 2031-41 (Table 5). This will have
across all major states except Jammu &
implications for the required rate of job
Kashmir. Population projections suggest that
creation in the economy. As per the NSSO
this trend will continue through 2041 (Table
Periodic Labour Force Survey 2017-18,
6). The size of the 5-14 years population
India’s labour force participation rate for the
will drop sharply in Himachal Pradesh,
age-group 15-59 years is around 53 per cent
(80 per cent for males, 25 per cent for females). Uttarakhand, Tamil Nadu, Maharashtra,
Depending on the trajectory of labour force Punjab, Andhra Pradesh and Karnataka by
participation during 2021-41, additional jobs 2041. Note that it will decline even in the
will need to be created to keep pace with the laggard states such as Bihar, Uttar Pradesh,
projected annual increase in working-age Rajasthan and Madhya Pradesh. Overall, the
population of 9.7 million during 2021-31 and number of school-going children in India will
4.2 million during 2031-41. Projecting labour decline by 18.4 per cent between 2021 and
force participation is beyond the scope of this 2041. This will have very important social
study, but this will be impacted by changes in and economic consequences.
schooling years, age distribution and female 7.23 To understand the implications for the
labour force participation.
provision of elementary schools, we examine
7.21 The evolution of working-age the number of government and private
population, moreover, will vary across states. schools per capita of 5-14 years population
The size of working-age population will start and school enrolment at the national and
to decline in 11 out of the 22 major states state level. In light of the projected decline in
during 2031-41, including in the southern elementary school-going children, the number
states, Punjab, Maharashtra, West Bengal of schools per capita will rise significantly in
and Himachal Pradesh. On the other hand, India across all major states even if no more
working-age population will continue to schools are added (Figure 7 and Figure 8).
Table 5: Population by Age Structure (in millions) for India and Major States, 2011-2041
0-19 years 20-59 years 60 years and above
States 2011 2021 2031 2041 2011 2021 2031 2041 2011 2021 2031 2041
INDIA 494.7 464.2 415.8 381.0 611.7 751.6 848.2 889.7 104.2 131.1 179.3 239.4
Andhra
17.2 14.9 13.3 11.6 27.2 31.3 32.6 31.9 5.0 6.3 8.3 10.9
Pradesh
Assam 13.3 11.9 10.5 10.2 15.8 19.0 21.7 22.2 2.1 2.6 3.9 5.5
Bihar 51.4 53.5 48.9 46.2 45.0 60.1 77.9 89.4 7.7 9.4 12.7 17.8
Chhattisgarh 10.8 10.3 9.4 8.8 12.7 15.7 17.8 19.0 2.0 2.6 3.5 4.7
Delhi 6.2 5.4 4.6 4.1 9.4 11.3 12.1 11.8 1.1 1.8 2.9 4.3
Gujarat 23.4 22.3 20.6 18.9 32.2 38.2 41.9 43.5 4.8 6.7 9.5 12.8
Haryana 10.2 9.4 8.5 7.8 12.9 16.0 17.9 18.6 2.2 2.7 3.6 5.0
Himachal
2.4 2.1 1.9 1.7 3.7 4.3 4.6 4.5 0.7 0.9 1.2 1.7
Pradesh
Jammu &
5.5 4.6 3.6 3.6 6.1 7.8 9.3 9.3 0.9 1.2 1.9 2.7
Kashmir
Jharkhand 15.2 14.6 12.8 12.5 15.5 19.8 24.1 26.2 2.4 3.2 4.4 6.0
Karnataka 21.9 19.6 17.0 14.9 33.4 38.8 41.2 40.8 5.8 7.3 9.9 13.0
Kerala 10.5 9.8 9.3 8.8 18.8 20.0 20.3 20.0 4.2 5.8 7.6 9.0
Madhya
31.8 31.3 28.4 25.9 35.1 44.3 51.4 56.2 5.7 6.9 9.4 12.7
Pradesh
Maharashtra 40.7 35.6 30.4 27.1 60.5 71.2 76.6 75.4 11.1 13.9 18.8 25.2
Odisha 16.0 14.8 13.7 13.1 21.9 25.7 28.1 28.7 4.0 4.9 6.5 8.3
Punjab 9.9 8.4 7.4 6.6 15.0 17.7 18.6 18.3 2.9 3.7 4.9 6.4
Rajasthan 31.2 30.1 27.2 25.3 32.3 42.0 50.0 55.1 5.1 6.5 9.0 12.3
Tamil Nadu 23.3 20.6 18.1 16.0 41.3 45.5 46.3 44.2 7.5 10.1 13.7 17.5
Telangana 13.0 11.4 10.4 9.4 18.9 22.6 24.2 24.0 3.2 4.0 5.4 7.4
Uttar Pradesh 95.1 90.3 81.8 74.5 89.1 120.9 145.0 162.2 15.6 18.1 23.8 32.3
Uttarakhand 4.3 4.0 3.6 3.1 4.9 6.3 7.1 7.7 0.9 1.1 1.5 2.0
West Bengal 33.8 28.5 24.9 22.8 49.7 58.5 62.2 60.9 7.8 10.8 15.6 20.5
Table 6: Population for 5-14 years (in millions) for India and Major States, 2011-41
Projected change
States 2011 2016 2021 2031 2041
during 2021-41 (%)
INDIA 260.54 243.60 234.64 202.96 191.51 -18.38
Andhra Pradesh 8.72 7.88 7.44 6.52 5.82 -21.78
Assam 7.04 6.60 5.90 5.14 5.22 -11.47
Bihar 29.07 28.25 26.95 24.46 23.10 -14.28
Chhattisgarh 5.65 5.33 5.28 4.45 4.46 -15.60
Delhi 3.19 2.94 2.71 2.26 2.06 -24.07
Gujarat 12.03 11.41 11.29 10.11 9.42 -16.57
Haryana 5.17 4.88 4.76 4.16 3.91 -17.87
Himachal Pradesh 1.23 1.14 1.05 0.95 0.88 -16.59
Jammu & Kashmir 2.83 2.86 2.35 1.77 1.86 -20.65
Jharkhand 8.27 7.92 7.63 5.90 6.44 -15.60
Karnataka 10.99 10.34 9.95 8.32 7.46 -25.00
Kerala 5.38 5.12 4.89 4.64 4.42 -9.56
Madhya Pradesh 16.85 15.87 15.99 13.74 12.90 -19.34
Maharashtra 20.63 19.43 17.99 14.85 13.67 -24.02
Odisha 8.45 7.83 7.37 6.75 6.60 -10.43
Punjab 4.96 4.49 4.11 3.69 3.27 -20.35
Rajasthan 16.49 15.59 15.41 13.09 12.70 -17.57
Tamil Nadu 11.74 10.94 10.31 8.98 8.00 -22.40
Telangana 6.64 6.01 5.64 5.17 4.70 -16.57
Uttar Pradesh 51.35 46.06 45.62 39.36 37.45 -17.91
Uttarakhand 2.21 2.00 2.11 1.65 1.54 -26.98
West Bengal 17.43 15.78 14.05 12.38 11.55 -17.79

Figure 7: Number of Elementary Schools in India per 1 million of 5-14 Years

Population under Status Quo
8000 250
240
7500
230
Schools per 1 million
7000 220
of 5-14 yrs population
5-14 yrs population in 210
6500 million (RHS)
200
6000
190
5500 180
2016 2021 2031 2041
Source: Unified District Information on School Education, Sample Registration System, IIPS.
Note: Calculations are based on projected 5-14 years population for 2021-41 from IIPS and
number of elementary schools at 2016 levels.
Figure 8: Number of Elementary Schools 7.24 States such as Himachal Pradesh,

per 1 million of 5-14 Years Population Uttarakhand, Andhra Pradesh and Madhya
under Status Quo Pradesh have more than 40 per cent of
HP
elementary schools with fewer than 50
JK students enrolled (Figure 9). Similar trends
UK
AS Figure 9: Per cent of Elementary Schools
CG
MP with Less Than 50 Students Enrolled
AP
HP
OR
JK
TL UK
PB AP
WB AS
KA OR
RJ 2016 MP
CG
MH 2041 MH
TN
KA
JH TL
UP WB
HR JH
2005-06
GJ RJ
KL PB 2016-17
TN
BR
KL
DL
GJ
0 3000 6000 9000 12000 15000 18000 21000 HR
UP
BR
Source: Unified District Information on School DL
Education, Sample Registration System, IIPS.
0 10 20 30 40 50 60 70 80
Note: Calculations are based on projected 5-14
years population for 2041 from IIPS and number of Source: Unified District Information on School
elementary schools at 2016 levels. Education.
exist in Chhattisgarh, Assam and Odisha emphasis from quantity towards quality and
with large number of schools per capita and efficiency of education.
small school size. In fact, the number of
(ii) Health Care Facilities
elementary schools with less than 50 students
has increased over the past decade across all 7.26 Access to health care is still a major
major states except Delhi. challenge in India. If India’s hospital facilities
remain at current levels, rising population
7.25 The “optimal” school size varies over the next two decades (even with slowing
widely according to terrain and urban population growth rates) will sharply reduce
clustering, but this sharp increase in number the per capita availability of hospital beds
of elementary schools per capita needs to be in India across all major states (Figure 10).
carefully studied. The time may soon come in India already fares poorly relative to other
many states to consolidate/merge elementary emerging and developed economies in terms
schools in order to keep them viable. Schools of per capita availability of hospital beds
located within 1-3 kms radius of each other (Figure 11).
can be chosen for this purpose to ensure no
significant change in access. This would 7.27 States with high population growth
also be in line with the experience of other (Table 2) are also the ones with the lowest per
major economies witnessing a decline in capita availability of hospital beds (Figure
elementary school-going population, such as 12). Hence, there is a straightforward case
Japan, China, South Korea, Singapore and for expanding medical facilities in these
Canada, which have implemented policies to states. For states in the advanced stage of
merge or close down schools. Note that this is demographic transition, however, the rapidly
not about reducing investment in elementary changing age structure (Table 5) will mean
education, but an argument for shifting policy that the type of health care services will have
Figure 10: Number of Government Hospital Beds in India per 1 million

Population under Status Quo
500 Hospital beds per 1 million population 1550

Total Population in million (RHS)
1500
475
1450
450 1400
1350
425
1300
400 1250
2016 2021 2031 2041
Source: Central Bureau of Health Intelligence, Sample Registration System, IIPS.
Note: Calculations are based on projected population for 2021-41 from IIPS and number of
government hospital beds at 2016 levels.
Figure 11: Number of Hospital Beds per 10,000 Population
150
125
100
75
50
25
0
Brazil
U.K.
Malaysia
India
China
Canada
France
S.Korea
Japan
Mexico
U.S.
Germany
Source: WHO.
Note: Data is as of 2011 for India, 2012 for other countries.
Figure 12: Number of Government to adapt towards greater provision of geriatric

Hospital Beds per 1 million Population care. A major problem with planning for the
under Status Quo provision of medical facilities is the paucity of
DL
specific data, especially on private hospitals.
HP Available data on government hospitals have
KL been used here but it is clear even from basic
WB
JK
research that it does not provide a true picture
TN of the quality or quantity of health care in the
KA country.
UK
AS
GJ
(iii) Retirement Age
AP
MH
7.28 India’s healthy life expectancy at the age
PJ
2016
of 60, which is the average number of years a
TL
2041 60-year old person is expected to live in
OR
RJ full health taking into account the impact of
MP diseases and injuries, has continually increased
CG
over the years for both men and women.
HR
JH Healthy life expectancy at the age of 60 now
UP stands at 12.9 years (12.5 years for males;
BI
13.3 years for females), though it is still much
0 200 400 600 800 1000 1200 1400
lower than that for other major developed and
Source: Central Bureau of Health Intelligence, Sample emerging economies (Figure 13).
Registration System, IIPS.
7.29 Due to ageing population and increasing
Note: Calculations are based on projected population
for 2041 from IIPS and number of government hospital pressure on pension funding, many countries
beds at 2016 levels. have begun raising the pensionable retirement
Figure 13: Healthy Life Expectancy at Age of 60 (years)
22
20 2000 2016
18
16
14
12
10
China
U.K.
Singapore
Japan
France
Canada
Australia
Brazil
South Africa
S.Korea
Turkey
Malaysia
India
New Zealand
Switzerland
Germany
U.S.
Mexico
Thailand
Philippines
Indonesia
Source: WHO.
age. Countries such as Germany, France and Table 7: Retirement Age Reforms Being
U.S. have increased the retirement age. Some Implemented or Under Consideration in
countries such as Australia and U.K. used Major Economies
to allow women to retire earlier than men Country Retirement Age Reforms
but have changed the rules to bring them at
Retirement age to increase
par. Many countries such as Germany, U.K.
Germany gradually to 66 by 2023 and to
and U.S. have signalled that they will keep 67 by 2029
increasing the retirement age according to a
Pension benefit age to rise
pre-set timeline (Table 7). In the U.K., for U.S. gradually to reach 67 for those
example, the state pension age will increase born in 1960 or later
for both men and women to 66 by October State pension age to increase
2020. The U.K. government is planning for both men and women to 66
further increases in the retirement age to 67 U.K. by October 2020, and further to
spanning the years 2026-28 and to 68 during 67 between 2026-28 and to 68
2044-46. between 2044-46
Pensionable age scheduled to
7.30 Given that life expectancy for both Australia
increase gradually to 67 by 2023
males and females in India is likely to
continue rising, increasing the retirement age Under consideration to raise the
retirement age for women by 1
for both men and women going forward could
year every three years and for
be considered in line with the experience China men by 1 year every six years so
of other countries (Figure 14). This will be that by 2045, the retirement age
key to the viability of pension systems and for both men and women would
would also help increase female labour force be 65
participation in the older age-groups. Since Under consideration to raise the
Japan
an increase in the retirement age is perhaps retirement age to 70
inevitable, it may be worthwhile signalling Source: Country-specific pension documents and
this change well in advance – perhaps a government press releases.
Figure 14: Retirement Age (years)
70
Male Female
65
60
55
50
45
40
Australia
U.K.
Japan
Canada
France
India
Mexico
Singapore
Malaysia
China
Thailand
U.S.
S. Korea
Turkey
Germany
Source: Country-specific pension documents, OECD.
decade before the anticipated shift – so that time. This is even true for a commonly
the workforce can be prepared for it. This discussed topic such as the demographic
will also help plan in advance for pensions dividend. It is important, therefore, that
and other retirement provisions. working assumptions and projections are
constantly revised in light of new evidence
IV. CONCLUSION (especially in the age of big data) for areas
7.31 This chapter is not merely an attempt such as urbanization, energy requirements,
to look at the changing population dynamics forest cover, water availability, climate
of the country but is meant as an illustration change and other long-term factors that have
of how several of the common working a large impact on the socio-economic context
assumptions of economists and policy- in which government policy interventions
makers need to be revisited from time to play out.
CHAPTER AT A GLANCE
 India is set to witness a sharp slowdown in population growth in the next two decades. Although
the country as a whole will enjoy the “demographic dividend” phase, some states will start
transitioning to an ageing society by the 2030s.
 A surprizing fact is that population in the 0-19 age bracket has already peaked due to sharp
declines in total fertility rates (TFR) across the country. The national TFR is expected to be
below replacement rate by 2021.
 Working-age population will grow by roughly 9.7mn per year during 2021-31 and 4.2mn per
year in 2031-41.
 The proportion of elementary school-going children, i.e. 5-14 age group, will witness
significant declines. Contrary to popular perception, many states need to pay greater attention to
consolidating/merging schools to make them viable rather than building new ones.
 At the other end of the age scale, policy makers need to prepare for ageing. This will need
investments in health care as well as a plan for increasing the retirement age in a phased manner.
REFERENCES Transactions of the Royal Society of London

(1825).
Brass William, Ansley J. Coale, Paul Demeny,
Don F. Heisel, Frank Lorimer, Anatole Cannan E. “The probability of a cessation
Romaniuk and Etienne Van De Walle, “The of the growth of population in England
Demography of Tropical Africa”, Princeton and Wales during the next century”, The
University Press (1968). Economic Journal (1895).
“Population Projections for India and George MV, Stanley K. Smith, David A.
States 2001-2026”, Report of the Technical Swanson and Jeff Tayman “Population
Groupon Population Projections constituted Projections”, Chapter 21 in Jacob Siegel
by the National Commission on Population. and David Swanson (eds.), The Methods
Office of the Registrar General & Census and Materials of Demography. San Diego:
Commissioner of India (2006). Elsevier Academic Press (2004).
“Revision of World Population Prospects”, “Projections of the Population by States:

UN Population Division (2017). 1955 and 1960.” Current Population Reports.
Series P-25 No. 56, US Census Bureau,
Gompertz, B, “On the Nature of the Function (1952).
Expressive of the Law of Human Mortality,
and on a New Mode of Determining the Pittenger D, “Projecting State and Local
Value of Life Contingencies”, Philosophical Populations”, Cambridge: Ballinger (1976).
From Swachh Bharat to Sundar Bharat
via Swasth Bharat : An Analysis of the 08
CHAPTER
olq/kdhVlikZ[kqeylanwf"krksndk%A
fØfeya fDyUua i.kZ'kSokydneSaA foo.kZ fojla lkUæa nqxZU/a u fgra tye~AA p-lw-
“The river having water polluted with soil and faeces, insects, snakes and rats and carrying
rainwater will aggravate all doshas. Slimy, having insects, impure, full of leaves, moss and
mud, having abnormal color and taste, viscous and foul smelling water is not wholesome.”
— Charaka Samhita
Aligning with the ideals of Mahatma Gandhi, the Swachh Bharat Mission (SBM) was initiated in
2014 to achieve universal sanitation coverage by 2 October 2019. This flagship programme is,
perhaps, the largest cleanliness drive as well as an attempt to effect behavioural change in the
world ever. Even 67 years after India’s independence, in 2014, around 100 million rural and about
10 million urban households in India were without a sanitary toilet; over 564 million, i.e. close
to half the population, still practiced open defecation. Through SBM, 99.2 per cent of rural India
has been covered in the last four years. Since October 2014, over 9.5 crore toilets have been built
all over the country and 564,658 villages have been declared Open Defecation Free (ODF). As on
14 June 2019, 30 States/UTs are 100 per cent covered with Individual Household Latrine (IHHL).
SBM has significantly improved health outcomes. To highlight the impact of SBM on health, new
evidence is provided that SBM has helped reduce diarrhoea and malaria among children below
five years, still birth and low birth weight (new born with weight less than 2.5 kgs). This effect is
particularly, pronounced in districts where IHHL coverage was lower is 2015. Financial savings
from a household toilet exceed the financial costs to the household by 1.7 times, on average and
2.4 times for poorest households. As sanitation gained over the last four years contributes to
Sustainable Development Goals (SDGs), especially the SDG 6.2, the momentum must be sustained
to make cleanliness an integral part of India’s consciousness.
INTRODUCTION into town planning. Although sanitation

and hygiene are considered to be virtues
8.1 Mahatma Gandhi once said, “Sanitation
in all cultures and religions of the world,
is more important than independence.” Proper
sanitation and hygiene are essential inputs prevalence of unsanitary conditions have
not only for healthy and disease free living been a problem faced by most of the countries
but also for a dignified life as a human at some point of time in the process of their
being. The ancient Indus valley civilisation economic development. Many have alluded
accorded prime importance to sanitation by to the unhygienic conditions that prevailed in
meticulously integrating sanitation systems the industrial towns of 19th century Europe.
From Swachh Bharat to Sundar Bharat via Swasth Bharat 149
8.2 Lack of access to basic sanitation quality of life by promoting cleanliness, hygiene
services continues to be a major problem in and eliminating open defecation. The targets of
many parts of the world. In 2015, 2.3 billion the mission are to be met by 2 October, 2019,
people, globally, lacked basic sanitation coinciding with the 150th birth anniversary of the
services (JMP, 2017). Lack of sanitation has Father of the Nation.
been recognised as a major problem in India.
8.5 SBM adopts a multi-faceted approach
Even after 67 years of India’s independence,
including:
in 2014, around 10 crore rural and about one
crore urban households in India were without • Community participation: Ensuring
a sanitary toilet and over 55 crore – about half appropriate participation of the
the country’s population – still practiced open beneficiary/communities, financially or
defecation. In fact, an unflattering national fact otherwise, in the setting up of the toilets
was that open defecation in India represented to promote ownership and sustained use.
60 per cent of open defecation globally. Poor
• Flexibility in Choice: SBM offers
sanitation costs India around 5.2 per cent
flexibility by building in a menu of
of its GDP (LIXIL, Water Aid and Oxford
options so that the poor/disadvantaged
Economics, 2016).
families can subsequently upgrade
8.3 The Government’s emphasis on their toilets depending upon their
working towards a clean India in mission requirements and their financial position.
mode was reflected in the speech of the Prime This is done to ensure that sanitary
Minister, Narendra Modi from Rajghat at the toilets are constructed, which ensures
Swachh Bharat Mission launch on 2 October, safe confinement and disposal of faeces.
2014, when he declared: “If people of India An illustrative list of technology options,
can reach Mars with minimal expenditure, with cost implications is provided to
why can they not keep their streets and meet the user preferences and location-
colonies clean.” The Swachh Bharat Mission specific needs.
(SBM) was launched as a multi-pronged
• Capacity Building: SBM augments the
approach to enhance the level of sanitation in
institutional capacity of districts to change
the country. The focus under this mission has
behaviour at the grassroots level and
not just been on construction of toilets but
strengthen the capacities of implementing
also on effecting a behavioural change in the
agencies so that the programme could
communities. The result has been substantial
be rolled in a time-bound manner and
gains in health parameters as shown by
collective outcomes could be measured.
various studies. The gains from a cleaner
India are important inputs, directly as well • Instil Behaviour change: Incentivizing
as indirectly, for achieving broader economic the performance of State-level
development objectives. institutions to implement activities for
behavioural change among communities.
SWACHH BHARAT MISSION- Emphasising on awareness generation,
GRAMIN (SBM) triggering mind-set changes, leading
8.4 Recognising the need for urgent action on to community behaviour change and
the sanitation front, on 2 October, 2014, the birth demand generation for sanitary facilities
anniversary of Mahatma Gandhi, Prime Minister, in houses, schools, anganwadis, places
Narendra Modi announced India’s Swachh of community congregation and for solid
Bharat (Clean India) Mission to enhance the and liquid waste management activities.
• Broad-based Engagement: SBM set up Household Latrines (IHHL) to eligible

the Swachh Bharat Kosh to encourage beneficiaries in rural areas and covers for
Corporate Social Responsibility and accept provision of water storage. The central
contributions from private organizations, share for the incentive provided for IHHLs
individuals and philanthropists. is 60 per cent and the State share is 40 per
cent. For North Eastern States, Jammu and
• Use of Technology: Information
Kashmir and Special Category States, the
technology and social media is
central share is 90 per cent and the State
imperative to this program as it
share is 10 per cent. Additional contributions
allows citizens to keep a check on the
from other sources are also permitted.
availability of toilets for every rural
A total of `51,314.3 crore has been
household in India. Nearly 90 per cent
allocated since 2014-15 for SBM, out of
of all SBM toilets have already been
which, `48,909.2 crore has been released
geo-tagged. Many mobile applications
(95.3 per cent). Additionally, a provision
have been launched by not only the
was made for Extra Budgetary Resources
government but also by few citizens,
of `15,000 crore of which `8,698.20 crore
which direct the municipal corporations’
has already been drawn. Details of the funds
attention towards unclean areas.
allocated for SBM and the funds released to
8.6 Under SBM, an incentive of `12,000 the States/UTs since 2014-15 are given in
is provided for construction of Individual Table 1.
Table 1: Details of funds allocated and the funds released for SBM (2015-19)
` (in Crore)
Years
Funds Allocated Funds Released Fund Utilization (per cent)
2014-15 2850.0 2730.3 95.8
2015-16 6525.0 6363.0 97.51
2016-17 10513.0 10272.0 97.70
2017-18 16948.27 16610.9 98.0
2018-19 (RE) * 14478.1 12932.96 89.3

* (up to 31.03.2019)
Source: Ministry of Drinking Water and Sanitation
8.7 As a result of the efforts of the the termination of faecal-oral transmission,

Government, as on date, 98.9 per cent of India defined by a) no visible faeces found
has been covered under SBM. Since October in the environment/village and b) every
2014, over 9.5 crore toilets have been built all household as well as public/community
over the country (till 14.06.2019). The total institution(s) using safe technology option
number of household toilets constructed from for disposal of faeces. The number of ODF
2014 till 2018 shows a rapid progress over the villages have significantly increased since
last few years starting from less than 50 lakh 2015 (Figure 1). As on 29.05.2019, 5,61,014
household toilets per year and reaching up to villages (93.41 per cent), 2,48,847 gram
over 3 crore toilets per year. A major focus panchayats (96.20 per cent)- 6,091 blocks
of SBM has been on making villages Open (88.60 per cent) and 618 districts (88.41 per
Defecation Free (ODF). ODF would mean cent) have been declared ODF.
Figure 1: Number of household toilets constructed and ODF villages (2015-19)
35 2.5
Millions
Lakhs
30 30.3 2.1 2
25 25.0
1.7
22.0 1.5
20 1.4
15 1
12.6
10
0.5 0.5
5
0 0
2015-16 2016-17 2017-18 2018-19
No. of Household toilets constructed (in Millions) ODF Villages (in Lakhs)
8.8 Most of the states showed significantly achieve their targets (Figure 2). Goa has the
greater access to IHHL in 2018-19 as lowest IHHL coverage followed by Odisha
compared to 2014-15 (Figure 2). Most of the and Telangana. Karnataka and Arunachal
states have achieved the status of 100 per cent Pradesh are very close to achieving 100 per
IHHL coverage and only few states are yet to cent IHHL coverage.
Figure 2: Individual Household Latrines in 2014-15 and 2018-19 (in per cent)
Individual Household Latrines (IHHL) Individual Household Latrines (IHHL)
2014-15 (in per cent) 2018-19 (in per cent)

8.9 A comparison of some of the states in coverage is yet to achieve 90 per cent level,
IHHL coverage and their neighbouring states whereas the neighbouring states of Andhra
has been depicted in Figure 3. Goa, in spite of Pradesh, Jharkhand and Chhattisgarh have
starting from a very high baseline has shown shown significant improvements. West
a saturation of IHHL coverage to around Bengal continues to increase the coverage
70 per cent only, whereas the neighbouring from its high base in 2012-13, whereas the
states of Maharashtra and Karnataka have neighbouring States of Bihar and UP have
shown significant improvements. In Odisha, also shown momentum since 2015-16.
Figure 3: IHHL Coverage of some States in comparison to its neighbouring States

IHHL Coverage (%) in Goa & nearby States IHHL Coverage (%) in Bihar & nearby States
IHHL Coverage (%) in Gujarat & nearby States IHHL Coverage (%) in Odisha & nearby States
COMPARISON ACROSS STATES targets (Figure 4). Goa has the lowest ODF
FOR ODF STATUS (IN PER CENT) coverage declared followed by Odisha,
8.10 Most of the states have achieved Telangana and Bihar. West Bengal and
the status of 100 per cent ODF coverage Sikkim are very close to achieving 100 per
and only few states are yet to achieve their cent ODF coverage.
Figure 4: ODF status across States (in per cent)
West Bengal 99.55

Uttarakhand 100
Uttar Pradesh 100
Tripura 100
Telangana 73.99
Tamil Nadu 100
Sikkim 97.06
Rajasthan 100
Punjab 100
Puducherry 100
Odisha 45.36
Nagaland 100
Mizoram 100
Meghalaya 100
Manipur 100
Maharashtra 100
Madhya Pradesh 100
Lakshadweep 100
Kerala 100
Karnataka 100
Jharkhand 100
Jammu & Kashmir 100
Himachal Pradesh 100
Haryana 100
Gujarat 100
Goa 5.84
Daman & Diu 100
D & N Haveli 100
Chhattisgarh 100
Chandigarh 100
Bihar 82.95
Assam 100
Arunachal Pradesh 100
Andhra Pradesh 100
A & N Islands 100
0 20 40 60 80 100
Source: SBM Dashboard as on 14th June 2019

8.11 The success of a scheme like the SBM (SLWM) is another major component of
depends not only on the infrastructure created SBM Mission. As scientific disposal of
but also on the resultant behavioural change waste has a noticeable impact on social
and the associated changes in the patterns development, there is an urgent need for
of toilet usage by individuals. The National
setting up the system for the efficient
Annual Rural Sanitation Survey (NARSS)
disposal of waste in various states, especially
2018-19, conducted by an Independent
Verification Agency (IVA) has found that 93.1 rural villages. In light of this, many states
per cent of households had access to toilets have undertaken various activities such as
during the survey period. Further, 96.5 per construction of waste collection centres,
cent of the households in rural India that had menstrual hygiene management activities,
access to a toilet, used them. The NARSS also installation of bio-gas plants, construction of
re-confirmed the ODF status of 90.7 per cent compost pits, installation of dustbins, system
of villages, which were previously declared for collection, segregation and disposal of
and verified as ODF by various districts/
garbage, construction of drainage facility
States. It is also interesting to note that 95.4
and leach pits and construction of soak pits
per cent of the villages surveyed were found
to have minimal litter and minimal stagnant and stabilization ponds. These activities
water. require huge disbursement of funds from
Central and State governments. Figure 5
SOLID AND LIQUID WASTE highlights the Central share expenditure
MANAGEMENT under SLWM during last four years in States/
8.12 Solid and Liquid Waste Management UTs.
Figure 5: Central share expenditure under SLWM during

last 4 years in States/UTs (` Lakh)
8000
7000
6000
5000
4000
3000
2000
1000
0
Central share expenditure under SLWM during last 4 years in States/UTs(RsLakh )
2014-15 2015-16 2016-17 2017-18
ANALYSIS OF SBM ON HEALTH ISSUES scheme had on the various socio-economic

outcomes of the rural populace. A direct
8.13 The success of SBM can be assessed impact of improved sanitation should
from the gains that the actions under the manifest on the health indicators. Diarrhoea,
a leading cause of death among the under-five of diarrhoea and malaria cases in children
children in India, accounted for around 11 below 5 years, still birth and low birth weight
per cent of deaths in 2013. Diarrhoea cases cases in these two groups between March
among children below 5 years in India have 2015, when SBM begin its implementation
reduced significantly over the past 4 years. and March 2019, when most districts in
8.14 As of March 2014, 50 per cent of the India had IHHL coverage of 100 per cent.
districts in India had IHHL Coverage less The first group i.e. districts with low IHHL
than 33.5 per cent (median value). In order to coverage suffered more from diarrhoea,
gauge the impact of SBM on health indicators, malaria, still births and low birth weight
we estimated a Difference-in-Difference. For than the second group i.e. districts with high
this purpose, we separate districts into two IHHL coverage–indicating that sanitation
groups- the first group where IHHL coverage and hygiene is the primary reason for these
was low (below medium) and the second health problems in the country. This finding
group where IHHL coverage was high points to the fact that adequate sanitation
(above medium) as of 2015. Because IHHL plays a key role in reducing diarrhoea,
coverage become almost universal as of 2019
malaria, still births and low birth weight cases
(Figure 2), the increase in IHHL coverage
(Figures 6 & 7). The major finding of this
was significantly more in the first group of
districts than in second group. Therefore, it is analysis was that all these health indicators
expected the impact on health to be larger for including diarrhoea and malaria cases
the first group than for the second group. To improved significantly in both groups after
examine this thesis, we tracked the number the implementation of SBM.
Figure 6: Impact of IHHL Coverage on Diarrhoea and

Malaria cases in children below 5 years
Source: Health Management Information System, Ministry of Health & Family Welfare; IHHL data from SBM
Dashboard-Swachh Bharat Mission – Gramin, Ministry of Drinking Water and Sanitation
Note: Total of 500 districts of India are divided into two parts: first that had IHHL coverage below 33.5 per cent in March 2014
and second that had IHHL coverage above 33.5 per cent in March 2014.
Figure 7: Impact of IHHL Coverage on Still Births and

New-borns with weight less than 2.5 kg
Source: Health Management Information System, Ministry of Health & Family Welfare; IHHL data from SBM
Dashboard-Swachh Bharat Mission – Gramin, Ministry of Drinking Water and Sanitation
8.15 Diarrhoea cases reduced from around cases declined from 3,890 and 3,230 in 2015
6,968 and 5,262 in 2015 to 5,683 and 4,550 in to 3,686 and 3,198 in 2019 in the first and
2019 in the first and second group respectively. second group respectively. While this study
Malaria cases also dropped from around 761 shows that sanitation has an important role
and 273 in 2015 to 222 and 113 in 2019 to play in reducing diarrhoea and malaria,
in the first and second group respectively. there may be other factors like distribution
Still births came down from 540 and 403 in of mosquito nets, fogging machines and
2015 to 456 and 368 in 2019 in the first and construction of Gambusia fish hatcheries
second group respectively. Low birth-weight under the National Vector Borne Disease
Figure 8: Diarrhoea in Indian States Figure 9: Malaria in Indian States
Source: Health Management Information System, Ministry of Health & Family Welfare
Figure 10: Still Births in Indian States Figure 11: Low Birth Weight Cases in
Indian States
Source: Health Management Information System, Ministry of Health & Family Welfare
Note: Low birth weight cases indicate new borns with weight less than 2.5 kgs.
Control Programme and provision of safe Non-ODF districts were selected to ensure
drinking water, Oral rehydration solutions socio-cultural and regional similarity across
(ORS) and zinc, hand washing and personal geographies within the state. Becoming ODF
hygiene under Integrated Action Plan for had a positive impact on the child health and
Prevention and Control of Pneumonia and nutrition, evident from the fact that the health
Diarrhoea that have also played an important and nutritional indicators of the children and
role in reduction of malaria and diarrhoea, mothers belonging to the ODF areas were
but are not in the scope of this study. comparatively better than their non-ODF
counterparts (Figure 12).
8.16 With improved sanitation and 100
per cent ODF, diarrhoea cases reduced Figure 12: Prevalence of diarrhoea in ODF
significantly in many states like Gujarat, and Non –ODF areas in 2017 (in per cent)
Tamil Nadu, West Bengal & Bihar (Figure
8). Similarly, improvements are evident in 20
18.1
malaria, still births and low birth weight 18
cases (Figures 9, 10 & 11). 16 15.2

14
12.1
IMPACT OF SBM: FEW 12
10.2
10
INDEPENDENT STUDIES 8 6.9
8.5
6
8.17 The Sanitation Health Impact 4
Assessment study was conducted by Ministry 2
of Drinking Water and Sanitation (MoDWS), 0
ODF Non -ODF Overall
to understand the impact of ODF status on Children less than or equal to 2 years Children age is greater than 2 years
the key child health and nutritional indicators
in five states- Karnataka, Madhya Pradesh, Base (All children): 4985
Rajasthan, Uttar Pradesh and West Bengal. Source: Ministry of Drinking Water and Sanitation
8.18 Another study, “Swachh Bharat Mission that in 2014, i.e. before the start of the SBM,
– Preliminary estimations of potential health there were an estimated 140,000 deaths from
impacts from increased sanitation coverage” diarrhoeal disease attributable to unsafe
conducted by World Health Organization sanitation; about 39,000 of those attributable
(WHO) to estimate health gains based on the deaths occurred in children younger than five
latest available evidence linking sanitation years. Since the start of the SBM, mortality
and mortality from diarrhoeal disease, from unsafe sanitation is estimated to have
showcased initial estimates of expected declined to about 50,000 deaths in 2017-2018.
health gains from reduced diarrhoeal disease The study shows that there is a clear relation
due to increased sanitation coverage with between progress on sanitation coverage and
the SBM initiative. The study results show health gains (Figure 13).
Figure 13: The Assessed and Projected Progress on Sanitation

Coverage and Health Gains
140000 120
Deaths Avoided compared to
Household Sanitation
120000
Coverage with basic

100
Facilities(per cent)
100000 80
80000
60
Baseline
60000
40000 40
20000 20
0 0
2014 2015-16 2017-18 Jan-19 Oct-19
Deaths avoided compared to baseline(2014)

Household sanitation coverage with basic facilities(%)
Source: World Health Organization (WHO)
8.19 Prior studies have shown how important behaviour change communication costs
sanitation and hygiene are in economic associated with programme delivery, while
terms in India, as well as what it would cost the remaining 92 per cent is required to be
India to implement. For example, the World spent on incentivising household toilets and
Bank estimated the economic impacts of hand washing stations.
inadequate sanitation in India in the year
2006 – showing an annual economic impact 8.20 A recent study conducted by UNICEF
of `2.4 trillion (US$ 53 billion), implying a on behalf of MoDWS assessed the economic
per capita annual loss of `2,180 (US$ 48) impacts (benefits) of SBM. The study focused
or 6.4 per cent of the GDP in the same year on the household and community financial and
(World Bank 2011). Hence, the costs of economic benefits as well as costs of improved
inadequate sanitation and the expected gains sanitation and hygiene.The study found that
from improved sanitation, are considerable. on an average, every household in an open
The majority of SBM interventions and defecation free village saved about `50,000
their associated costs occur at community per year on account of financial savings due
and household level. Approximately 8 per to lower likelihood of disease from using a
cent of the national government’s overall toilet and practicing hand washing and the
contribution is allocated to social and value of time saved due to a closer toilet. Cost-
benefit ratios were presented under different households in a community use a toilet, the
perspectives, thus allowing conclusions to be financial savings exceed the financial costs to
drawn about the impact of the intervention the household by 1.7 times, on average. For
on households, each with different policy the poorest households, the value is higher
conclusions. On the other hand, costs included at 2.4 times. When household time savings
investment and operational costs for toilet and (from closer toilet access and less sickness)
hand washing station, including subsidies or and the time for cleaning and maintaining the
resources provided by government or non- toilet are valued, the benefits exceed costs by
state actors, as well as financial and non- 3.0 times. When benefits of lives saved are
financial costs to households. included, the benefits exceed costs by 4.7
times. If the government contribution to the
8.21 The findings of the study suggest that toilet cost is included, reflecting a broader
when costs and benefits are compared over a societal perspective, the benefits exceed costs
10-year time period and when 100 per cent of by 4.3 times (Table 2).
Table 2: Benefit-cost ratios from different perspectives at
rate of toilet use of 100 per cent
Household
Household
Household financial
financial Social perspective(includes
Financial perspective +
perspective + government subsidy)
Perspective time impacts+
time impacts
lives saved
All 1.7 3 4.7 4.3
Poorest 2.4 4 7 5.8
Q2 1.4 3.3 5.4 4.7
Q3 1.6 2.9 4.5 4
Q4 1.7 2.9 4.3 3.9
Richest 2.1 2.8 4 3.7
Source: Financial and Economic Impacts of Swachh Bharat Mission in India- UNICEF
8.22 In terms of the impact of SBM on the • 11.25 times less likely to have their
physical environment, a very recent study groundwater sources contaminated (12.7
by UNICEF, in association with MoDWS times less from contaminants traceable
indicates considerable impact on combating to humans alone).
contamination of water, soil and food. The • 1.13 times less likely to have their soil
study was conducted on the basis of a list of contaminated, 1.48 times less likely to
ten ODF and ten non-ODF villages each in have food contaminated and 2.68 times
the states of Odisha, Bihar and West Bengal less likely to have household drinking
(total of 20*3=60 villages). Four villages of water contaminated.
each classification (ODF versus non-ODF) 8.23 The findings from the study indicate that
were randomly selected from the shortlisted these substantial reductions may potentially
villages in each of these states (total of be attributed to the improvement in sanitation
8*3=24 villages). Overall, in terms of faecal and hygiene practices, as well as supportive
contamination, ODF villages were, on average: systems such as regular monitoring.
WAY FORWARD individual houses, cleaning water bodies,

scientific waste management, dealing with
8.24 SBM has brought in a remarkable plastic menace, controlling air pollution, etc.
transformation and traceable benefits to the
society as a whole. It is one of the largest 8.27 To sustain the momentum created and
cleanliness drives in the world. Many States behavioural change, a number of actions
have achieved the status of 100 per cent ODF would have to be taken on a continuous basis
and IHHL coverage, thereby has led to a sea such as motivation of “agents of change” at the
change in the dignity of people, especially ground level, impart training to field agents,
women. This mission acts as a driver for appointment of sanitation Ambassadors to
eliminating the gender disparity through the campaign and create awareness especially on
construction of gender-specific latrines in health benefits, obtain systematic feedback
public areas such as schools, roads and parks. from users. Attention must also be accorded to
This public movement will have indirect the sewer construction and water availability.
positive impact on society by increasing 8.28 Going forward, SBM should focus on
the enrolment ratio of girls in schools and achieving 100 per cent disposal of solid and
improving health standards. liquid waste. Currently, many states are not
8.25 Through SBM, 99.2 per cent of the concentrating enough on this aspect which
rural India has been covered. Since October could pull us back to where we were a few
2, 2014 over 9.5 crore toilets have been built years back. Scientific techniques for the safe
all over the country and 564,658 villages and effective disposal of waste should be the
have been declared ODF. India’s phenomenal next on the agenda for this mission. As Indian
journey towards sanitation for all has ensured economy grows, people are also on the move
the social, environmental and economic gains for various activities- for better education, for
by ensuring that the behavioural change gets accessing better health, transport, hospitals,
rooted in people’s consciousness. The Mission and tourism purposes- imparting strongly
has brought one of the largest behavioural the culture of swachhata at public places and
changes in its citizenry. The mission mirrors maintaining it should be an important part of
the National Developmental priorities by clean India.
focusing on the gender equality and women 8.29 The cleaning of rivers should be an
empowerment. Importantly, it is also aligned integral part of clean India, along with
with the 2030 global sustainable development coordinated activities between Centre
agenda and SDGs especially the SDG 6.2 – and States such as treatment of industrial
“By 2030, achieve access to adequate and effluence, drain bio-remediation, river
equitable sanitation and hygiene for all, and surface cleaning, rural sanitation, river front
end open defecation, paying special attention development, afforestation and biodiversity
to the needs of women and girls and those in conservation etc.
vulnerable situations”.
8.30 To continue the momentum created by
8.26 Yet, India’s challenge is an enormous SBM, the availability of financial resources
one. Construction of toilets is one part of the intermixed with changing mind-sets have to
solution for a clean India. There are various be ensured. Annual monitoring of the various
facets for a clean India. The dream of clean rural villages of different states has to be
India can only be realized by addressing guaranteed for the effective formulation of
these multiple facets – maintaining a culture different policies and their implementation.
of swachhata at public places beyond As the resource requirements are large, there
is a need to facilitate and sustain innovative surroundings clean and maintaining hygiene
financing mechanisms by exploring the would have tremendous environmental
suitability of various financial instruments benefits. SBM needs to incorporate
in specific contexts and interventions. For environmental and water management issues
example, micro-financing, concessional for long term sustainability and improvements.
loans, corporate social responsibility and The issues relating to water availability are
crowd funding align with local government expected to be exacerbated by the effects of
financing. Private Partnership and Corporate climate change and incidence of extreme
Social Responsibility can ensure, in specific weather events. Investment in the toilet and
contexts, a smooth flow of funds for the sanitation infrastructure in future, therefore,
procurement of various scientific technologies demands incorporation of principles of
for waste disposal and awakening masses. sustainability, circular economy, and adoption
However, Governments must assign sig- of eco-friendly sanitation technologies.
nificant weight to the allocation of adequate Finally, all these efforts together endeavour
resources as improvement in sanitation is into culminating a Swachh (Clean), Swasth
one of the key determinants for the wider (Healthy) and Sundar (Beautiful) Bharat
economic development of the economy. that we dreamt for us and future generations
to inherit which will be a real tribute to the
8.31 A clean India should also lead to
'Father of the Nation'.
environment friendly green India. Keeping the
CHAPTER AT A GLANCE
 SBM, one of the largest cleanliness drives in the world, has brought in a remarkable transformation
and traceable health benefits.
 Even 67 years after India’s independence, in 2014, around 10 crore rural and about 1 crore
urban households in India were without a sanitary toilet; over 56.4 crore, i.e. close to half the
population, still practiced open defecation. Through SBM, 99.2 per cent of the rural India has
been covered. Since October 2, 2014 over 9.5 crore toilets have been built all over the country
and 564,658 villages have been declared ODF.
 Becoming ODF has reduced deaths due to diarrhoea, malaria especially in under-five children,
still births and new-borns with weight less than 2.5 kg and thereby improved child health and
nutrition. This effect is particularly pronounced in districts where IHHL coverage was lower.
 Financial savings from a household toilet exceed the financial costs to the household by 1.7
times, on average and 2.4 times for poorest households.
 Going forward, SBM needs to incorporate environmental and water management issues for
sustainable improvements in the long-term.
REFERENCES Water Aid and Oxford Economics. (2016).

“The True Cost of Poor Sanitation.”
Dalberg. 2019. “Summary Report:
Assessment of ODF Environments on Faecal WHO UNICEF. 2017. “Joint Monitoring
Contamination of Water, Soil, and Food.” Programme for Water Supply, Sanitation
and Hygiene: Progress on Drinking Water,
Ministry of Drinking Water and Sanitation. Sanitation and Hygiene.”
Government of India. 2017. “The Sanitation
Health Impact Assessment Study.” World Bank. 2011. New Delhi. Water and
Sanitation Program “Economic Impacts of
UNICEF. 2019. “Assessment of IEC Activity- Inadequate Sanitation in India.”
Swachh Bharat Mission (Gramin) 2014-19.”
Enabling Inclusive Growth through
Affordable, Reliable and Sustainable
Energy
09
CHAPTER
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Sun is the soul of all animate and inanimate
-Rig Veda
Energy is vital for development and prosperity of any economy. India, however,
lags behind significantly in energy usage: despite accounting for 18 per cent of
world’s population, India uses only around 6 per cent of the world’s primary
energy. Energy poverty has been more pervasive in India than income poverty:
53 per cent of our population could not access clean cooking in 2017 when
compared to 30 per cent for China, four per cent for Brazil and less than one
per cent for Malaysia. With an increase of per capita energy consumption by
2.5 times, India will be able to increase its real per capita GDP by US$ 5000
(in 2010 prices). Additionally, if India has to reach the HDI level of 0.8, it has
to increase its per capita energy consumption by four times. India’s emphasis
on energy efficiency over the decades has helped significantly in serving the
country’s energy needs. Energy efficiency programmes have generated cost
savings worth more than `50,000 crores and a reduction of about 110 million tons
of CO2 emission in 2017-18. While the share of renewables in total generation
has increased from 6 per cent in 2014-15 to 10 per cent in 2018-19, India still
needs investment in renewable energy of more than US$ 250 billion over the
next decade. As electric vehicles represent the next generation in sustainable
mobility, India must emphasize on them. Currently, the market share of electric
cars is only 0.06 per cent when compared to 2 per cent in China and 39 per cent
in Norway. Access to fast charging facilities must be fostered to increase the
market share of electric vehicles.
INTRODUCTION unevenly distributed spatially in rural vis-à-

vis urban areas and socio-economically when
9.1 As witnessed over the past two
seen across income groups. India, therefore,
centuries, energy has been the driving
needs to quadruple its per-capita energy
force behind the process of economic
consumption to meet the rising aspirations
development: greater access to energy has
of its citizens. This will also enable India to
fostered economic growth as well as other
achieve the human development status of an
indicators of human development. India has
a per-capita energy consumption of only upper-middle-income country.
about one-third of the global average. Within 9.2 India’s energy needs have been
this consumption, access to clean fuel is complemented by efforts to use energy
efficiently in the last three decades. The charging infrastructure.

overall electricity savings due to adoption of
these energy efficiency measures is estimated
ENERGY FOR PROSPERITY
at 7.21 per cent of the net electricity 9.4 Energy is an integral component of
consumption in 2017-18. Total thermal the growth process for any economy. The
energy saved is 2.7 per cent of the net thermal present day developed countries pursued a
energy consumption and 2.0 per cent of the path of energy-intensive industrial growth
net energy supply during the same period. to reach the standards of living witnessed
by them today. The upper-middle-income
9.3 Further, India has also strived to
countries have also seen per capita energy
increase the share of energy from sustainable
consumption rise with their rise in per capita
sources. The share of renewables in total
incomes. Though India accounts for around
generation has increased from 6 per cent in
18 per cent of world’s population, it uses
2014-15 to 10 per cent in 2018-19. Electric
only around 6 per cent of the world’s primary
vehicles (EVs) represent the next generation
energy. India’s per capita energy consumption
in sustainable mobility and need to be
equals 0.6 tonnes of oil equivalent (toe) as
encouraged. The adoption rate of electric
compared to the global per capita average
vehicles has been slow, largely due to the
of 1.8 toe. India’s per capita primary energy
lack of charging infrastructure in the country
consumption lags that of the upper-middle-
and the time taken for completely charging
income countries by a considerable margin
the EVs. A policy push is therefore required
(Figure 1).
to devise universal charging standards for the
country as a whole and to provide adequate 9.5 Historical experience across countries
Figure 1: Per Capita Primary Energy Consumption (1965-2017)
3
Primary energy consumption per capita
(tonnes of oil equivalent)
0
1965
1970
1975
1980
1985
1990
1995
2000
2005
2010
2015
Year
Country
Mexico Turkey China
Brazil Malaysia India
Source: Data on primary energy consumption from BP Energy Statistics, Population and Per-capita real GDP from
World Bank Data
Enabling Inclusive Growth through Affordable, Reliable and Sustainable Energy 165
shows that in the initial years of economic intensity of GDP started declining at a much
development, increase in per capita GDP lower level of per capita GDP as compared to
requires a large increase in primary energy per the developed world. India’s primary energy
capita. A comparison can be made between intensity of GDP started declining since 1991
India and China, both of which started from at per capita GDP of around US$ 578 whereas
low levels of per capita primary energy US primary energy intensity of GDP started
consumption as well as per capita GDP. declining since 1970 at per capita GDP of
However, we can see that China was able around US$ 23,309 (at constant 2010 US$).
to quickly increase its energy consumption 9.6 Figure 3 shows the relationship
and grew rapidly (Figure 2). In the medium- between per capita energy consumption
term, for India to achieve per capita GDP and corresponding real per capita GDP for
comparable to that of the upper-middle- around 170 countries for the year 2017.
income countries, we require greater energy A simple linear regression between the
resources and that too at a rapidly increasing two variables indicates that one Gigajoule
rate. Energy intensity of India’s GDP has increase in energy consumption per capita
been declining in the recent past, which is corresponds to an increase of US$ 145
reflective of increases in the efficiency of per capita in 2010 prices. Thus, India will
energy use. However, India cannot become have to increase its per capita consumption
an upper-middle-income country without (i) from the current 24 Gigajoules by 2.5
rapidly raising its share of the global energy times to increase its real per capita GDP by
consumption commensurate with its share US$ 5000 in 2010 prices, which will also
of the global population, and (ii) ensuring enable it to enter the upper-middle income
universal access to adequate modern group. This will require huge energy resources
commercial energy at affordable prices. It that would also need to increase with time.
is also important to note that India’s energy
Figure 2: Per Capita Primary Energy Consumption and Per Capita GDP (1965-2017)
Primary energy consumption per capita (tonnes of oil equivalent)
3.5
Mexico Turkey China

3.0
Brazil Malaysia India

2.5
2.0
1.5
1.0
0.5
0.0
0 2000 4000 6000 8000 10000 12000

GDP per capita (constant 2010 US$)
Source: Data on primary energy consumption from BP Energy Statistics, Population and Per-capita real GDP from
World Bank Data
Figure 3: Per capita energy consumption and per capita GDP

for various countries (2017)
90000
GDP per capita (Constant 2010 US$)
60000
30000
0
0 100 200 300 400 500
Per capita energy consumption (Gigajoules)
Source: Data on Per capita energy consumption from BP Energy Outlook 2019 and per capita GDP at constant 2010
US$ from World Bank Data.
9.7 Access to energy is important not development. India would have to quadruple
just in its own right but also due to its its per capita energy consumption to reach a
linkages with other social indicators. The HDI of 0.8 and enter the group of countries
Sustainable Development Goal (SDG) No.7 with high human development.
on Affordable and Clean Energy is closely
related to all other SDGs. This is highlighted ACCESS TO ENERGY – ENERGY
by the strong relationship between Human POVERTY
Development Index (HDI) and Per capita 9.8 There is wide disparity between urban
energy consumption (Figure 4). At low levels
and rural areas in access to energy. A large
of energy consumption, increases in per capita
proportion of the population especially in
energy consumption leads to considerable
rural areas relies on non-commercial biomass
increases in human development. The curve
such as firewood and dung cakes for their
fitted to the data indicates that for countries
in the sub 100 Gigajoules per capita energy cooking/heating needs, thereby exacerbating
consumption region, small increases in energy health concerns due to poor indoor air quality.
consumption correspond to large increases in While the share of Liquefied Petroleum Gas
HDI. A country with 100 Gigajoules of per (LPG) as a cooking fuel has increased over
capita energy consumption has, on an average, the years, the share of households reporting
HDI of around 0.8 which is considered to be it to be as the primary source of energy for
very high human development (http://hdr. cooking has been low in the rural areas when
undp.org/en/composite/HDI). India had a per compared with the urban areas (Figure 5).
capita energy consumption of 24 Gigajoules It is heartening to see a wide acceptance of
and a HDI of 0.64 in 2017 i.e., medium human LPG as the cooking fuel in urban areas.
Figure 4: Human Development and Per Capita Energy Consumption
for a cross-section of countries (2017)
1.0
0.8
HDI 2017
India
0.6
0.4 60
0 100 200 300 400 500

Gigajoules/capita
Source: Data from BP Energy Outlook 2019
Figure 5: Distribution of households by primary source of energy used

for cooking: all-India, 1993-94 to 2011-12
Rural Urban
100 100
75 75
Per cent of households
Per cent of households
50 50
25 25
0 0
1999−2000
1999−2000
1993−94
2004−05
2009−10
2011−12
1993−94
2004−05
2009−10
2011−12
Year Year
coke/ coal LPG kerosene other sources#
Fuel
firewood & chips dung cake no cooking arrangement
Source: Data from NSSO Report No.567: Energy Sources of Indian Households for Cooking and Lighting, 2011-12
Note: # includes gobar gas, charcoal, electricity, others
Figure 6: Percentage of households reporting ‘firewood and chips’ as primary source of

energy for cooking (2011-12)
Rural Urban
80 80
60 60
Per cent
Per cent
40 40
20 20
0 0
95−100
95−100
10−20
20−30
30−40
40−50
50−60
60−70
70−80
80−90
90−95
10−20
20−30
30−40
40−50
50−60
60−70
70−80
80−90
90−95
5−10
5−10
0−5
0−5
Percentile Class of MPCE Percentile Class of MPCE
Source: Data from NSSO Report No.567: Energy Sources of Indian Households for Cooking and Lighting, 2011-12
Note: # includes gobar gas, charcoal, electricity, others MPCE=Monthly Per Capita Expenditure
9.9 While there is a large gap in energy years, especially through the efforts of the
access between the rural and urban areas, Government of India such as the Ujjwala
there remains a wide variation in the energy scheme (Figure 7). As per IEA-1(2018), in
access between the households at various 2017, 53 per cent of the population in India
economic strata. Using the data from latest did not have access to clean cooking when
available consumer expenditure round of compared with 68 per cent in 2010. However,
National Sample Survey, i.e. 2011-12, we find this remains low when compared with other
that around 81 per cent of rural households upper-middle-income countries such as 30
and 59 per cent of urban households in lowest per cent for China, 4 per cent for Brazil and
five percentile classes of expenditure reported less than 1 per cent for Malaysia.
firewood & chips as their primary source of 9.10 Government has been taking conscious
energy for cooking (Figure 6). As we move efforts to make clean cooking fuel available
up the expenditure classes, we find that the to households. Pradhan Mantri Ujjwala
reliance on firewood and dung cakes keeps Yojna was launched in 2016, with the aim to
falling and the use of LPG gains importance. safeguard the health of women and children
However, even at the top five percentile by providing them with clean cooking fuel.
classes in the rural areas, around 34 per cent Around 7 crore LPG connections have been
of households in 2011-12, which is the latest provided till April 2019 under the Scheme.
year for which this data is available, reported Direct Benefit Transfer for LPG consumer
firewood and chips to be the primary source (DBTL) scheme namely, ʻPAHAL’, in 54
of energy for cooking while only around 50 districts of the country on 15 November,
per cent of these households reported LPG 2014 has also been launched to rationalize
as their primary energy source for cooking. subsidies based on approach to cut subsidy
This indicated that the problem of energy leakages. As on 5 March, 2019, 24.39 crore
poverty has been more pervasive than LPG consumers have joined the scheme.
income poverty. The access to clean cooking LPG consumers, who join the PAHAL
fuel has increased considerably in the recent scheme, will get the LPG cylinders at non-
Figure 7: Percentage of population without access to clean cooking
80
70
60
50
Per cent
China
40
India
30 Brazil
20
10
0
2000 2005 2010 2017
Source: Data from IEA World Energy Outlook 2018
subsidized price and receive LPG subsidy (as delivers sustainable development and protect
per their entitlement) directly into their bank the environment. A large part of India’s
accounts. PAHAL has been recognized by energy story also comes from the various
the “Guinness Book of World Record” as the energy efficiency measures that the country
World’s Largest Direct Benefit Scheme. has implemented over the years.
ENERGY EFFICIENCY 9.12 The primary energy intensity of India’s
9.11 While India focuses in increasing GDP has followed a falling trend over the
its energy production and consumption, years (Figure 8). India’s primary energy
ensuring access to electricity for all and intensity of GDP has fallen from 0.0004 toe in
improving living standards, it also strives 1990 to 0.0002 toe in 2017. India understood
to ensure that it follows a growth path that the importance of energy efficiency measures
Figure 8: India’s Primary Energy Intensity of GDP (1990-2017)
Primary energy consumption (TOE)/GDP($)
0.0004
0.00035
0.0003
1990 1995 2000 2005 2010 2015

Year
Source: Data on primary energy consumption from BP Energy Statistics, real GDP from World Bank Data
reasonably early in its economic development 9.14 The institutional and legal framework
path and has embraced a number of energy in the country for energy efficiency has
efficiency measures in the last three decades. been strengthened through the Energy
The aim of this section is to provide the reader Conservation Act in 2001, which created
an analysis of the impact of energy efficiency the Bureau of Energy Efficiency (BEE).
measures in terms of energy saved, emissions The overall size of the energy efficiency
avoided, cost savings realized. market in India is estimated to be US$ 22.81
9.13 The term energy efficiency broadly billion (Energy Efficiency Services Limited
means using lesser amount of energy to (EESL’s Business Plan, 2016-2021).
produce a given amount of output. For Realizing the potential, Government of India
example, a light-emitting diode (LED) light with BEE in the lead undertook a number of
bulb requires less energy than an incandescent schemes for promoting energy efficiency in
light bulb to produce the same amount of various sectors across India (Figure 9 and
light i.e., it is more energy efficient. Box 1).
Figure 9: Sector Specific Energy Efficiency Schemes
Sector Specific Energy Efficiency Schemes
Lighting &
Industry Appliances Building Agriculture Municipal
Large Standard Energy Agriculture Municipal

MSME Conservation Demand Side Demand Side
Industry & Label Building Code Management Management
BEE SME UJALA

PAT scheme BEE Star Rating Pumping Street Lighting
programme
GEF- UNIDO- BEE

BEEP- EESL
programme
GEF- World Bank-BEE Green Building

programme programmes
Box 1: Energy Efficiency Programmes: A Brief

Standards & Labelling Programme was launched in May, 2006 with an objective of providing the
consumer an informed choice about the energy and cost saving potential of the labelled appliances/
equipment being sold commercially. This scheme entails laying down minimum energy performance
norms for appliances/equipment, rating the energy performance on a scale of 1 to 5 with 5 being the
most energy efficient one. The programme covers 23 appliances out of which 10 appliances are under
the mandatory regime while the remaining 13 appliances are under the voluntary regime.
Buildings: The Energy Conservation Building Code (ECBC), which sets minimum energy standards
for new commercial buildings having a connected load of 100 KW or contract demand of 120 KVA
or more, has been updated by BEE in 2017. BEE has also launched the Eco-Niwas Samhita (Part
1: Building Envelope) for residential buildings in December, 2018. Hotels have also been assigned
mandatory targets for reducing their energy consumption.
Small & Medium Scale Industries: BEE has implemented various energy efficiency demonstration
projects in Textile, Bricks and Food Clusters. Post implementation energy audits have also been
conducted in these clusters to measure the savings achieved by implementation of Energy Efficient
Technologies.
Transport: Corporate Average Fuel Efficiency (CAFE) norms for passenger cars have been notified
in April, 2015 and the fuel efficiency norms for Heavy Duty Vehicles for Gross Vehicle Weight greater
than 12 tonnes were notified in August, 2017. Further, the fuel efficiency norms for light and medium
commercial vehicles are under finalization and are being developed for tractors. BEE is also working
towards faster adoption of electric vehicles and labelling program for vehicles.
Demand Side Management (DSM) Programmes: BEE had launched its demand side management
schemes covering the areas on Agriculture, Municipal, and Distribution Companies (DISCOMs).
Under the Agriculture DSM (AgDSM), MoU has been signed between Indian Council of Agricultural
Research (ICAR) and BEE to create awareness for energy efficient pump sets and its operational
practices. In order to tap the energy savings potential of municipalities, BEE undertook nation-wide
awareness programmes to address energy efficiency in water pumping, sewage pumping, street
lighting and public buildings across Urban Local Bodies (ULBs) in the country. BEE is carrying out
preparation of DSM Action Plan, load research study of DISCOMs and capacity building of DISCOM
officials across the country.
Industries: Perform Achieve and Trade (PAT) scheme has been launched for industries, in which
mandatory targets are assigned to energy intensive industries for reducing the energy consumption.
This is followed by conversion of excess energy savings into tradable instruments called Energy Saving
Certificates (ESCerts). PAT cycle-I was completed in 2015 with a saving of 8.67 Million Tonne of Oil
Equivalent (MTOE) and mitigation of about 30 million tonne of CO2 emission. Platform for trading
of ESCerts was launched in September, 2017. In total, about 12.98 lakh ESCerts were traded at a cost
of about `100 crore. PAT Cycle II commenced from April, 2016 in which 621 Designated Consumers
(DC) were notified. PAT scheme is being implemented on a rolling cycle basis i.e. inclusion of new
sectors/DCs every year. PAT cycle-III was notified with effect from April, 2017 and PAT cycle —
IV was notified with effect from 1 April 2018 and PAT cycle -V has commenced from April 2019.
Presently under PAT scheme, there are over 800 units participating and by 2020 it is expected that they
will be able to achieve energy savings of about 20 MTOE and mitigation of about 70 million tonnes
of CO2 emission.
Lighting: With a view to tap the immense potential of LED lamps in reducing the energy requirement
the Unnati Jyoti by Affordable LEDs for All (UJALA) programme was launched on 5th January, 2015
with a target to replace 770 million incandescent bulbs with LED bulbs. It was estimated that this would
lead to annual energy savings of 100 billion kWh by March, 2019. Energy Efficiency Services Limited
(EESL) has been designated as the implementing agency for this programme. LED bulbs under UJALA
are distributed at subsidized rates through special counters set up at designated places in different cities
across the country. For domestic lights, EESL service model enables domestic households to procure
LED lights at an affordable price, with the option of paying the cost of procurement through easy
instalments from their electricity bill.
Outreach: The partnership and involvement of consumers is equally important, through behavioural
change, in sustaining efficient use of energy and avoidance of wastage. A campaign has been
initiated to educate people for conserving energy in air-conditioning application by maintaining
optimum temperature settings. BEE has already issued guidelines to large commercial establishment
recommending temperature setting between 24° C-26° C without compromising comfort levels. These
simple actions have the potential to save energy up to 20 per cent apart from rendering associated
health and environment benefits.
Impact of Energy Efficiency Figure 10: Energy Saved in 2017-18

Programmes
9.15 The implementation of various energy
efficiency programmes has witnessed
exceptional performance in terms of reducing
energy consumption thereby leading to lower
greenhouse gas (GHG) emissions and cost
savings. According to a BEE study, overall,
this saving has resulted in total cost savings
worth `53,000 crore (approximately) in 2017-
18 and contributed in reducing 108.28 Million
Tonnes of CO2 emission. The contribution is
largely from three major programmes – PAT,
UJALA and Standard & Labelling (Figures
10 and 11). The overall electricity savings
due to energy efficiency measures is 7.21
per cent of the net electricity consumption in
2017-18, total thermal energy saved is 2.7 per
cent of the net thermal energy consumption
and 2.0 per cent of the net energy supply. Source: Bureau of Energy Efficiency
Note: BU-Billion Units
Figure 11: Impact of Energy Savings in 2017-18
Reduction in CO2 emission (MtCO2) Monetary Savings (`Crore)
Source: Bureau of Energy Efficiency
Energy Saving Potential of Various estimated for effective policy and programme
interventions to realize the potential savings.
Sectors The energy saving potential in various
9.16 Going forward, the sectors with possible demand sectors has been estimated by BEE
energy savings need to be identified and using three scenarios (Table 1).
Table 1: Three Scenarios for estimating energy saving potential
Assumptions by 2031 Technological Policy/program/ Change in Fuel mix

Improvement & scheme initiatives
penetration
Scenario 1: Least effort No technological No further Current fuel mix

change and no new implementation of
technology penetration Programs
Scenario 2: Moderate Moderate/Business Successful achievement Moderate/BAU fuel

effort as Usual (BAU) of program targets mix shift from fossil
technological fuel to Renewable
improvements and Energy(RE)/electricity
technology penetration based consumption
as per govt./other
agencies target
Scenario 3: Aggressive Aggressive Over achievement of Aggressive fuel mix

effort technological program targets shift towards RE based
improvements and consumption in sector
penetration over govt./ (if applicable)
other agencies target
9.17 In light of the above scenarios, the table sector stands out with maximum energy
below shows India’s energy saving potential saving potential (Table 2).
in various demand sectors in 2031. Industrial
Table 2: India’s energy saving potential in various demand sectors in 2031.
Sector Energy Consumption Moderate Savings- Aspirational Savings -

– 2031 (Least Effort) 2031 2031
Mtoe Mtoe per cent Mtoe per cent
Agriculture 64.4 5.7 9 9.9 15
Transport 232.9 15.8 7 23.8 10
Domestic 98.6 12.1 12 15.1 15
Commercial 29.5 4.9 17 6.4 22
Municipal 8.0 0.9 12 1.5 19
Industries 443.4 47.5 11 72.3 16
Total (mtoe) 876.8 86.9 10 129.0 15
Total (TWh) 10198 1010 10 1500 15
Source: Bureau of Energy Efficiency

Note: TWh=Terawatt-hour
It is vividly clear that there is still great shifting to non-fossil fuel sources for
potential to be realized in terms of energy electricity generation. Despite this, coal
efficiency in various demand sectors. As a remains the largest source of electricity
country committed to implement the Paris generation mix globally, with 38 per cent
Agreement on Climate Change and SDGs, market share in 2018 (IEA, 2019). In terms of
it is necessary to prepare and plan strategies generation capacity, at the end of 2018, global
to unlock the potential to achieve the energy renewable generation capacity amounted to
efficiency potential, which should include 2351 GW that constituted around a third of
favourable regulatory structures, strengthened total installed electricity capacity (IRENA,
institutional framework, innovative financial 2019). A look at India’s installed capacity for
structures for affordable financing, use the last decade can tell us the importance that
of technology, and increased stakeholder thermal energy has played in meeting India’s
engagement. The existing approaches must
electricity needs (Figure 12).
be reviewed and a new portfolio of strategies
planned to strengthen energy efficiency 9.19 Almost 60 per cent of India's installed
across all sectors in the country. capacity is in thermal power out of which
the main component is the coal based
SUSTAINABILITY OF ENERGY
thermal power plants. India’s Nationally
GENERATION Determined Contribution (NDC) under
9.18 Globally, focus has been gradually the Paris Agreement states that India will
Figure 12: Share of various energy sources in total Installed capacity in India
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Thermal Nuclear Hydro Renewables
Source: Central Electricity Authority

achieve 40 per cent installed capacity of been arguably a transformation in the energy
power from non-fossil fuels by 2030. While mix in India. Renewable energy sources are
there has been tremendous increase in the a strategic national resource. Harnessing
renewable energy capacity, fossil fuels, these resources is a part of India’s vision to
especially coal, would continue to remain achieve social equity and energy transition
an important source of energy. Further, it with energy security, a stronger economy,
may not be advisable to effect a sudden and climate change mitigation. Union
abandonment of coal based power plants Budget 2018-19 announced zero import
without complete utilisation of their useful duty on components used in making solar
lifetimes as it would lead to stranding of panels to give a boost to domestic solar
panel manufacturers. Government has also
assets that can have further adverse impact
offered various financial incentives for off-
on the banking sector. Further, considering
grid and decentralized renewable energy
the intermittency of renewable power supply,
systems and devices for meeting energy
unless sufficient technological breakthrough
needs for cooking, lighting and productive
in energy storage happens in the near future, purposes. Thus, progressively declining
it is unlikely that thermal power can be easily costs, improved efficiency and reliability
replaced as the main source of energy for a have made renewable energy an attractive
growing economy such as India. As such, option for meeting the energy needs in a
base load power would have to be continued sustainable manner and helping India pursue
to be provided by the thermal power plants. its low carbon development pathway.
Given the sustainable energy objectives of
9.22 In this regard, India has been
the country and the importance that coal
undertaking one of the world’s largest
based power plants entail, there is a need renewable energy expansion programmes in
for building capacity for cleaner and more the world. The share of renewable energy
efficient coal technologies. Also important is progressively increasing in the Indian
is the economy’s ability to generate greater electricity mix. The share of renewables
output from available energy resources and (excluding hydro above 25 MW) in total
its resource endowments. generation was around 10 per cent in the
9.20 A comprehensive energy policy should year 2018-19 compared to around 6 per
take into consideration the economies cent in 2014-15. Now globally India stands
of both coal and renewables as they are 4th in wind power, 5th in solar power and
interdependent. They are substitutes for 5th in renewable power installed capacity.
each other as a source of energy but are The cumulative renewable power installed
complementary in keeping the flow to the grid capacity (excluding hydro above 25 MW)
has more than doubled from 35 GW on 31
stable as coal generation represents a stable
March 2014 to 78 GW on 31 March 2019.
source of power while renewable energy may
In addition, around 27 GW renewable power
be variable.
capacity is under installation and over 38 GW
POTENTIAL OF RENEWABLE ENERGY under bidding. The target is to achieve an
9.21 While increasing access to energy is installed capacity of renewable based power
important, it is also imperative that this comes of 175 GW by the year 2022.
at much lower costs to the environment than 9.23 Government has been taking a slew of
it has happened historically in advanced measures for the renewable energy sector.
economies. As observed above, there has Traditionally, renewable energy has been
supported through various fiscal and financial investment in renewable plants for upto the
incentives. As the viability of renewable year 2022 (without transmission lines) would
energy has improved drastically in the recent be about US$ 80 billion at today’s prices and
times, tariff discovery is made through reverse an investment of around US$ 250 billion
auctioning process. The solar tariff has come would be required for the period 2023-2030.
down from around `18/kWh in 2010 to `2.44/ Thus, on an annualized basis, investment
kWh in bids conducted in 2018. Similarly for opportunity for over US$ 30 billion per year
wind power, the tariff has declined from an is expected to come up for the next decade
average of `4.2/kWh in 2013-14 to `2.43/ and beyond.
kWh in December 2017. Therefore, the wind 9.28 India has great potential for hydro
power cumulative capacity has exceeded power generation. However, the utilisation of
35.6 GW. hydro power for meeting the power generation
9.24 Recent years have seen rapid growth needs have been limited. India has a hydro
in installed solar generating capacity along potential of around 145320 MW, out of
with significant improvements in technology, which 45400 MW have been utilised. As we
price, and performance. Moreover, creative move towards greater energy requirements in
business models have spurred investment in future, this source of energy, which is climate
this sector. The initial target of the National friendly compared to traditional sources
Solar Mission upto the year 2022, was to of power, can play a major role. However,
install 20 GW solar power, which was further high tariffs have been a major obstacle. To
enhanced to 100 GW in early 2015. The encourage the hydro sector, a new Hydro
solar power installed capacity has increased Policy has been approved which includes
around 1000 times from 25 MW as on 31 recognising large hydropower projects
March, 2011 to 28.18 GW as on 31 March, as a renewable energy source. Further,
2019. tariff rationalization measures have been
undertaken, including providing flexibility to
9.25 Priority has been accorded to seamless
the developers to determine tariff by back
integration of renewables into the grid and
loading of tariff after increasing project
better grid stability. In order to facilitate life to 40 years, increasing debt repayment
smooth integration of increasing share of period to 18 years and introducing escalating
renewables into the national grid, Green tariff of 2 per cent, budgetary support for
Energy Corridor project continues to be funding flood moderation component of
in operation. Eleven Renewable Energy hydropower projects on a case-to-case basis,
Management Centres are already at different and budgetary support for funding cost of
stages of installation. enabling infrastructure i.e. roads and bridges
9.26 Kisan Urja Suraksha Evam Utthaan on a case-to-case basis.
Mahabhiyan (KUSUM) scheme has been 9.29 While access to greater and cleaner
launched for providing financial and water energy resources and increasing the efficiency
security to farmers and for de-dieselization of energy resources are important, another
of the farm sector. The scheme envisages area that has tremendous potential is electric
around 2.75 million solar pumps and, on a mobility.
pilot basis, 1 GW decentralized solar power
plants in uncultivable lands of farmers to ELECTRIC VEHICLES (EVs) IN
enhance income of farmers. INDIA
9.27 Broad estimates suggest that additional 9.30 With the world’s second largest
population and an area of 3.3 million square emerge as a hub for manufacturing of such
kilometers, it is not difficult to understand vehicles. With this view, a “National Electric
how important the transport sector is for the Mobility Mission Plan 2020 (NEMMP)” was
Indian economy. In India, transport sector conceived with an objective to achieve sales
is the second largest contributor to CO2 of 60-70 lakh units of total EVs by 2020. In
emissions after the industrial sector. Road 2015, the Faster Adoption and Manufacturing
transport accounts for around 90 per cent of of Electric vehicles (FAME) scheme was
the total emissions in the transport sector in launched to fast-track the goals of NEMMP
India (MOEF&CC, 2018). Increasing vehicle with an outlay of `795 crore. The initial outlay
ownership, as is evident from Figure 13, has was for a period of 2 years, commencing
also meant that the demand for the fossil fuels from 1 April 2015, which was extended up
for these vehicles has also increased. Given to 31 March, 2019. FAME India Phase II has
the large import dependence of the country been launched, with effect from 1 April 2019,
for petroleum products, it is imperative that with a total outlay of `10,000 Crore over the
there be a shift of focus to alternative fuels to period of three years. Emphasis in this phase
support our mobility in a sustainable manner. is on electrification of public transportation.
9.31 While the government has given an 9.32 In addition to the initiatives of
impetus to the promotion of quality public the Government of India, several states,
transport, especially through the introduction including Karnataka, Kerala, Telangana,
of metro projects in various major cities, a Maharashtra and Andhra Pradesh, Uttar
shift to electric mobility in road transport can Pradesh, Uttarakhand, have drafted EV
lead to beneficial results. India could also policies to complement the national policy
Figure 13: Domestic passenger vehicle sales in India
3250000
3000000
Sales
2750000
2500000
2013−14
2014−15
2015−16
2016−17
2017−18
2018−19
Years
Source: Data from SIAM

Note: Only Aug 2018 -March 2019 data is available for 2018-19
and address state-specific needs. Andhra China accounted for a major part of these
Pradesh has set a target of 10 lakh EVs by sales. Charging infrastructure has also kept
2024 while Kerala has set a target of 10 lakh pace with almost 30 lakh chargers at homes
EVs by 2022. Maharashtra has announced its and workplaces and about 430,151 publicly
draft EV Policy, 2018 to increase the number accessible chargers worldwide in 2017.
of registered EVs in the state to 5 lakh. However, only around 25 per cent of these
Telangana has targeted 100 per cent electric were fast chargers (IEA-2, 2018).
buses for intracity, intercity and interstate 9.34 In India, electric two wheelers have
transport for its state transport corporation. been the major part of EV sales with sales
Uttarakhand’s EV policy has focused on of around 54,800 in 2018 (NITI Aayog,
the manufacturing of EVs in the state with 2019). Compared to this, sales of electric cars
incentives for manufacturers of EVs in the have been only around 2000 in 2017 (IEA-
MSME sector (NITI Aayog, 2019). 2, 2018). Indian market share of electric
9.33 Globally, the sales of electric cars have cars is a meagre 0.06 per cent. According
been rising at a fast pace from just over 2000 to the Society of Manufacturers of Electric
units being sold in 2008 to over 10 lakh in Vehicles (SMEV), Uttar Pradesh topped the
2017. More than half of the sales were in China list of the states with highest EV sales of
(IEA-2, 2018). The market share of electric around 6878 units in 2017-18, followed by
cars is around 2 per cent in China while it is Haryana at 6,307 units and Gujarat at 6,010
around 39 per cent in Norway. Electrification electric vehicles. Maharashtra reported sales
of two-wheelers and buses has also picked up of around 4,865 EV units, while West Bengal
pace in the recent years. In 2017, global sales came in fifth with sales of 4,706 units. Figure
of electric buses were about 1 lakh and sales 14 showcases the sales of electric cars which
of two-wheelers are estimated at 3 crore. includes Battery Electric Vehicles (BEVs) and
Figure 14: Electric Car (BEV and PHEV) sales in India
2000
1500
Sales
1000
500
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Year
Source: Data from Global EV Outlook 2018

Plug-in Hybrid Electric Vehicles (PHEVs) in through producing or importing NEVs or
India. through the purchase of NEV credits from
9.35 Various incentives have been provided other manufacturers who have excess credits.
to the buyers and users of electric vehicles Additionally, the subsidy program- with a
in different countries to encourage their consistent focus on the investment intensity
uptake. Norway, which has the highest of the charging and battery infrastructure -
share of electric cars has provided generous seems to have driven the increasing Chinese
incentives to EV buyers and disincentives market share in EVs.
to the use of conventional vehicles. These 9.36 Given the various incentives given in
include exemption from VAT, tax incentives the different countries, it is only natural to
on import and purchase of EVs, waiver of ask whether these incentives have had any
toll and ferry fees, free parking, etc. Closer impact on the uptake of electric vehicles.
home, Chinese government has issued a new While a number of studies seem to indicate
energy vehicle (NEV) credit mandate that that incentives have been effective, some
sets a minimum requirement regarding the studies have indicated their ineffectiveness
production of new energy vehicles (PHEVs, and have shown that charging infrastructure
BEVs and FCEVs), with some flexibility is a more important determinant of EV uptake
offered through a credit trading mechanism (Hardman et al., 2017). Figure 15 presents the
in the car industry. Every manufacturer is density of publicly accessible chargers and
required to earn minimum NEV credits either the corresponding market shares of electric
Figure 15: Market share of electric cars and charger density in selected countries in 2017
Market share in 2017 (per cent)
Number of publicly accessible fast and slow chargers per 1000 population in 2017
Source: Data from Global EV Outlook 2018

cars for some countries for which the data was be in the form of electric vehicles. According
available. Fitting a line through the scatter, we to NITI Aayog (2019), if India reaches an EV
find that the market share of EVs is positively sales penetration of 30 per cent for private
related to the availability of chargers and a cars, 70 per cent for commercial cars, 40 per
larger availability of chargers corresponds to cent for buses, and 80 per cent for 2 and 3
a greater adoption of EVs. The market share wheelers by 2030, a saving of 846 million
of EVs increases with increasing availability tons of net CO2 emissions and oil savings of
of charging infrastructure. This is primarily 474 MTOE can be achieved. It also provides
due to the limited driving range of batteries in us an opportunity to grow as a manufacturing
the EVs. It, therefore, becomes important that hub for EVs, provided policies are supportive.
adequate charging stations are made available While various incentives have been provided
throughout the road networks. In India, the by the government and new policies are
limited availability of charging infrastructure being implemented, it is important that
seems to be a major impediment to increased these policies not only focus on reducing the
adoption of EVs. upfront costs of owning an EV but also reduce
9.37 Another major impediment is that of the overall lifetime costs of ownership.
time taken for completely charging EVs, WAY FORWARD
compared to conventional vehicles. Even fast
9.39 Energy is the mainstay of the
chargers can take around half an hour to charge
development process of any economy. The
an electric car while slow chargers could take
priority for the government is ensuring access
even 8 hours. It is, therefore, an important
to sustainable and clean energy sources. Given
policy issue to come up with universal
the close link between energy consumption
charging standards for the country as a whole
and various social indicators, this attains even
to enable increased investment in creation of
greater importance. Compared to the income
such infrastructure. It is equally important
dimension of poverty, its energy dimension
to provide information on public chargers
is even more severe. Government of India
to the users of EVs through online maps and
initiated a big step in the form of the Pradhan
other means such as physical signage. This
Mantri Ujjwala Yojana, providing access to
will encourage increased ease of adoption of
around 7 crore households under the scheme.
EVs. Also, since the battery is the heart of
The task now is to ensure that households
any EV, development of appropriate battery
with LPG continue to use the clean fuel for
technologies that can function efficiently in
cooking purposes through continued refilling.
the high temperature conditions in India need
In terms of household electrification, India
to be given utmost importance (NITI Aayog,
has achieved almost 100 per cent with
2018).
electrification of 21.44 crore households.
9.38 The country’s economy is growing Not only does India have to meet the energy
and would continue to grow at a rapid pace needs of the future, it has to do so in a more
in the coming years. This presents a great sustainable manner. While renewable energy
opportunity for the automobile industry as capacity has been expanded manifold, fossil
the demand for automobiles would only fuel based energy is likely to continue to be
increase. Given the commitments that India an important source of power.
has made on the climate front as a nation and
9.40 Overall, energy efficiency is a strategy
the increasing awareness of the consumers on
that can lead to a win-win situation through
environmental aspects, it is likely that larger
better utilisation of energy resources. Future
and larger share of automobile sector would
policy direction should orient itself to
enhanced energy efficiency programmes in the Detroit of EVs in the future. Appropriate
different sectors of the economy as well as policy measures are needed to lower the
technological solutions to better utilise the overall lifetime ownership costs of EVs
natural resource endowments of the country
for greater prosperity. EVs hold enormous and make them an attractive alternative to
potential for India not only because it is conventional vehicles for all consumers.
environment friendly but also because India 9.41 To conclude, India’s economic future
can emerge as a hub of manufacturing of
EVs generating employment and growth and prosperity is dependent on her ability to
opportunities. It may not be unrealistic to provide affordable, reliable and sustainable
visualise one of the Indian cities emerging as energy to all her citizens.
CHAPTER AT A GLANCE
 India with a per-capita energy consumption of about one-third of the global average will have to
increase its per capita energy consumption at least 2.5 times to increase its real per capita GDP
by $5000 per capita, in 2010 prices, to enter the upper-middle income group.
 Additionally, if India has to reach the HDI level of 0.8, which corresponds to high human
development, it has to quadruple its per capita energy consumption.
 India has set ambitious targets for renewable energy and has been undertaking one of the world’s
largest renewable energy expansion programmes in the world. Now, globally India stands 4th in
wind power, 5th in solar power and 5th in renewable power installed capacity.
 Energy efficiency programmes in India have generated cost savings worth more than `50,000
crore and a reduction in about 11 crore tonnes of CO2 emission.
 The share of renewables in total electricity generation has increased from 6 per cent in 2014-15
to 10 per cent in 2018-19 but thermal power still plays a dominant role at 60 per cent share.
 The market share of electric vehicles is only 0.06 per cent in India when compared to 2 per
cent in China and 39 per cent in Norway. Access to fast charging facilities must be fostered to
increase the market share of electric vehicles.
REFERENCES 2018". Retrieved from International Energy

Agency: https://www.iea.org/weo2018/
Ghaniet. al (2014). Ejaz Ghani, Arti Grover
Goswami and William R. Kerr: "Spatial Energy Efficiency Services Limited. 2018,
Dynamics of Electricity Usage in India, "Energy Efficiency Market In India PRGFEE
Policy Research Working Paper 7055", & Successful ESCO Model": https://www.
World Bank Group aeee.in/wp-content/uploads/2018/04/EESL_
Ashish-Jindal.pdf
Hardman et. al. (2017). "The effectiveness
of ﬁnancial purchase incentives for battery IEA-2. (2018). "Global EV Outlook".
electric vehicles – A review of the evidence, Retrieved from International Energy
Renewable and Sustainable Energy" Reviews Agency: https://webstore.iea.org/global-ev-
Vol 80, pages 1100-1111. outlook-2018
IEA-1. (2018). "World Energy Outlook IEA (2019). "Global Energy and CO2 Status
Report": www.iea.org/geco/electricity/ Government of India.

IRENA (2019). "IRENA Annual Renewable NITI Aayog. (2018). NITI Aayog & World
Capacity Statistics 2019" Energy Council. "Zero Emission Vehicles
MoEF&CC. (2018). "Second Biennial Update (ZEVs): Towards a Policy Framework, 2018"
Report to the United Nations Framework NITI Aayog. (2019). "NITI Aayog & Rocky
Convention on Climate Change". Ministry Mountain Institute. India’s electric mobility
of Environment, Forest and Climate Change, transformation, 2019"
Effective Use of Technology
for Welfare Schemes – Case of
10
CHAPTER
MGNREGS
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Work gets accomplished by putting in effort,
and certainly not by mere wishful thinking
While MGNREGS was made effective from 2006, the streamlining of the programme
occurred in 2015 when the government harnessed the benefits of technology. This, inter alia,
included the implementation of Direct Benefit Transfer (DBT) and linking it Aadhar linked
Payments (ALP). It leveraged the Jan Dhan, Aadhaar and Mobile (JAM) trinity to credit
wages directly into MGNREGS workers’ bank accounts, thereby reducing scope for delays in
payment. This chapter highlights the benefits of careful and effective targeting of government
programmes by demonstrating that DBT-enabled MGNREGS has indeed helped to alleviate
distress of workers. Post DBT payment delays in the payment of wages, under MGNREGS, has
reduced significantly thereby providing livelihood security to people in distress. Both demand
and supply of work under MGNREGS increased, especially in districts suffering from distress.
The increase in the number of filled muster rolls also implies that distressed workers indeed
turn up more frequently for work. The importance of ALP-enabled MGNREGS in alleviating
distress is particularly pronounced for the vulnerable sections of society, including women,
persons with disability, Scheduled Castes and Scheduled Tribes. As data on demand for work
under MGNREGS is available almost real-time, it can be developed into a real-time measure
to track distress at the level of a district/panchayat. This evidence highlights that skilful use
of technology when combined with an unwavering commitment to monitoring effectiveness
of government schemes can make a substantial difference on the ground.
INTRODUCTION workers were employed during daytime to

10.1 Today’s workforce programs, which are construct the Imambara. Others were hired at
popularly used across the world to alleviate night to demolish part of what was constructed
distress and poverty, owe their intellectual during the day time. The Mahatma Gandhi
origins to “food for work” programs during National Rural Employment Guarantee Act
the rule of Chandragupta Maurya (320 BC (MGNREGA), which was enacted through
to 298 BC). In fact, as acknowledged by an Act of Parliament in 2005, represents
Drekmeier (1962), “food for work” is first the modern version of such “food for work”
referred in Kautilya’s Arthashastra. Much programmes in India.
later in 1784, but more than a century before
Keynes (1909), Nawab Asaf-ud-Daula started 10.2 The programme was operationalized
a “food for work” programme to help the through the Mahatma Gandhi National
famine-stricken people of Lucknow. Some Rural Employment Guarantee Scheme
(MGNREGS) with effect from February of wages is critical. To conceptually

2, 2006. The programme was initiated to understand the importance of the same,
ameliorate rural distress by providing at least consider two farmers, A and B. Suppose for
100 days of manual labour at minimum wages the purpose of the illustration, MGNREGS
to anyone who seeks employment under wages are fixed at `100 per day of work.
the program. Creation of productive assets Due to bad monsoon, A’s crop failed and in
for prescribed quality and durability, social order to survive, he seeks work for 100 days
inclusion, gender parity, social security and under MGNREGS and receives `10,000 but
equitable growth form the founding pillars of after a delay of several months. Thus, A’s
the programme. cash inflow, during his time of economic
10.3 The Act states that “the objective of adversity, is actually zero. Anticipating such
the legislation is to enhance the livelihood delay, farmer A would prefer to work in a
security of poor households in rural areas”. place where the wages might be lower than
For the rural poor, even slightest economic MGNREGS but are disbursed on time. This
distress can be a threat to their livelihood. choice enables him to generate the liquidity
The programme was, therefore, designed that he desperately needs in distress. But it
such that rural poor could turn to it in times is evident that the programme did not meet
of need and that it could mitigate distress by his needs as the wage payments were not
providing adequate work in times of distress. timely. In contrast to farmer A, say farmer B
This chapter shows that the effective use had a normal harvest. To earn extra money,
of technology enhanced the effectiveness, B also enrols for 100 days of work under
design and targeting of the programme. MGNREGS. He also receives `10,000
MGNREGS wages after a delay of several
10.4 In the first decade of its existence, months. However, as farmer B is not under
MGNREGS had been saddled with several duress, he would choose to avail the higher
inefficiencies, including widespread wages under the programme.
corruption, political interference, leakage,
and significant delay in wage payments 10.6 In contrast, in a regime where the
(Niehaus and Sukhtankar, 2013a,b; MGNREGS payments are made on time, the
Ravallion, 2012; Agarwal et al., 2016). The distressed farmer A will definitely choose to
programme was reviewed in 2015 and the enrol for work under MGNREGS instead
government initiated major reforms using of seeking alternative avenues to alleviate
technology and emphasised on bringing in his distress. If farmers A and B work under
more transparency and accountability, robust MGNREGS, both receive their wages in a
planning and creation of durable productive timely and systematic manner. Working for
assets. The scheme was also integrated MGNREGS becomes beneficial for farmer A
with the Aadhaar Linked Payments (ALP) as it provides him with the necessary liquidity
system. The ALP leveraged the Jan Dhan, for survival when he needs it most. Thus,
Aadhaar and Mobile (JAM) trinity to provide under efficient targeting, incremental demand
Direct Benefit Transfers (DBT) to the for MGNREGS work would be greater from
beneficiary accounts. As a result, the wage distressed workers than from non-distressed
payment system underlying MGNREGS was workers.
streamlined, thereby reducing the scope for
10.7 The simple example above illustrates
delays in payment (Agarwal et al., 2019).
how: (i) delays in payments can materially
10.5 For a workforce programme to drive genuinely distressed farmers away
effectively alleviate distress, timely payment from MGNREGS; and (ii) improvements
Effective Use of Technology for Welfare Schemes – Case of MGNREGS 185
in the targeting of MGNREGS to genuine 10.9 Various government initiatives have
beneficiaries can increase the demand for facilitated overcoming these structural
work from distressed workers, thereby constraints. By December, 2015, the total
effectively realising the objective of the number of Aadhaar enrolments in the country
programme. A person undergoing economic exceeded 100 crore, thereby covering a major
distress needs immediate and certain portion of the adult population. Linking the
liquidity. Working for uncertain promised Aadhaar Number to an active bank account
wages, which are likely to be realised with was the key to implementing income transfers.
a substantial lag, presents an unattractive In 2015, the Pradhan Mantri Jan DhanYojana
proposition for a person in distress as delayed (PMJDY) was launched to ensure universal
payments effectively imply zero wages in access to banking facilities with at least one
adverse times. Consistent with this thesis, basic banking account for every household.
this chapter highlights the benefits of careful PMJDY addressed the issue of banking the
targeting of Government programmes by use unbanked population in the country and
of technology. Aadhaar provided a credible identity source
to whoever wanted to open a bank account.
USE OF TECHNOLOGY The bank accounts of people, including those
IN IMPLEMENTATION OF opened under PMJDY, were linked to their
MGNREGS unique Aadhaar numbers, which facilitated
cross verification of identities. By expanding
10.8 Before the implementation of DBT, the mobile payment options, the Government
MGNREGS wages were transferred to the was able to ease the connectivity issue as
panchayat bank accounts and a significant people could get access to banking facilities
number of workers had to collect wages in using their mobile phones. So, the JAM trinity
cash from the gram panchayat office. Though enabled the roll-out of DBT by streamlining
attempts were made to implement a system of the validation/verification of beneficiaries as
DBT, two structural constraints limited these well as the process for release of funds. This
attempts. As per a World Bank report1, until ensured timely transfer of funds to the right
2015, close to 50 per cent of the country’s beneficiary and enabled effective targeting
population did not have bank accounts. The under welfare schemes.
proportion of unbanked population was
National electronic Fund Management
significantly higher for rural people who are
System (NeFMS)
the target group for MGNREGS. In rural
India, banking penetration was extremely 10.10 In order to streamline the system of
low. According to the Reserve Bank of India fund flow and to ensure timely payment of
(RBI)2 ,total banking outlets in villages as of wages, NeFMS was implemented in the year
March, 2014 was 1,15,350. This has increased 2016 (Figure 1). Under the system, the Central
by around five times since then with total Government directly credits the wages of the
banking outlets in villages at 5,69,547 as of MGNREGS workers, on a real time basis, to
March, 2018. Second, verifying the identity a specific bank account opened by the State
of genuine beneficiaries and transferring Governments. All the Programme Officers
wages directly into their bank accounts posed debit this state-level single account for
problems. authorization of wage payment. Currently,
1
http://datatopics.worldbank.org/financialinclusion/country/india
2
RBI annual reports for years 2014 and 2018
NeFMS is implemented in 24 States and 1 Figure 1: Fund flow Pre-DBT and Post
Union Territory wherein payment of wages DBT
is being credited directly to the bank/post
office accounts of MGNREGS workers Pre-DBT under e-FMS
by the Central Government. This initiated
the implementation of DBT in the Scheme.
As a result of this initiative, the e-payment
under MGNREGS has increased from 77.34
per cent in FY 2014-15 to 99 per cent in FY
2018-19.
Aadhar Linked Payments (ALP)
10.11 In 2015, the Government introduced

Post-DBT under N-eFMS
ALP in MGNREGS in 300 districts that
had a high banking penetration. Remaining
districts were covered under ALP in 2016.
Conceptually, ALP could speed up the wage
payment cycle in the following two ways.
First, due to stringent biometric requirements,
an Aadhaar linked account is unlikely to
belong to a ‘ghost’ beneficiary. Hence,
Government officials require less time to
verify and audit claims from such accounts.
Second, the Central Government, which Source: Ministry of Rural Development
ultimately foots the bill for the program, can numbers of 10.16 crore workers (87.51
transfer wages directly to the bank accounts per cent) have been collected and seeded.
of the beneficiaries, thereby cutting the Almost 55.05 per cent of all the payments
bureaucratic red tape. Out of the 11.61 crore under MGNREGS are through Aadhaar
active workers under MGNREGS, Aadhaar Based Payment Systems (ABPS). As shown
Box 1: Perceived Benefits of DBT

• Providing timely release of payments.
• Ensuring correct funds are transferred to correct beneficiaries, reducing corruption & leakages in
system.
• Reduction in delays in system for funds transfer (improving programme performance and
instilling trust and confidence in system by beneficiaries).
• Strong focus on security, tracking and monitoring of funds (through use of digital sign/signatures
and convergence/interoperability),
• Reconciliation process during payments between intermediate agencies involved in funds
transfer (near real time tracking, accountability and transparency).
• Streamline the verification process and end to end funds release process in all the beneficiary
oriented schemes
Figure 2: Coverage of MGNREGS by DBT
ͷͲͲ ͳʹ
Total Number of Benficiaries whose

Total Fund Transferred under DBT
data seeded with Aadhar (in crore)

ͶͲͲ
ͺ
͵ͲͲ
('00 crore)
ʹͲͲ
Ͷ
ͳͲͲ
Ͳ Ͳ
ʹͲͳͷǦͳ͸ ʹͲͳ͸Ǧͳ͹ ʹͲͳ͹Ǧͳͺ ʹͲͳͺǦͳͻ

Source: DBT Bharat portal
Box 2: Some Initiatives to streamline MGNREGS

NREGAsoft is a local language enabled work flow based e-Governance system to capture all the
activities under MGNREGS at Center/State/District/Block and Panchayat level. It makes available
all the documents like Muster Rolls, registration application register, job card/employment register/
muster roll issue register, muster roll receipt register that are inaccessible to the public otherwise.
GeoMGNREGA uses space technology to develop a database of assets created under MGNREGS
using technological interventions like mobile based photo geo-tagging and a GIS based information
system for online recording and monitoring. As on 10th June 2019, it has been implemented in 31
States and UTs. A total of 3.58 crore projects out of 4.44 crore completed projects are already geo-
tagged. The entire data is in public domain and ensures transparency and public disclosure.
Annual Master Circular: A master circular was issued in 2016, which consolidated 1039 advisories
that had been issued since the inception of the programme. This Master Circular is amended and
issued every year subsequently. This has helped to streamline the implementation of the programme
and bringing in clarity.
Tweaking the wage & material ratio: Durable and productive assets are essential for the sustainable
livelihood of the poor people in rural areas. The 60:40 wage and material ratio was mandated at Gram
Panchayat (GP) level. This often leads to non-productive assets being created simply because 60 per
cent has to be spent on unskilled wage in a GP. To address this without diluting 60:40 principles, the
wage and material ratio of 60:40 was allowed at the district level rather the GP level.
Emphasis on Individual Beneficiary Schemes: A very large number of Individual Beneficiary
Schemes (IBS) like goat sheds, dairy sheds, 90-95 days’ work in Pradhan Mantri Awaas Yojana-
Gramin (PMAY-G), wells, farm ponds, vermi-compost pits, water soak pits etc have been taken up
over the last five years. The emphasis on IBS has resulted in enhanced incomes of the beneficiaries
and also improved the quality of assets as the beneficiaries often put in their savings to supplement
the contribution of MGNREGS. The share of IBS has increased from 21.4 per cent in 2014-15 to 66.1
per cent in 2018-19.
Natural Resource Management (NRM) – Mission Water Conservation (MWC): Planned and
systematic development of land to improve its productivity and harnessing of water through
development of watersheds have become the central focus of MGNREGS work across the country.
Guidelines were drawn up in partnership with the Ministry of Water Resources, River Development
& Ganga Rejuvenation and Department of Land Resources to focus on the dark and grey regions
where the ground water was falling rapidly. It was made mandatory to spend 65 per cent of total
MGNREGS expenditure on NRM works identified in 2129 water stressed blocks. Technological
support from National Remote Sensing Centre, ISRO using GIS Technology (BHUVAN Portal)has
enabled systematic planning, monitoring and execution of structures impacting surface and ground
water resources. The major works taken up under NRM include check dams, trenches, ponds,
renovation of traditional water bodies/tanks, dug wells etc. During the last five years, 150 lakh
hectares of land has benefitted through these interventions.
Support for Drought Proofing: In 2015-16, provision of additional employment of 50 days in
drought affected areas over and above 100 days per household under MGNREGS was approved.
The major drought proofing works undertaken under MGNREGS are plantations, afforestation, land
development, check dams, wells, trenches, bunds and ponds, percolation tanks. During the last five
years, expenditure on such projects has more than doubled from `1753 crore to `4089 crore.
Increased accountability: Various citizen centric mobile Apps like Gram Samvaad Mobile App and
JanMnREGA (an asset tracking and feedback app for MGNREGS assets) have been developed,
which aim to empower the rural citizens by providing direct access to information and improve
accountability to the people.
in Figure 2, the number of beneficiaries and also higher in the post DBT years as compared
the funds transferred under DBT under the to pre-DBT years indicating that employment
Scheme has jumped manifold from 2015-16 generated is higher post implementation of
to 2018-19. DBT. It is also heartening to note that more
than 90 per cent of the person days benefit the
IMPACT OF DBT ON vulnerable sections.
EFFECTIVENESS OF MGNREGS
Timely Payment of Wages
Coverage
10.13 DBT focused on directly transferring
10.12. Muster rolls are a form of an funds into the beneficiary bank account.
attendance register. Higher number of filled The NREGASoft monitors generation of
muster rolls represent higher worker turnout payment of wages within 15 days. Sustained
on site. Figure 3 shows that the filled muster efforts and intensive engagement with all
rolls have shown a significant increase after stakeholders has enabled vast improvements
implementation of DBT indicating that more in the timely payment of wages. In 2014-15,
people are reporting for work. Figure 4 shows 26.9 per cent of the payments were generated
that total person days and total person days of within 15 days, which has now risen to 90.4
vulnerable sections (women, SCs and STs)3 is per cent in 2018-19 (Figure 5).
3
These groups are not mutually exclusive and therefore, double counting is possible.
Figure 3: Filled muster rolls under MGNREGS
Source: Adapted from data from MGNREGA portal
Figure 4: Share of Vulnerable Sections in Person Days under MGNREGS
400000
Number of person days
360000
320000
280000
240000
200000
2011 2012 2013 2014 2015 2016 2017 2018
Total person days (vulnerable sections) Total person Days (Others)
Source: Adapted from data from MGNREGA portal
10.14. In the pre-ALP period, the average the proportion of total amount of wage
amount disbursed to bank accounts almost payments that were received with a lag
doubles from `1.82 crore per block per year of more than 90 days before and after the
in pre-ALP period to `3.98 crore per block implementation of ALP, it is found that the
per year. This indicates that more funds delay in payments reduced by almost one-
flowed through DBT after ALP was instituted. third from 35 per cent to less than 10 per
If ALP improves the efficiency of the cent in the post-ALP period (Figure 6).
programme, then there should be a significant Thus, implementation of ALP has positively
reduction in the delay in wage payments. impacted the flow of payments under the
When a comparison is made between scheme.
Figure 5: Share of Payments done within 15 days under MGNREGS
ͳͲͲ 90.4
84.5
Share of Payments within 15
ͺͲ
͸Ͳ
days (%)
43.4
36.9
ͶͲ
26.9
ʹͲ
Ͳ
ʹͲͳͶǦͳͷ ʹͲͳͷǦͳ͸ ʹͲͳ͸Ǧͳ͹ ʹͲͳ͹Ǧͳͺ ʹͲͳͺǦͳͻ
Source: Ministry of Rural Development
Box 3: Data and variables used

The data for MGNREGS is collected from the MGNREGS Public Data Portal for the period FY2012
to FY2017. Public data portal provides information on all the scheme’s variables from FY2012
onwards at various administrative subdivision levels. Delayed payments are available at a district
level from FY2015 onwards. This data provides information on the number of transactions delayed
at various intervals.
As MGNREGS targets rural poor, whose primary occupation is agriculture, drought is used as a
proxy for economic distress. The precipitation data is collected from the Climatic Research Unit,
University of East Anglia. As the eastern-most longitudes in India span beyond the scope of the
data, the blocks in the study are limited at 90°E. The data is extracted and mapped to the blocks in
the country. Since the climate data is available only till FY2017, the time period of the sample is
restricted to FY2017. Thus, the sample examining drought as a proxy for distress uses data where
both MGNREGS and precipitation data are simultaneously available. The Schedule 1.5 of NSSO
survey on Household Expenditure on Services and Durable Goods, Round 72, has been used to
obtain data on consumption expenditure at the district level. To define blocks affected by drought,
the definition provided by Indian Meteorological Department (IMD) is used: IMD defines an area
to be affected by drought if it receives less than 75 per cent of its normal precipitation. A panel that
contains weather and MGNREGS information of each block for every year from FY2012 to FY2017
is constructed. It takes value 1 if annual rainfall in a block is less than 75 per cent of normal rainfall,
otherwise it takes value 0. For the purpose of the analysis, a post ALP period is also defined as per the
staggered implementation of ALP – 300 districts from FY2015 and remaining districts from FY2016.
The summary statistics of the analysis undertaken is given in the appendix.
Demand for MGNREGS Work delayed payments, it is expected that there

10.15 Given that there has been an increase will be an increase in demand for work under
in amount disbursed to bank accounts post the programme in distressed areas (Agarwal
implementation of ALP and a decline in et al., 2019).
Figure 6: Delay in Payment of Wages under MGNREGS
Proportion of Wages Delayed by 90+ days
Sharp fall in Delay in

Payments after ALP
0 0.05 0.1 0.15 0.2 0.25 0.3 0.35 0.4

Pre-ALP period Post-ALP period
Source: Survey Calculations.
10.16 Figure 7 displays the difference -in that effective implementation of MGNREGS
-difference estimate of the effect of ALP on should increase demand for work in the
persons demanding work. In the blocks not distressed areas, this finding is consistent
affected by drought, there is no effect of ALP with the thesis. The difference -in -difference
on the number of persons demanding work. estimate, i.e. the before- after difference in the
Crucially, however, in blocks that are affected blocks affected by drought versus the same
by drought, the persons demanding work difference in blocks not affected by drought,
increases by 20.7%. As we argued above equals 21.8% and is statistically significant.
Figure 7: Demand for work under MGNREGS
16000 Demand for work in distress areas
increases after ALP
14000
Number of persons per Block
12000
10000
per year
8000
6000
4000
2000
0
Drought-affected Districts Districts not affected by drought
Pre-ALP Post-ALP

10.17 It appears, therefore, that before the blocks affected by drought.

implementation of ALP, the rural poor treated
MGNREGS as an option to earn additional 10.19 It can be inferred that the increased
income during good times rather than a shock state capacity to implement anti-poverty
absorber during bad times. This actually programmes brought about by ALP can
defeated the purpose of the programme. Post potentially bridge the demand supply gap
implementation of ALP, there is a reversal in MGNREGS (Dutta et al., (2012)). With
of trend, wherein an increase in demand reliable data, it is possible that the Central and
for work under MGNREGS is observed in State governments will be able to effectively
drought affected areas. The change post ALP monitor the implementation of MGNREGS
implementation suggests that reduction in the and nudge the officials to provide jobs
delay of payments has an immediate positive wherever and whenever they are needed the
effect on the demand for work in distressed most.
times.
Work Done under MGNREGS
Supply of MGNREGS work 10.20 Muster rolls are a form of
10.18 Figure 8 similarly displays the attendance register signed by workers. It acts
difference-in-difference estimate for the as a preliminary check in the sense that, if
effect of ALP on the supply of work under demand and supply of work increases, but
MGNREGS. As in Figure 7, we observe there is no change in muster rolls filled, then
very little change due to the implementation it means that there may be a false reporting
of ALP on supply of work in the blocks not of numbers. Figure 9 shows that the muster
affected by drought. In contrast, we observe a rolls increased by 19% in the blocks that
20% increase in the supply of work in blocks were not affected by drought, In contrast,
that are affected by drought. This suggests muster rolls increased by an enormous 44%
that the supply of work under MGNREGS in the blocks that were affected by drought.
also responds to the increase in demand in the Thus, the evidence in Figure 9 shows that
Figure 8: Supply of Work under MGNREGS
16000 Increase in Supply of Work in distress

areas after ALP
Number of persons allotted work per Block
14000
12000
10000
per year
8000
6000
4000
2000
0
Pre-ALP Post-ALP

Figure 9: Amount of work done in MGNREGS: Total muster rolls filled
Number of muster rolls filled per Block per 8000 Higher increase in filled muster rolls
in distress areas after ALP
7000
6000
5000
4000
year
3000
2000
1000
0
Pre-ALP Post-ALP
the actual work done under MGNREGS also regression are plotted on the y-axis. The
increased significantly in blocks affected by x-axis shows the year before and after the
drought due to the use of ALP. This increase implementation of ALP with 0 corresponding
was more than double the increase in blocks to the year of implementation. We observe
that were unaffected by drought. that absent ALP, there is either no change
or a decline in total person days worked
Impact on Vulnerable Sections of by vulnerable sections of the society. In
the Society the pre-ALP period, represented to the left
of year zero, the gap between person days
10.21 As economic shocks affect vulnerable
worked by vulnerable sections of the society
sections of society (women, persons with
was insignificant. In the post ALP period,
disability, SCs and STs) the most, there are
represented to the right of zero, there has
concerns that they might not be able to adapt
been a large increase in person days worked
easily to the use of technology under DBT and
by the vulnerable sections of the society in
hence may get excluded (Khera (2011)). There
blocks affected by drought. This means that
is also reason to believe that such people are
after implementation of ALP, women, SC and
more likely to be unaware of technological
ST workforce increased under MGNREGS
changes that occur in implementation of
during times of economic distress (Figure 10).
social welfare programs. If that is true, then
there should not be any change in MGNREGS USE OF DATA ON CONSUMPTION
work by these individuals in distressed areas TO PROXY DISTRESS
post implementation of ALP (Agarwal et
al., 2019). Figure 10 shows the differential 10.22 While drought is the primary source
effects of ALP for vulnerable sections of of rural distress, there is a possibility of
the society and others. The residuals after some extremely local unobserved distress
controlling for other determinants using a which is not related to drought such as pest
Figure 10: Total person days worked by vulnerable sections of the society in drought and
non-drought affected areas before and after the implementation of ALP
attacks, disease outbreak, sale of land for to distinguish localized distress from large
infrastructure development etc. Such distress crises because large-scale distress will be
should reduce consumption expenditure of the common across neighbouring regions. Once
local areas affected by it. Therefore, monthly ALP district-neighbour pairs and non-ALP
consumption expenditure from NSS round district neighbour pairs have been identified,
72 survey data can be used as a proxy for the ratio of MGNREGS demand for each pair
distress. The hypothesis is that there should is calculated. This ratio is called MGNREGS
be an increase in demand for MGNREGS demand factor. Similarly, the ratio of
work in areas with decline in consumption consumption expenditure for each pair is
expenditure. Using NSS data to identify calculated. This ratio is called consumption
unobservable distress, this test is performed factor. A negative relationship exists
to see if improvements in MGNREGS extend between MGNREGS demand factor and
to all kinds of distress that may or may not be monthly consumption factor for each district
as easily observable as drought. neighbour pair (Figure 11). This means that
areas with low consumption expenditure
10.23 NSSO does not include block level
have higher MGNREGS demand as
identification, so the data is aggregated at
compared to areas with higher consumption
the district level. Since the survey data is
expenditure.
available only for FY2015, the sample is
restricted to one year. To perform this test, 10.24 Therefore, for the purpose of this
geographical neighbours of each district are test, consumption factor of less than one
identified first. Then, the district neighbour is used to identify distressed areas. It is
pairs are divided such that ALP districts are evident from Table 1 that the MGNREGS
matched with their ALP neighbours and non- demand factor is 1.45 for non-distressed
ALP districts are matched with their non- districts and 1.56 in distressed districts in
ALP neighbours in FY2015. This also helps the pre ALP period. Even though there is an
Figure 11: Relationship between WAY FORWARD
MGNREGS demand and consumption
expenditure 10.25 This chapter highlights the benefits
of using technology in welfare schemes
to improve end to end governance, create
a robust evidence based implementation
framework in partnership with the States,
streamline the processes, timely transfer
of funds to implementing agencies and
beneficiaries, plugging of leakages, optimum
utilization of public funds and improving
overall performance (outputs/outcomes)
of the programmes. It also significantly
improves transparency and accountability
and above all, ensuring that right benefits
reach the right beneficiary at the right time.
Source: NSS, Round 72, MGNREGA portal 10.26 DBT through Electronic Fund
Management Systems in MGNREGS has
increase in MGNREGS demand in districts
streamlined the fund flow process and
with less consumption expenditure, the
helped in better targeting, reduction in delay
increase is marginal. After implementation
in payments to beneficiaries, minimized
of ALP, in non-distressed districts, the
MGNREGS demand factor is 1.18 i.e., the leakages and above all led to substantial saving
MGNREGS demand for these districts is of funds. More importantly, it has enabled
like their neighbours’. In distressed districts MGNREGS to be effective in alleviating
it increases to 1.76. For distressed districts, distress of workers. Both demand and
demand for MGNREGS work is almost twice supply of work under the Scheme increased,
of their neighbours’ in the post ALP period. It especially in blocks suffering from distress
is interesting to see that not only has the gap and from the vulnerable sections of society,
between MGNREGS demand of distressed including women, persons with disability,
and non-distressed areas widened but also SCs and STs. The increase in the number
there is greater increase in the demand for of muster rolls that were filled also implies
MGNREGS in distressed areas in the post that distressed workers indeed turn up more
ALP period. frequently for work. The positive outcomes
in MGNREGS are based on the revealed
Table 1: Proportionate change in demand in preference of the ultimate beneficiaries who
areas with high consumption expenditure v/s are not only at the bottom of the pyramid,
areas with low consumption expenditure in
i.e. the rural poor, but are also distressed.
ALP and non-ALP districts
As enrolment in the Scheme is voluntary,
High Low beneficiaries have strong incentives to reveal
Consumption Consumption their preference by “voting with their feet”
factor factor when programme delivery is inefficient or
No ALP 1.45 1.56 efficient.
ALP 1.18 1.76 10.27 The above analysis has the following
policy implications:
Probable Indicator of distress: Demand Expansion of ‘works’ under MGNREGS:

for work under MGNREGS may be used to To further increase the effectiveness of the
develop a real-time indicator of distress at the Scheme, the definition of ‘works’ under
granular district/ panchayat level. Distress at the Scheme should be regularly reviewed
the level of a district or panchayat is difficult and amended in light of the requirements.
to identify in real-time using the current Inclusion of de-silting of canals and water
datasets. While employment related NSS bodies in the Water Conservation Mission
surveys are carried out once in 5-6 years, would enhance their storage capacity and
district-level GDP is released irregularly. mitigate the frequency of floods.
Both these datasets are released with lags.
The NSSO surveys, though they are available Up-skilling the MGNREGS Workers: The
at the household level, are released after objective of the scheme to enhance livelihoods
a gap of almost two years from the date for households can be reinforced by enabling
of the surveys. As an adverse economic them to acquire suitable skills, which in turn
shock significantly reduces consumption will help them increase incomes and provide
expenditure of the household, it is important horizontal and vertical mobility to them. The
to provide assistance to the household at convergence of MGNREGS with Deen Dayal
the right time. By utilizing information on Upadhyaya Grameen Kaushalya Yojana
demand for work under MGNREGS and (DDU-GKY) and involvement with women
correlating it with other real-time measures Self-Help Groups needs to be strengthened so
of weather etc., that lead to rural distress, a that supply for skilled wage labour increases.
dashboard (Figure 12) can be created which The focus needs to be on the diversification
flashes ‘alerts’ from areas under local distress of the livelihoods with multiple sources of
to enable policymakers to act in a timely income for them to come out of poverty.
manner to alleviate such distress. As demand
for MGNREGS work is also affected by the Expanding use of JAM to other Welfare
governance capacity in the state, this indicator Schemes: The experience of increasing
of real-time distress can be constructed after the effectiveness of MGNREGS by using
accounting for the effect of the same. DBT and ALP lends immense credibility to
adoption of this strategy in other programmes.
The adoption of DBT in programmes which
Figure 12: Distress map of Bihar
involve transfer of cash benefits (scholarships
or pensions) and price subsidies (such as
those given for kerosene, liquefied petroleum
gas (LPG), public distribution system (PDS),
fertilisers and other input subsidies needs
to be strengthened to minimise exclusion
and inclusion errors. This will make public
spending more efficient and effectively
targeted.
Use of Digital Infrastructure for micro-
benefits: A huge digital infrastructure, linking
Aadhaar, bank accounts and mobiles has been
Source: Generated as a sample created and effectively used for MGNREGS
Note: Orange areas indicate distress areas - the largest welfare programme. This can be
used to expand the reach of the programmes
through provision of micro-insurance, micro- financial and economic inclusion benefitting
pensions and micro-credit to people in every the vulnerable and marginalized sections of
corner of the country. Its wide use can lead to the society.
CHAPTER AT A GLANCE
 Use of technology in streamlining MGNREGS has helped increase its efficacy.
 Adoption of NeFMS and DBT in MGNREGS helped to reduce delays in the payment of
wages significantly.
 Both demand and supply of work under MGNREGS increased, especially in districts
suffering from distress.
 The vulnerable sections of the society viz., women, SC and ST workforce increased under
MGNREGS during times of economic distress.
 Skilful use of technology when combined with an unwavering commitment to monitoring
effectiveness of government schemes can make a substantial difference on the ground.
REFERENCES Khera, Reetika. 2011. “The UID project and

welfare schemes.” Economic and Political
Agarwal, Sumit, Shashwat Alok, Yakshup Weekly, 38-43.
Chopra, and Prasanna L Tantri. 2016.
“Government Employment Guarantee, Labor Muralidharan, Karthik, Paul Niehaus,
Supply and Firms’ Reaction: Evidence from and Sandip Sukhtankar. 2016. “Building
the Largest Public Workfare Program in the state capacity: Evidence from biometric
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Agarwal, Sumit, Shradhey Prasad, Nishka
Muralidharan, Karthik, Jishnu Das, Alaka
Sharma, and Prasanna L Tantri. 2019.
Holla, and Aakash Mohpal. 2017. “The fiscal
“A Friend Indeed: Does The Use of Digital
cost of weak governance: Evidence from
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teacher absence in India.” Journal of Public
Counter-Cyclical?” Working Paper.
Economics, 145: 116-135.
Drekmeier, Charles. 1962. “Kingship Niehaus, Paul, and Sandip Sukhtankar.
and Community in Early India", Stanford 2013a. “Corruption dynamics: The golden
University Press. goose effect.” American Economic Journal:
Dutta, Puja, Rinku Murgai, Martin Ravallion, Economic Policy, 5(4): 230-69.
and Dominique Van de Walle. 2012. “Does Niehaus, Paul, and Sandip Sukhtankar.
India’s employment guarantee scheme 2013b. “The marginal rate of corruption
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Political Weekly, 55-64. Journal of Public Economics, 104: 52-64.
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Appendix : Summary Statistics of the Analysis

Variables Observations Mean SD Min Max
Total person days 23022 326019.3 367448.3 0 4724609
Total households reached 100 days 23022 620.95 1122.978 0 22877
Total households demanded work 23022 7593.07 7526.75 0 67951
Total persons demanded work 23022 12630.9 13699.18 0 150125
Total households allotted work 23022 7578.99 7522.68 0 67951
Total persons allotted work 23022 12596.87 13668.93 0 149927
Total muster rolls filled 23022 5727.20 6342.09 0 85312
Total households worked 23022 7248.92 7043.5 0 66490
Total persons worked 23022 11726.19 12273.58 0 147080
Amount disbursed to bank account 23022 27.3 41.9 0 672
(Rs crore)
Total pers on days worked by SCs 23022 71673.49 105123.4 0 1405991
Total person days worked by STs 23022 56170.62 154782.9 0 3566409
Total person days worked by women 23022 169081.5 247204.3 0 3296483
Redesigning a Minimum Wage
System in India for Inclusive Growth
11
CHAPTER
Despite India’s outstanding growth in the last two decades, low pay and wage
inequality remain serious obstacles towards achieving inclusive growth. An
effective minimum wage policy that targets the vulnerable bottom rung of wage
earners can help in driving up aggregate demand and building and strengthening
the middle class, and thus spur a phase of sustainable and inclusive growth.
However, the present minimum wage system in India is extremely complex with
1,915 minimum wages defined for various scheduled job categories for unskilled
workers across various states. Despite its complex structure and proliferation
of scheduled employments over time, the Minimum Wages Act,1948 does not
cover all wage workers. One in every three wage workers in India has fallen
through the crack and is not protected by the minimum wage law. Given this
situation, this chapter reviews the situation pertaining to minimum wages in
India and suggests the way forward for rationalising and streamlining the policy
for minimum wages.
INTRODUCTION he shall give six grains of silver per diem.

From the sixth month until the end of the year
11.1 Minimum wages for labour rendered has
he shall give five grains of silver per diem.”
been a feature of society since ancient times.
For instance, the famous Indian treatise from 11.2 In recent years, minimum wage
2nd Century BCE, Arthashastra, ordained systems have been strengthened by many
“the lowest wages for state employees was countries to lift workers out of poverty and
60 panas per year for unskilled workers such to reduce levels of inequality. The renewed
as servants, guards, valets, palanquin bearers, interest in minimum wage arises as recent
and labourers.” Similarly, the minimum literature and evidence suggests that
wages for agricultural labourers, watchmen, minimum wages can promote social justice
cowherds and other unskilled workers in the without any major negative implication for
private sector was effectively set at 60 panas employment if wages are set at an adequate
a year1 (Chapter-3, Book V:"The Conduct level.
of Courtiers"). Similarly, the Code of 11.3 In the last five years, during a period
Hammurabi, which is often cited as the oldest of global economic slowdown, sluggish
written laws on record, mentions minimum global trade and export growth, India’s
wages: “If a man hires a workman, then from growth story has been powered by private
the beginning of the year until the fifth month consumption. Therefore, with 93 per cent
1
One pana was a punch-marked silver/copper coin of the Maurya period.
workers in the informal economy, a well persons to advise the Government in

designed minimum wage system can reduce fixing minimum wages.
inequalities in incomes, bridge gender gaps • The Indian Labour Conference (ILC)
in wages and alleviate poverty. of 1957 recommended determining the
11.4 Wage levels and distribution of wages minimum wage based on the principle of
are, to a large extent, influenced not only by a household’s needs.
skills and productivity levels, but also by the • In 1988, the Labour Minister’s
role of labour market institutions, particularly Conference made recommendations for
minimum wages and collective bargaining. linking minimum wage with the cost of
But for the minimum wage system to play a living index, which became mandatory
meaningful role in aligning protection with in 1991.
the promotion of sustainable growth, it must
be properly designed, its goals clarified, and • In 1992, the Supreme Court of India
its enforcement made effective. However, the ruled that minimum wage should also
minimum wage system in India is extremely be linked with aspects such as children’s
complex with a plethora of minimum wages. education, medical requirements etc.
Given this situation, this chapter reviews NATIONAL LEVEL MINIMUM
the situation pertaining to minimum wages
in India and suggests the way forward for
WAGE
rationalising and streamlining the policy for 11.6 The idea of a national level minimum
minimum wages. wage has been debated since the enactment of
the Minimum Wages Act in India. The main
MINIMUM WAGE SYSTEM IN argument against a national minimum wage
INDIA has been the existence of wide disparities in
11.5 The Indian Minimum Wage System economic development and large variations
has been quite a debated and dynamic issue. in cost of living between regions and states.
Box 1 portrays the time-line involved in
• India was one of the first developing arriving at a National Floor Level Minimum
countries to introduce minimum wages Wage (NFLMW) in India.
with the enactment of the Minimum
Wages Act way back in 1948. The Act COMPLEX MINIMUM WAGE
protects both regular and casual workers. SYSTEM IN INDIA
Minimum wage rates are set both by
11.7 Over the last 70 years, the minimum
the Central and the State governments
wage system in India has expanded and
for employees working in selected
has become complex. The first set of
‘scheduled’ employment2. Minimum
complexities arises from issues relating to
wages have been set for different
its coverage. Today, there are nearly 429
categories of workers according to skill
scheduled employments and 1,915 scheduled
levels, location and occupations. The
job categories for unskilled workers. This
Act did not prescribe norms for fixing the
massive expansion in job categories and
level of the minimum wage. However, it
wage rates has led to major variations not
provided for tripartite advisory boards
only across states but also within states.
consisting of employers, employees of
scheduled employments, and independent 11.8 A second set of complexities arises
2
Employments notified under the Minimum Wages Act by the Centre and States.
Redesigning a Minimum Wage System in India for Inclusive Growth 201
Box 1: Timeline of adoption of National Minimum Wage
• First National Commission on Labour.

• Recommendation: National Mimimum Wage is neither ‘feasible nor desirable’.
1969
• Bhoothalingam Committee
• Argued for adoption of National Floor Level Minimum Wage to ensure a uniform
wage for all workers and enhance protection of the most vulnerable workers and
1978 eliminate arbitariness in the determination of level of minimum wages for different
States and occupations. Recommendations were mainly for the organized sector.
• Unorganized sector and agriculture were left out.
• National Commision on Rural Labour

• Recommended for a National Floor Level Minimum Wage as wide disparites
were prevalent in minimum wages across States.
1991
• Central Government adopted non-statutory National Floor Level Minimum

(NFLMW)- ` 35 per day was notified.
• This NFLMW is updated regularly as per CPI.
1996 • NFLMW is `176 per day w.e.f. 01.06.2017
from the lack of uniform criteria for fixing to ` 538 in Delhi. The range (difference
the minimum wage rate. In some states or in between highest and lowest minimum wages)
specific scheduled employments, minimum in each state varies from ` 16 in Nagaland to
wages are linked to the cost of living, through ` 905 in Kerala.
a variable dearness allowance (VDA) 11.10 The third set of complexities arises
whereas other states do not include the VDA from the fact that Minimum Wages Act
component. All this affects the level and does not cover all wage workers. One in
variation of wage rates that can be observed every three wage workers in India has fallen
across and within States. through the crack and is not protected by the
11.9 The variation of scheduled minimum wage law (ILO, 2018). Some major
employments and minimum wage rates vulnerable categories – such as domestic
within and across states is shown in Figure workers – are presently covered only in 18
1. The number of scheduled employments States and Union Territories. Further, the
varies from 3 in Mizoram to 102 in Assam revision of minimum wage rates has often
with the number of scheduled employments been delayed (Anant and Sundaram, 1998).
being in the high double digits in most states. 11.11 India has taken a number of steps to
Similarly, the notified lowest minimum wage improve overall coherence, for example, by
rate (per day) varies from `115 in Nagaland declaring a national minimum wage floor
Figure 1: Range of Minimum Wages in India (Rs. per day)

1800
1600 1192
1400
710
1200 772 658

651
581
1000
596 510
478 430 483 455 417
396 411
800 436 381 415 460 364
458 428 365 329
400 329 310 310
419 410
600 283
350 273
271 244 240 538
400 411 451
135 327 336 340 376 401
239 255 268 280 287 294 294 295 304 311 312 325
235 261 300
200 213 240 270
166 196 200
202
206 225 225
115 132 170 171
0 54 76 61 24 19 28 30 67 29 62 15 46 70 90 46 102 58 88 3 88 73 56 72 80 26 56 71 73 20 73 45 50 44 9 75 7 29
Note: Figures on the horizontal axis indicates the number of scheduled employments notified under the Minimum
Wage Act by the Central Government and all the States/Union Territories.
Source: The data pertaining to the scheduled employments and minimum wage rates notified by the State/Central
Government have been collated from the latest minimum wage notifications issued by the respective Governments.
These notifications have been issued at different points of time ranging from December 2014 to April 2019.
and strengthening the coordination of the wages for unskilled workers notified by the
Central Advisory Board with State Advisory more advanced and industrialised states
Boards, and by promoting states to determine and vice versa.
minimum wage rates through consultations
within five broader regional committees.
REFLECTION OF GENDER
However, a simple system covering as many DISCRIMINATION THROUGH
workers as possible, understood by all, and MINIMUM WAGE PROVISIONS
easily enforceable is the key to improve the 11.13 While the Minimum Wages Act does
effectiveness of minimum wage. not discriminate between women and men,
DIFFERENT MINIMUM an analysis of minimum wages for different
occupations shows persistence of systematic
WAGE ACROSS STATES: IS IT
bias. For instance, women dominate in the
JUSTIFIED? category of domestic workers while men
11.12 The main justification for persisting dominate in the category of security guards.
with different levels of minimum wages While both these occupations fall within the
across states is that they reflect different category of unskilled workers, the minimum
levels of economic development. In Figure wage rate for domestic workers within a
2, the per capita Net State Domestic Product state is consistently lower than that for the
(NSDP) for 2016-17 is plotted against the minimum wage rates for security guards
most recently notified lowest minimum (Figure 3). Furthermore, the differences in
wage rates. Several states are significant their minimum wage rates are quite large with
outliers with some of the lowest minimum the minimum wage rates for security guards
Figure 2: Per Capita Net State Domestic Product 2016-17 (at current prices) and
Latest Notified Lowest Minimum Wage Rates in India
600.00
Delhi
500.00
A & N Islands
Karnataka
400.00
Chandigarh
Minimum Wages (in `)
Telangana Haryana
Andhra Pradesh Goa
Uttar Pradesh Punjab Gujarat Sikkim
300.00 Odisha
Bihar Mizoram Kerala
AssamChhattisgarh
Jharkhand Uttarakhand
MP
Manipur Rajasthan Maharashtra Puducherry
200.00 Meghalaya Arunachal
West J&K Pradesh Himachal Pradesh
Bengal
Tamil Nadu
Nagaland
100.00
0.00
0 50000 100000 150000 200000 250000 300000 350000 400000
Per Capita Net State Domestic Product (in `)
Source: Per Capita NSDP 2016-17 from CSO. Data pertaining to the lowest minimum wage rates notified by the
State/Central Government have been collated from the latest minimum wage notifications issued by the respective
Governments. These notifications have been issued at different points of time ranging from December 2014 to April
2019.
Figure 3: Comparison of Minimum Wages for Domestic Workers (Female Dominated)

and Security Guards (Male Dominated)
Domestic Workers Security Guard
450 412
400
350 319 328
300 286
250 233
200 171
150
100
50
0
Andhra Pradesh Assam Himachal Pradesh
Source: Based on the latest minimum wage notifications issued by the respective state governments.
in Assam being 44 per cent higher than that prevailing minimum wage rates are below
for domestic workers. Such large differences the NFLMW as of 2018-19 (Figure 4).
can only be attributed to gender bias as is 11.16 A second measure of compliance
obvious from the disparity across states. could be to compare actual wages received
COMPLIANCE WITH THE by various categories of workers with the
notified minimum wage. To get an aggregate
MINIMUM WAGE ACT
picture, the NFLMW is used as the notified
11.14 The proliferation of minimum wage minimum wage. By this measure, the
rates and scheduled employments is a strong proportion of vulnerable workers receiving
deterrent for compliance. Different statutory wages below the NFLMW can be an index of
minimum wage rates for the same occupation non-compliance. Using this measure, Kannan
between states combined with the wide range and Papola (2017) show that 39 per cent of
between the lowest and highest minimum the male casual workers and 56 per cent of
wages can trigger migration of the industry women casual workers in rural areas, and
to lower wage regions/state. As the impact of 28 per cent of male casual workers and 59
minimum wage levels on employment and per cent of women casual workers in urban
poverty depends on the level of compliance areas received wages below the NFLMW in
and enforcement (Soundararajan, 2014), it is 2012. In 2004, the same figures were 78 per
of paramount importance to rationalise the cent (male rural), 96 per cent (female rural)
minimum wage policy. and 49 per cent (male urban) and 88 per
11.15 Currently NFLMW is non-statutory. cent (female urban). This indicates a trend
Yet, the NFLMW can provide a useful towards increasing compliance and that there
benchmark for assessing the spread of the is a gender gap in compliance similar to the
range of minimum wages fixed for unskilled gender gap in level of minimum wages. Using
workers across states. Over the years, most of the NSSO Employment-Unemployment
the notified minimum wage rates in different Survey (EUS) data, a comparison was made
states have moved above the NFLMW between the wages of regular and casual
rate, though there are still a few states and workers with NFLMW. It was observed that
occupations/job categories for which the compliance levels were significantly higher
Figure 4: Lowest Minimum Wages for Unskilled Workers and NFLMW (INR per day)
600
National Floor Level Minimum Wage (`176)
500
400
300
538
451
411
200
401
376
340
336
327
325
312
311
304
300
295
294
294
287
280
270
268
261
255
240
239
235
225
225
213
100
206
202
200
196
171
170
166
Tamil Nadu 132
Nagaland 115
0
Arunachal Pradesh
Himachal Pradesh
Daman & Diu
Telangana
Goa
Tripura
Assam
Bihar
Mizoram
Uttar Pradesh
Punjab
Central Govt.
Delhi
Jharkhand
Kerala
Meghalaya
Andhra Pradesh
Haryana
Karnataka
Chhattisgarh
Odisha
Gujarat
A&N Islands
Uttarakhand
D & N Haveli
Lakshadweep
West Bengal
Puducherry
Rajasthan
Jammu & Kashmir
Manipur
Sikkim
Chandigarh
Maharashtra
Madhya Pradesh
Source: The data pertaining to lowest level of minimum wage rates for unskilled workers notified by the State/
Central Government and NFLMW notified by the Central Government have been collated from the latest minimum
wage notifications issued by the respective governments. These notifications have been issued at different points of
time ranging from December 2014 to April 2019.
Figure 5: Percentage of Regular Workers Receiving Wages over the NFLMW, 2012
INDIA - 80.6
100.00
90.00
80.00
70.00
60.00
50.00
40.00
30.00
20.00
10.00
0.00
Source: Based on unit level data of the NSS Employment-Unemployment Survey, 2011-12.
Figure 6: Percentage of Casual Workers Receiving Wages over the NFLMW, 2012
100.00
INDIA-58.05
90.00
80.00
70.00
60.00
50.00
40.00
30.00
20.00
10.00
0.00
Source: Based on unit level data of the NSS Employment –Unemployment Survey, 2011-12
for regular wage workers when compared to that for 2009-10, the marginal effects of the
casual wage earners, as indicated in Figures 5 effective minimum wage increases gradually
& 6. as we move towards the 80th quantile, i.e.,
IMPACT OF MINIMUM WAGES the marginal wage pushes up the wages
disproportionately more on the lower side of
11.17 What has been the impact of minimum the wage distribution. This is quite different
wage on the labour market in India? To what from the marginal effects observed in 2004-
extent has it been successful in fulfilling the 05, when the marginal effects of an increase
goal of protecting the vulnerable workers, in the minimum wage were greater at the
improving general wage levels, and reducing higher levels of the income distribution than
inequality and poverty? In this context, it at lower levels (Figure 7).
must be remembered that a well-designed
minimum wage system is only one of the Figure 7: Effect of minimum wages on wage
several institutional mechanisms necessary distribution in India
for a meaningful impact on all these factors.
Impact on wage levels
11.18 Rani, Belser and Ranjbar (2013)
demonstrate that minimum wage in India
does not operate as a conventional floor
wage to protect the lowest paid workers.
Nevertheless, the study shows the presence of
a “lighthouse effect”, i.e., the minimum wage
acts as a benchmark that pulls up wages in the
low-paid and informal sector by enhancing Source: Rani and Ranjbar (2015)
the bargaining power of vulnerable workers.
Impact on Wage Inequality
11.19 Menon and Rodgers (2017) use
household survey data from 1982-83 and 11.21 International experience suggests that
2008 to show a marked increase in compliance greater compliance with minimum wages has
between these two periods with a stronger led to reduction in wage inequality. India’s
impact on male wages compared to female experience regarding the impact of minimum
wages and on regular wages compared to wages on wage inequality needs to be
casual wages during this period. Using data evaluated keeping in mind the segmentation
for workers in the construction industry, in the labour market and variations across
Soundararajan (2018) shows the presence of various categories of workers.
the “lighthouse effect” of minimum wage. 11.22 Between 1993 and 2011, the average
Specifically, minimum wage seems to have real wages increased in India, with the fastest
shaped wage bargaining, thereby leading to growth recorded for casual labour, women’s
rise in actual wages. labour, and rural/agricultural labour (ILO
11.20 Rani and Ranjbar (2015) show 2018). Despite these increases, the existing
that the minimum wage does impact the wage inequality measured by the Gini
distribution of actual wages, with the impact coefficient remains very high by international
depending on wage quantile. They show standards (Figure 8) 3. Going deeper, it is seen
3
The Gini coefficient is a commonly-used measure of income inequality that condenses the entire income distribution for a
country into a single number between 0 and 1: the higher the number, the greater the degree of income inequality.
Figure 8: Gini Coefficient for Regular and Casual Workers: 1993-94 to 2011-12
1993-94 2004-05 2011-12

0.60
0.49 0.49 0.50
0.50 0.46 0.47
0.41
0.40
0.30 0.28
0.30 0.26
0.20
0.10
0.00
Regular Casual All
Source: ILO, 2018.
that this inequality has increased amongst compared to the wage rate of the bottom 10
regular workers while it has decreased among per cent of wage earners (P90/P10) declined
casual workers. among casual workers and increased among
regular workers, except regular male rural
11.23 A similar trend is visible when we workers. The ratio of the wage rate of the
measure wage inequality through wage middle 10 per cent of wage earners (50th
dispersion ratios (Tables 1 and 2). The ratio decile or P50) to the bottom 10 per cent
of the average wage rate of the top 10 per cent declined consistently during 1993-2011 for
Table 1: Rural Wage Inequality Dispersion Ratios: 1993-94 to 2011-12

1993-94 2004-05 2011-12
(P90/ (P90/ (P50/ (P90/ (P90/ (P50/ (P90/ (P90/ (P50/
P10) P50) P10) P10) P50) P10) P10) P50) P10)
Male 7.6 2.3 3.3 9 3.5 2.6 7.1 3.6 2.0
Regular
Female 12 4.3 2.8 15 5.8 2.6 12.5 5.0 2.5
Rural
Male 3.3 2.0 1.7 2.9 1.7 1.7 2.9 1.7 1.7
Casual
Female 3.1 1.7 1.8 2.8 1.8 1.5 2.5 1.5 1.7
Table 2: Urban Wage Inequality Dispersion Ratios 1993-94 to 2011-12

1993-94 2004-05 2011-12
(P90/ (P90/ (P50/ (P90/ (P90/ (P50/ (P90/ (P90/ (P50/
P10) P50) P10) P10) P50) P10) P10) P50) P10)
Male 7.0 2.3 3.0 8.6 3.2 2.7 8.9 3.5 2.5
Regular
Female 12.9 2.6 5.0 18.7 5.6 3.3 15.6 5.0 3.1
Urban
Male 3.7 1.8 2.0 3.1 1.8 1.8 3.0 1.9 1.6
Casual
Female 3.8 1.8 2.1 3.5 1.8 2.0 4.0 2.0 2.0
Source: ILO, 2018.
regular and casual workers, both for males inequality especially at lower levels. This
and females in urban and rural areas. Thus, becomes all the more significant as women
there is a ‘catching up’ process because of the constitute the majority of the bottom rungs of
faster increase of wages of casual workers, the wage distribution. This also shows how
which substantiates the ‘lighthouse effect’ of compliance of the statute is imperative for
minimum wages. increasing welfare.
11.24 This mixed trend of wage inequality Impact on Employment
– increasing amongst regular workers and
11.25 Broecke (2017) finds in a meta-study
declining amongst the bottom and middle
on employment across Brazil, Chile, China,
level of all workers – can perhaps be explained
Colombia, India, Indonesia, Mexico, the
by the rise of average minimum wages, in
Russian Federation, South Africa and Turkey
consonance with the increase in Mahatma
that minimum wages have only a minimal
Gandhi National Rural Employment
(or no) impact on employment in emerging
Guarantee Scheme (MGNREGS) wages,
economies.
which were benchmarked to minimum
wages (Berg et al., 2018). It is, therefore, 11.26 Rani, Belser and Ranjbar (2013),
established that well-designed and effective in a study of 70 districts of India, find that
implementation of minimum wages will there was no impact of minimum wages
strengthen the trend towards decreasing wage on employment between 2005 and 2010.
BOX 2: MINIMUM WAGE SYSTEM IN BRICS

BRICS countries have varied systems in terms of coverage, degree of tripartite consultation, criteria
for setting the minimum wage and adjustment procedure. However, in all these countries, minimum
wages are explicitly embedded within a larger wage policy aimed at balancing needs of the workers
with overall economic factors.
Table 3: Minimum Wage System in BRICS countries
China Russia South Africa

Brazil India
Coverage National Minimum Regional A national Minimum wages
minimum wage rates are minimum wages minimum wage are limited
wage, covering established by that coexist with a was approved in to Scheduled
all workers. province. national minimum 2018, covering Employments,
Regions can also wage. The all groups of diff. skills &
define minimum regional minimum wage earners. occupations.
wages above the wages are fixed
national level. above the federal
rate.
Consultation ‘Quadripartite Administrative Russian Tripartite The tripartite Minimum Wages

commission’ in authorities, in Committee- the Employment are set through
2005, composed charge of labour Employers’ Conditions Notification or
of federal issues prepare a association, trade Commission Consultation,
government, programme to unions and the (ECC) advises based on
state fix and adjust Government the Minister of the tripartite
government, minimum wages. of the Russian Labour on the Advisory Board
employers Federation determination and Committees
and unions, decides. of the minimum set for this
formulates wage. purpose.
a long-term
minimum wage
policy - until
2019.
Criteria Minimum wage Cost of living Regions choose Cost of living Adopted need-
is increased of workers and different criteria and minimum based norms from
by the sum of their dependents; for their minimum living levels, the 1957, 15th
inflation in the the consumption wages but the poverty ILC Session and
previous year price index; the subsistence alleviation, wage 1992 Supreme
plus the GDP average wages of minimum is differentials Court Judgment
growth of 2 years workers; labour a need-based & inequality,
before (if >0) productivity; the income level that OSH, conditions
urban economic is the benchmark and level of
situation; and the that guarantees employment,
level of economic minimum inflation, GDP,
development. consumption productivity,
requirements. collective
bargaining.
Adjustment Adjusted on an At least every No specific Regular annual Adjusted at least
annual basis two years, periodicity adjustment. every five years.
and whenever
appropriate when
the indicators
change.
Source: ILO, 2018
However, Menon and Rogers (2017) report a potent tool for protecting workers and
a positive effect of minimum wages on alleviating poverty, if set at an appropriate
employment levels for both men and women. level that ensures compliance. International
They find that a 10 per cent rise in minimum experience has shown that relatively simple
wages raised the employment level by 6.34 systems are more effective and usually
percentage points in rural areas while it had complex systems are least effective.
a statistically insignificant impact on urban Cunningham (2007) and Ghose (1997) show
employment levels for both men and women. that a complex system of minimum wages
shows lack of coherence about wage levels
WAY FORWARD and wages being set in an arbitrary fashion.
11.27 It is evident from above that a well- United Kingdom, for example, abolished its
designed minimum wage system can be system of industry-wide trade boards in the
1980s and replaced it with a simple national design of minimum wages system are as
minimum wage. This trend is reflected in follows:
evolution of ILO standards as well, which  Simplification and Rationalisation:
earlier encouraged the adoption of a select Rationalisation of minimum wages as
system of minimum wages to groups of proposed under the Code on Wages
workers who are in a weak bargaining position Bill needs to be supported. This code
in the labour market, but later promoted a amalgamates the Minimum Wages Act,
comprehensive approach that covers as many 1948, the Payment of Wages Act, 1936,
workers as possible. the Payment of Bonus Act, 1965 and the
11.28 Multiple minimum wages usually exist Equal Remuneration Act, 1976 into a
to take care of the needs of a heterogeneous single piece of legislation. The definition
labour force. For example, this is the case of wage in the new legislation should
in India and the Latin American Countries subsume the present situation of 12
that have a high diversity of labourers. Some different definitions of wages in different
policy recommendations for an effective Labour Acts.
Figure 9: Geographical regions as determined by the Expert Committee on determining
the methodology for fixing the National Minimum Wage, 2019
Source: Expert Committee on determining the methodology for fixing the National Minimum Wage, 2019
 Setting a National Floor Level of the last revision in the minimum

Minimum Wage: Central Government wage adjunct to the mandated period.
should notify a “national floor minimum This would enable dissemination of
wage” that can vary across the five information and increased transparency
geographical regions (Figure 9). in the system.
Thereafter, states can fix the minimum  Role of Technology: The concept of
wages, which shall not be less than the ‘bounded rationality’ in behavioural
“floor wage.” This would bring some economics is that there are restrictions
uniformity in the minimum wages across to human information processing, due
country and would make all states almost to limits in knowledge (or information)
equally attractive from the point of view and computational capacities
of labour cost for investment as well as (Kahneman, 2003). A complex system
reduce distress migration. with multiplicity of wages across states
 Criteria for setting minimum wage: and across occupations sets limits on
Further, the Code on Wages Bill should how workers process the information
consider fixing minimum wages based available and use it to their benefit.
on either of the two factors viz; (i) the Technology can help in overcoming this
skill category i.e unskilled, semi-skilled, behavioural bias by making information
skilled and highly skilled; and (ii) the available in a simple and clear manner.
geographical region, or else both. This Use of a variety of online, mobile phone
key change would substantially reduce and networking technologies have the
the number of minimum wages in the potential to facilitate the collection and
country. For instance, Madhya Pradesh analysis of labour statistics, assist with
has notified minimum wages based on the dissemination of information about
just four skill levels of unskilled, semi- labour laws and policies, reduce costs and
skilled, skilled and highly skilled across improve transparency. A national level
occupations and regions. The state has dashboard can be created at the Centre
just four basic minimum wages for the with access to the state governments
four skill categories. whereby the states can regularly update
the notifications regarding minimum
 Coverage: The proposed Code on
wages. This portal must be made
Wages Bill should extend applicability
available at Common Service Centres
of minimum wages to all employments/
(CSCs), rural haats etc., with the
workers in all sectors and should
required mass media coverage so that
cover both the organized as well as the
the workers are well-informed and their
unorganized sector.
bargaining skills and decision-making
 Regular adjustment: A mechanism power are strengthened. Uniformity in
should be developed to adjust minimum minimum wages would also encourage
wages regularly and more frequently, industries to move towards interior areas
similar to countries like Montenegro, and thereby reduce labour migration.
Nicaragua, Netherlands, Uruguay, Information on various combinations of
and Costa Rica, where the minimum wages, occupations/skills and states can
wage adjustment takes place every six be made available so that workers can
months (ILO, 2014). A dashboard needs get easy access to whatever combination
to be set up by the Ministry of Labour of minimum wages they want to know.
& Employment, which shows the date The system should be built in a way that
Box 3 : Use of Technology for Minimum Wage Enforcement- Cross Country Experiences
 In UAE, all enterprises have been legally required to pay wages for both national and migrant
workers through banks and other financial service providers. This system allows the Ministry
of Labour to have a comprehensive wage database and an electronic wage payment monitoring
mechanism for enterprises within the country.
 In South Africa a system, called ‘Impimpi Alive’, enables workers to send anonymous SMS
messages to the Department of Labour (DOL) after which an inspector is dispatched to the
employer’s place of business within 48 hours.
 In U.S. an app – The Wage & Hour Guide for Employers App – puts federal and state wage and
hour laws at the fingertips of employers as well as law makers for better transparency.
 U.S. also has an app – GovDocs Minimum Wage app that provides the most up-to-date minimum
wage rate data for all company locations.
flashes ‘red’ alerts if the statute is not 11.29 To sum up, the world of work is in
being followed in any state or occupation a churn as technology is heralding major
in the notified area. transformations both in the workplace
 Grievance redressal: There should be as well as in work and employment
an easy to remember toll-free number relations. The impact is being felt
for anybody to register his grievance on both in the developed and developing
non-payments of the statutory minimum countries. For India, undergoing a delayed
wages. This number should be given structural and demographic transition, the
wide publicity to make people aware challenges posed by the technology driven
of this avenue for grievance redressal. changes are enormous. Expanding decent
Swift action should be taken against employment to young aspirants in the labour
the offenders and this action should be markets is a major concern. Establishing an
flashed on the dashboard without going effective minimum wage system that will
into specific details. The impression lead to inclusive growth is therefore an urgent
of action being taken would act as a necessity.
deterrent to employers to flout the statute.
CHAPTER AT A GLANCE
 The present minimum wage system in India is complex with 1,915 minimum wages defined for
various scheduled job categories across various states.
 One in every three wage workers in India is not protected by the minimum wage law.
 Minimum wages should be fixed for four categories namely, unskilled, semi-skilled, skilled and
highly skilled based on the geographical region and should cover all workers, irrespective of any
wage ceilings.
 A simple, coherent and enforceable Minimum Wage System should be designed with the aid of
technology as minimum wages push wages up and reduce wage inequality without significantly
affecting employment.
 An effective minimum wage policy is a potential tool not only for the protection of low-
paid workers but is also an inclusive mechanism for more resilient and sustainable economic
development.
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Impact of the Minimum Wage on Male and
Broecke, Stijn, Alessia Forti, and Marieke
Vandeweyer. 2017. “The effect of minimum Female Employment and Earnings in India.”
wages on employment in emerging economies: Asian Development Review, 34(1) 28–64.
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an India Wage Report. New Delhi: ILO.
Cunningham, Wendy. 2007. Minimum Wages
and Social Policy : Lessons from Developing Rani, U., & Ranjbar, S. 2015. “Impact
Countries. Washington.D.C.: World Bank. of Minimum wages on wage quantiles:
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Economic

3 Nourishing Dwarfs to Become Giants: Reorienting Policies for MSME Growth

4 Data "Of the People, By the People, For the People"

5 Ending Matsyanyaya: How to Ramp Up Capacity In The Lower Judiciary

6 How does Policy Uncertainty affect Investment?

9 Enabling Inclusive Growth through Affordable, Reliable and Sustainable

11 Redesigning a Minimum Wage System in India for Inclusive Growth

D&S courts District and Subordinate courts MoU Memorandum of Understanding

DBT Direct Benefit Transfer MPCE Monthly Per Capita Expenditure

DC Designated Consumers MtCO2 Metric Tons of Carbon Dioxide Equivalent

SRB Sex Ratio at Birth USA United States of America

SSI Small Scale Industries UTs Union Territories

TFR Total Fertility Rate VDA Variable Dearness Allowance

TOE Tonnes of Oil Equivalent WHO World Health Organization

TWh Terawatt-hour ZEVs Zero Emission Vehicles

The Survey departs from traditional Anglo-Saxon thinking by advocating a growth

LAST FIVE YEARS: THE independence history. The current account

Figure 1: Growth of GDP in India and the world

World Advanced EMDE ASEAN-5 China India

40 and South Korea), which witnessed high

GCF, Savings(% of GDP)

GCF Savings GCF Savings

GCF, Savings(% of GDP)

GCF Savings GCF Savings

Source: World Bank

Source: World Bank

By averaging across 62 episodes of growth and investment with consumption decreasing

D Current Account(% GDP)

Source: Sandri (2014)

Figure 6: Consumption, Gross Capital Figure 8: Gross Capital Formation to

Consumption Exp.(% of GDP) GCF share Savings rate

suggests that savings, investment and GDP

East Asian economies.

Unemployment Rate (%)

gross capital formation in East Asia and 5

fostered by encouraging investment. −10 0 10 20 30

Source: World Bank

Exports Growth (%)

−5 0 5 10 15 20 −2.5 0.0 2.5 5.0 7.5

Source: OECD Database.

Box 1: The need for economic theory to be contextualised to India

Start with Fit the “standard” “Puzzle” if the data

Start with the real Construct the Change theory if

NAVIGATING A WORLD OF this uncertain world of dis-equilibrium

BOTH STOCKS & FLOWS DISTRIBUTIONS

Using technology to administer welfare programmes

Source: Adapted from NEAC, OECD

greatest pivot in their social norms. improved the experience of a large

Source: http://www.policyuncertainty.com/ -5.0

the introduction of GST barely increased Source: http://www.policyuncertainty.com/, CSO

Source: World Bank

Figure 18: Impact of composition of Figure 19: Impact of wages on savings in

Share of Young firms Share of Old firms

India US Mexico India US Mexico

Source: Hsieh and Klenow (2014)

Figure 22: Real rates of interest (Jan 2012 – May 2019)

Source: State Bank of India and Survey Calculations

Real Estate (General/Diversified) Retail (Grocery and Food)

economy. The following aspects of the risk- to foster investment.