India's socialist experiment led to a great focus on politically controlled resource allocation, and a loss of focus on the core tasks of public goods. In my mind, the most important first task of the State is law and order, which comprises (a) police, (b) the body of law and (c) the judiciary.
Public goods versus private goods. In India today, there is a lot of focus on `service delivery' for health and education. I feel that this is misplaced. A lot of the issues in health and education are actually private goods. E.g. I have a toothache, I get cured, I get better: my consumption of health services is the consumption of a private good. The benefits are mine and my consumption of 20 minutes of service provider time comes at the price of somebody else accessing that provider for 20 minutes. Perambulatory curative health services - the kind doled out by WHO-vintage PHCs, are a pure private good.
In contrast, law and order is as non-rival and non-excludable as can be. I think that today, there is an imbalance in too much focus on health and education, and not enough focus on law and order. I think it is fair to say that the situation on this front has deteriorated today when compared with 1947. New York Times had an editorial on the Indian justice system, yesterday.
Economists are so tuned out of the law and order question, and so focused on the non-public goods of health and education, that in an otherwise excellent World Development Report 2004 on public goods, we don't find mention of law and order. To learn about this field, we have to use non-traditional sources like Amnesty International.
Police. Between the two service delivery systems of police and judiciary, the police is much harder. In the classification scheme of Pritchett & Woolcock, 2004, it's a transaction-intensive discretionary public good. It is very difficult to overcome agency problems: building a good police force is very, very hard. In India, the police appears to be uniformly bad. As Robert Kaplan said, "underdevelopment is when the police are more dangerous than the criminals".
The body of law. The police and judiciary can only perform in enforcing a body of law. Too often, in India, the legislation is in very bad shape. In personal law, there are problem like unequal treatment of men and women, or the punishments against homosexuality. In economics, the bulk of the pages of law out there were written a long time ago. They are steeped in socialism, and they are out of touch with contemporary institutional realities. Bibek Debroy is one of the rare scholars who has understood the enormous importance of these issues and done good work on the subject. He doesn't disseminate his work on the net as much as he should, so I have placed PDF files of two of his works in this field on my website: one and two. Update: Sanjeev Sanyal has an article on the legal system which is also of interest (free registration required).
Judiciary. We seem to be faring a bit better with judiciary as compared with the police. Process improvements based on IT at the supreme court have largely eliminated the case backlog, and these ideas are now creeping into high courts [Look at the existing efforts on process engineering using IT]. This assault on case backlog should have taken place much faster than it has, but atleast it's progress. Below the high courts, the situation is grim. There are huge gaps in the knowledge of judges and their physical facilities. Another aspect about the judiciary which is fundamentally different from the other two elements of law & order is that for commercial disputes, it's possible to use arbitration, and thus escape some of the infirmities of the public system. In contrast, there is no escaping bad laws and bad police. (Recruiting your own security guards is a coping mechanism, more like having an aquaguard because the tap water sux; it is not an alternative to having police).
On this subject, see this recent blog entry by Naveen Mandava which points to two recent working papers on the subject of India and judiciary. Another excellent piece on the subject is by Pratap Bhanu Mehta, it is a chapter in the recent edited book put together by Devesh Kapur and him. It tells a sad story of a judiciary that has played to the gallery; a judiciary that was unable to protect the individual against the State, even in areas where the drafting of the constitution was not faulty. This, once again, underlines the importance of the recruitment and training process for the judiciary. We need more of Richard Posner and H. R. Khanna and less of Ray, Beg, Chandrachud, and Bhagwati.
The agency problem between citizens and politicians. Citizens might like law and order, but this does not mean that politicians will maximise what is in their interest. How do incentives operate upon elected representatives to put in a focus on the hard work of public goods, as opposed to enjoying themselves dispensing patronage through welfare programs? I think the media has a powerful role to play in this process. The media is able to translate a specific incident - Jessica Lall's murder and the subsequent failure of prosecution - into pressure for broad-based reforms on the police and the judiciary On a related note is the recent events about Zaheera Shaikh, where also we're seeing a specific high-visibility event leading to strengthening the policy environment. Similarly, I was very happy to see the citizenry respond when a teenage girl was raped by a policeman in Bombay a few months ago.
We may be in a situation like 19th century England, or the wild west in the late 19th century in the US, where at first there is weak law and order. Then an emergent middle class starts exercising influence upon elected politicians, and forces them to walk the hard path of doing law and order right. In this sense, once modern economic growth is ignited, it can reshape the political environment around itself and keep the process going. Between 1979 and 2006, India seems to have successfully ignited a modern economic growth.