'Fueling 1950s ambassador car': Economist on what is wrong with India's govt spending
The economist warned that without fixing governance capacity, higher budgets will not yield better outcomes.
- Aug 18, 2025,
- Updated Aug 18, 2025 4:50 PM IST
Parts of India's government continue to function like a "1950s ambassador car," said Karthik Muralidharan, Professor of Economics at the University of California, warning that without fixing governance capacity, higher budgets will not yield better outcomes.
"You and I will remember the time when the ambassador car for 30 years was the metaphor for the pre-liberalisation economy. So in many ways many parts of the government now — some parts are modernised — but many parts of the government are still like a 1950s ambassador car, where you keep on adding burden but without strengthening the car itself," Muralidharan said on the Groww podcast with Monika Halan.
"The way I think about this is adding more money to your current systems is like putting petrol in a 1950s car. So it will move a little bit but the translation of budget into distance is very weak because you haven't invested in upgrading the car itself," he added.
Muralidharan explained that his book Accelerating India's Development: A State-Led Roadmap for Effective Governance brings together two decades of research showing that governance quality often matters more than allocations. "All of our public discourse on policy focuses on the top line of budget allocation but not the bottom line of how that allocation translates into outcomes," he said.
"One very robust finding that shows up again and again is that the ROI, the return on investment of better governance, is often 10 times more than simply spending more money," he noted.
Citing his research on MNREGA, Muralidharan said that simply raising allocations often failed to reach workers because of graft and leakages. "Even if you raise the MNREGA minimum wage, that wage doesn't go to the worker because there's enough kind of graft," he said. By contrast, using biometric smart cards to authenticate payments ensured workers received money directly and on time. "Investing in improving the pipes and delivery was 10 times more cost effective than simply spending more," he said.
In Telangana's Rayathu Bandhu scheme, a simple outbound call center checking whether farmers had received their payments delivered results. "What we estimate is that there was a 100x if you look at the cost of the call center and compare that to how much more money was delivered on time," he said.
He also pointed to judicial reforms, citing a doctoral study that measured the impact of judicial capacity. "Every extra district court judge clears another 200 cases a year," he said, noting that 60 to 70% of these cases involve land and credit disputes. "What she estimates is that that led to a total increase in credit offtake and a total increase in economic activity, and the total increase was 30 times the cost of hiring that extra judge."
Muralidharan argued that inefficiency, not corruption, is the main barrier to effective spending. "If you look at total waste in government only about 15 to 20% is corruption, the other 80% is just inefficiency. People focus on compliance-have you followed processes-but nobody's actually looking at the ROI," he said. "Where is the free lunch? The free lunch comes from investing in improving governance and the effectiveness of public expenditure. That’s how we will accelerate development."
Parts of India's government continue to function like a "1950s ambassador car," said Karthik Muralidharan, Professor of Economics at the University of California, warning that without fixing governance capacity, higher budgets will not yield better outcomes.
"You and I will remember the time when the ambassador car for 30 years was the metaphor for the pre-liberalisation economy. So in many ways many parts of the government now — some parts are modernised — but many parts of the government are still like a 1950s ambassador car, where you keep on adding burden but without strengthening the car itself," Muralidharan said on the Groww podcast with Monika Halan.
"The way I think about this is adding more money to your current systems is like putting petrol in a 1950s car. So it will move a little bit but the translation of budget into distance is very weak because you haven't invested in upgrading the car itself," he added.
Muralidharan explained that his book Accelerating India's Development: A State-Led Roadmap for Effective Governance brings together two decades of research showing that governance quality often matters more than allocations. "All of our public discourse on policy focuses on the top line of budget allocation but not the bottom line of how that allocation translates into outcomes," he said.
"One very robust finding that shows up again and again is that the ROI, the return on investment of better governance, is often 10 times more than simply spending more money," he noted.
Citing his research on MNREGA, Muralidharan said that simply raising allocations often failed to reach workers because of graft and leakages. "Even if you raise the MNREGA minimum wage, that wage doesn't go to the worker because there's enough kind of graft," he said. By contrast, using biometric smart cards to authenticate payments ensured workers received money directly and on time. "Investing in improving the pipes and delivery was 10 times more cost effective than simply spending more," he said.
In Telangana's Rayathu Bandhu scheme, a simple outbound call center checking whether farmers had received their payments delivered results. "What we estimate is that there was a 100x if you look at the cost of the call center and compare that to how much more money was delivered on time," he said.
He also pointed to judicial reforms, citing a doctoral study that measured the impact of judicial capacity. "Every extra district court judge clears another 200 cases a year," he said, noting that 60 to 70% of these cases involve land and credit disputes. "What she estimates is that that led to a total increase in credit offtake and a total increase in economic activity, and the total increase was 30 times the cost of hiring that extra judge."
Muralidharan argued that inefficiency, not corruption, is the main barrier to effective spending. "If you look at total waste in government only about 15 to 20% is corruption, the other 80% is just inefficiency. People focus on compliance-have you followed processes-but nobody's actually looking at the ROI," he said. "Where is the free lunch? The free lunch comes from investing in improving governance and the effectiveness of public expenditure. That’s how we will accelerate development."