The changing dynamics of public rent-seeking in India

Ashutosh Varshney recently wrote about the dynamics of rent-seeking in India,

It is worth noting that the countryside, where 68 per cent of India currently lives, is not where most of national income is generated. At this time, not more than 25-30% of India’s GDP comes from villages, with agriculture accounting for a mere 15% of GDP. More simply stated, over two thirds, perhaps as much as three fourths, of the nation’s GDP is generated in cities where less than a third of the country lives, whereas less than a third, perhaps as little as a fourth, of the country’s GDP is produced in the countryside where over two thirds of the national population resides.

As a consequence, for politicians, the city has primarily become a site of extraction, and the countryside is predominantly a site of legitimacy and power. The countryside is where the vote is; the city is where the money is. Villages do have corruption, but the scale of corruption is vastly greater in cities.

In fact, this analysis, while broadly accurate, can be made more nuanced. The top tier of the political and bureaucratic establishment is increasingly getting its dominant share of rents from the high rent yielding infrastructure sector. These sectors are predominantly urban in nature and their rent interfaces (say, decision makers and corporate offices) are located in urban areas. As opportunities in these sectors have grown, the politicians and officials in the upper tier have vacated their traditional rent space for those at the lower rung.

Consider this illustration. Since independence, until a few years back, the major sources of rent-seeking for everyone was in the local sources of patronage - dealership of fair price shop, control over anganwadi center and school, local officials postings, small local engineering works (of the panchayats and other departments) etc. The large construction works and private industrial establishments, except in industrial belts, were generally absent or marginal. The rents available too were minimal. Everyone from local government politicians to the state and central legislators sourced their rents from this small pie.

Over the last decade or so this landscape has been undergoing a transformation. There have been steep increases in infrastructure investments even in rural areas, which in turn have spawned off property booms in their catchment areas. Big infrastructure contracts involve large private contractors, who provide great opportunities for the local political establishment. Private investments too have flowed into many areas. Since the pie has expanded dramatically, the upper levels of the political establishment can now feast on these larger opportunities and leave their local minions to corner the older set of opportunities.

Obviously, the degree of evolution of this pattern varies from state to state. In certain states, this pattern has advanced considerably. In any case, this transformation only shifts the agents of corruption without altering any of the existing incentives to seek rents.