Chapter 16-2: Building Strategic Resilience and Strategic Indispensability: The Role of the State, the Private Sector and the Citizens

Introduction

• Part II shifts the focus to internal change, arguing that India's priority is an incentive structure that encourages action and learning under uncertainty. State capacity is examined as a composite outcome shaped by decision-making, risk processing, and the incentives of officials and citizens.
• Currently, bureaucratic risk aversion and proceduralism weaken the State's adaptability.

Chapter Precap

Why is State Capacity the binding constraint today?

• The Global Environment Has Shifted: The current global economy is defined by segmented globalisation, where trade is organised around blocs, capital flows are driven by security considerations, and access to technology is restricted.
• The Need to Navigate Uncertainty: The critical question is whether India has the institutional, administrative, social, and cognitive capacity to operate in a world intolerant of disorder and short-termism.
• Defining State Capacity as Execution: The chapter defines state capacity as the government's ability to get the right things done. 
• The Core Problem: Misaligned Incentives The most consequential constraint today is the incentive structure within institutions that shapes decision-making. This constraint is not due to a lack of resources, but rather manifests as:
  • Bureaucratic risk aversion.
  • Flawed organisational design.
  • Regulatory practices.
  • Private-sector behaviour and citizen expectations.
    • These issues are viewed as interlinked expressions of a single underlying problem: how institutions process risk and decisions. 
    • Therefore, state capacity must be viewed from the vantage point of adaptive competence.

Why entrepreneurial governance is hard

• The Asymmetric Burden on Action. This manifest in three ways:
  • Irreversibility Creep: Temporary measures often become permanent, which raises the stakes for any experiment.
  • Retrospective Scrutiny: Good-faith decisions are often judged by audits, vigilance, and courts based on hindsight, ignoring the uncertainty that existed when the decision was made.
  • Misaligned Metrics: Initiatives are evaluated using routine metrics rather than appropriate measures like capacity creation.

• The Need for Bounded Institutional Spaces Successful states (like Japan, Korea, and Singapore) created bounded institutional spaces: specific zones where experimentation was permitted and accountability was differentiated. For India, these spaces could take the form of:
  • Mission-based cells (e.g., for logistics or urbanisation).
  • Regulatory sandboxes.
  • Independent review mechanisms that prioritise learning over blame. 
    • The core principle is that experimentation within these spaces must be bounded, reversible, and accountable in a way that respects uncertainty.

• The Complexity of Democracy Political leadership must set the direction and priorities, while the bureaucracy must discover the pathways to solve problems. Institutions must be robust enough to absorb errors without collapsing into paralysis.
• Moving from Diagnosis to Action
  • Legal Frameworks: Laws must clearly distinguish between good-faith errors and corruption.
  • Incentive Systems: Rewards should focus on problem-solving rather than procedural compliance.
  • Accountability: Mechanisms must shift from hindsight-driven punishment to context-aware review.
  • Political Signalling: Leaders must signal that reversible failure is acceptable and that course correction is a sign of competence.
• Design Logic and the Korean Example Drawing on the experience of the Republic of Korea, the chapter emphasises that accountability should focus on whether a decision was reasonable given the information available at the time (ex ante), rather than judging it solely on whether the outcome succeeded (ex post). 

Learning without forgiveness: Why States that punish failure lose the future

• The Necessity of Revision Policies operating in uncharted terrain cannot be optimised in advance (ex ante). They require an iterative process where hypotheses are tested, revised, and occasionally abandoned. 
  • However, the current institutional culture in India treats visible course correction as evidence of failure rather than maturity, forcing officials to avoid experimentation.
• Defining Institutional Forgiveness It requires a clear distinction between good-faith error and malfeasance.
  • High-capacity states maintain this distinction rigorously, whereas low-capacity states blur it until fear substitutes for judgment.
• Models of Learning
  • The Japanese Model: Post-war Japan succeeded by building institutional memory rather than institutional blame. 
    • Policy failures were tolerated provided they generated insights for future action.
    • An official's career depended on their judgment under uncertainty, not merely the absence of error.
  • The Authoritarian Model: Authoritarian systems achieve learning through political insulation, allowing rapid experimentation as long as political boundaries are respected.
    • This model is untransferable to a democratic, legalistic polity like India.
  • The Democratic Requirement: For democracies, learning must be enabled through institutional design rather than political discretion.
• The Architecture of Forgiveness India requires a deliberate architecture of forgiveness. This involves:
  • Re-orienting Accountability: Accountability mechanisms (such as the CAG and Vigilance systems) need to shift focus from ex post scrutiny (judging based on the outcome) to ex ante clarity (judging whether the decision was reasonable given the information available at the time).
  • Legal Protections: Honest officials must be protected from vexatious prosecution where complex decisions are alleged to be ill-motivated without evidence of corruption.
  • Redefining Failure: Not all adverse outcomes are failures of competence; some are failures of timing, coordination, or hypothesis.

Organisational design and the burden of governance – Capacity depends on how responsibilities and ownership are organised

• The Limit of Functional Structures
  • Blurred Priorities: When regulatory, developmental, and operational tasks coexist within the same unit.
  • Dispersed Accountability: Outcomes often depend on collaboration across semi-autonomous units and external partners.
• Mission-Oriented Design and Ownership
  • Locus of Ownership: Strategies fail when responsibilities are fragmented and there is no clearly identifiable locus of ownership for the desired outcome.
  • Cluster Arrangements: A cluster lead should own the outcome (defining priorities, reconciling trade-offs, and reporting progress), while participating units retain control over their specific instruments and resources.
• Lessons from the Private Sector The key lesson is that coordination mechanisms only work when coupled with recognisable centres of outcome ownership that have the authority to align contributors toward a shared objective.
• The Role of Central Coordinators In the public sector, central coordinating entities function best as enabling and integrative platforms. 
  • Mature organisational design requires a dynamic balance between functional depth (to preserve expertise) and mission alignment (to ensure results have an accountable centre of gravity).

State Capability as a Human System: Culture, Skills, and Execution (Mission Karmayogi)

• From Command to Engagement India's administrative system often results in governance that citizens experience as rule-bound and impersonal. 
  • However, modern expectations have shifted; citizens now expect the State to be accessible, responsive, and fair.
• The Role of Mission Karmayogi To bridge the gap between inherited structures and contemporary needs, the chapter highlights Mission Karmayogi, implemented through the Capacity Building Commission.
  • Citizen-Centricity: To shape bureaucratic culture toward service that prioritises how civil servants engage with citizens, rather than just what they do.
  • Participatory Ethos: This aligns with the concept of Jan Bhagidari (governing with citizens as partners) and values such as Nagrik Devo Bhava (respect for the citizen) and Antyodaya (fairness).
  • Dynamic Capabilities: The mission moves away from rigid role definitions toward dynamic capability frameworks that align officials with evolving functional needs through continuous learning and competency mapping.
• Repurposing Service and Execution 
  • Reform as Absorption: Successful reform is described as a process of absorption rather than disruption, relying on incremental learning and role clarity to minimize resistance.
  • Team Composition: supplementing core administrative capacity with young professionals and domain specialists to add analytical depth, fresh perspective, and speed.
• The Human Element in a Technological Age The future of governance relies on distinctly human capabilities: judgment, ethical reasoning, collaboration, and systems thinking.
• Ethical Anchors and Civilisational Values A distinctive feature of Mission Karmayogi is its grounding in values drawn from India's civilisational traditions. 
  • By emphasising duty, service, and collective purpose, the mission positions public service as a vocation rather than a transactional role.

The Regulatory State as a Core Component of State Capacity

• Regulations are one of the most consequential interfaces between the State and the economy. 
  • Regulators operate effectively as mini-states, exercising legislative (rule-making), executive (investigating), and judicial (adjudicating) powers within their domains.
  • This creates significant risks when power is concentrated without adequate internal checks.
  • Therefore, regulatory capacity is a matter of institutional design, requiring a structure that minimises risks while preserving the efficiency of the regulatory form.
• Building Regulatory Capacity - School for Regulations
  • A critical gap in India's human resources: the lack of a dedicated cadre trained specifically in regulatory capacity.
    • Currently, regulators and businesses rely on professionals (or retired public administrators) who often require extensive adaptation.
  • The Survey proposes the establishment of Schools of Regulatory Studies.
    • The objective is to cultivate experts capable of balancing market freedom with oversight. 
• Responsible Regulation
  • Recruitment and Tenure: Regulators should attract younger professionals for dedicated careers to ensure a steady infusion of expertise and independence.
  • Addressing Asymmetry of Accountability: The chapter argues for transactional certainty: once an approval is granted by a designated authority, it should be final (barring fraud). 
    • State authorities must be held accountable for disruptions.
  • Respecting the Time Value of Money: The Survey cites the Competition Commission of India's deemed approval mechanism as a precedent for moving from discretionary processes to enforceable deadlines.
  • Penalising Delay: The failure by authorities to deliver services within mandated timelines should be treated as an obstruction to economic activity.

The Private Corporate Sector and Nation-Building

State capacity is shaped by the incentive environment created by the private sector. 

• The Indian corporate sector currently occupies a hybrid zone. It operates in an environment where rents are available and political mediation often substitutes for market discipline.
• Preference for Discretion over Competitiveness There is a lack of appetite for long-term risk absorption and global competitiveness. 
  • Instead, firms often prioritise regulatory arbitrage, protected margins, and firm-specific accommodations. 
  • Consequently, the corporate sector demands discretion rather than rule-based institutions.
• Short Investment Horizons This is driven by factors such as family control, succession orientation, and weak managerial markets. 
  • Because these firms do not rely on fast courts or predictable regulations to generate returns, they do not function as a forcing mechanism for institutional upgrading.
• The Condition for Reform Comparative experience suggests that the corporate sector induces state upgrading only when productivity becomes the sole path to survival.

Citizens, norms, and the social foundations of capability

State capacity is co-produced by the daily norms and behaviours of citizens.

• The Economics of Behaviour When citizens internalise norms of responsibility, the State can redirect energy from low-value policing and paperwork toward solving complex problems.
• Redefining Value in the Age of AI The nature of valuable work is shifting due to technological disruption. 
  • As AI automates routine tasks, human worth is increasingly expressed through reliability, care, discipline, and judgement.
• Reliability: Complex systems (power grids and supply chains) rely on millions of small actions aligning predictably. They fail without the quiet habits of workers who show up on time and adhere to standards even when unobserved.
• Lifelong Learning: In a rapidly changing world, the ability to adapt is as critical as raw intelligence.
• The Emotional Climate of Competence A novel insight is the link between personal well-being and national productivity.
  • Attention Economy: Constant engagement with screens and social media drains energy, creating an emotional climate of anxiety and urgency that makes sustained effort difficult.
  • Self-Care as Civic Duty: Protecting sleep, physical health, and mental stability are not indulgences but prerequisites for the maturity and steadiness required to maintain reliable public systems.
• The Paradox of the Commons The stark contrast in Indian norms: homes are maintained with diligence, but public spaces (streets, drains, railways) are often treated as spaces without a custodian.
  • Moral Status of the Commons: In societies with higher public capacity, the moral status of the commons is raised to the level of the household. 
    • When public space is viewed as an extension of shared life, behaviour shifts from indifference to stewardship.
  • Fiscal Citizenship: This responsibility extends to public money.
    • Demanding handouts (freebies) without recognising that the cost is pushed to future generations constitutes a failure of responsible citizenship.

Delayed Gratification and the Cost of Impatience

• The Misconception of Smart Work The true efficiency (working smart) is the outcome of mastering complexity through repetition, attention to detail, and learning from error.
  • Shortcuts cannot be applied effectively until one has undergone a long apprenticeship.
  • Therefore, delayed gratification is described as a critical productive capability.
• The Culture of Shortcuts When delayed gratification weakens, systems substitute visibility for depth and speed for learning.
  • Sports: Accelerated entry into professional leagues (or seeking social media fame) bypasses the slow work of building endurance and technique.
    • Similarly, doping represents a behavioural failure where immediate gains undermine long-term credibility.
  • Civic Behaviour: The text references the concept of the 'Ugly Indian' (from the 1990s) to describe a convenience-seeking culture. 
    • This involves bending rules, queue-jumping, and cutting corners to achieve status or scale while externalising costs to the system.
    • Consequently, laws exist, but compliance is often negotiated rather than followed.
• Reliability as an Economic Necessity At higher levels of development, growth depends on systemic reliability.
  • Complex infrastructures function only when millions of small actions align predictably over time. 
  • This alignment is impossible to legislate; it requires to accept delayed gratification as an economic necessity.
• Implications for State Capacity The entrepreneurial state cannot function in a society that treats shortcuts as substitutes for learning.
  • Experimentation requires a tolerance for early inefficiency. 
  • If impatience dominates, the State suffers from hysteresis:
    • skills decay, institutions forget how to do the hard work, and the cost of rebuilding capability rises sharply.

Deregulation – Institutional capability in action

The ability to simplify rules and reduce compliance burdens demonstrates the State's capacity to coordinate across agencies, exercise discretion, and shift administrative effort from routine policing towards problem-solving.

• The Institutional Mechanism: The Task Force on Compliance Reduction and Deregulation Building on the diagnosis that States are the primary rule-making authorities in critical areas like land and labour, the Government constituted a Task Force on in January 2025. 
  • Chaired by the Cabinet Secretary
    • this body aims to identify redundant compliances, standardize reform templates, and promote digitization through a Single Window System.
  • Distinct Approach: initiative focusses on the institutional process: it involves iterative problem-solving and continuous engagement between the Centre and States (including monthly meetings and delegation visits).
• Scope and Priority Areas the Task Force identified 23 Priority Areas across five broad sectors that dominate the interface between enterprises and the State: 
  • Land Use
  • Building and Construction
  • Labour
  • Utilities and Permissions
  • Overarching Priorities (e.g., decriminalisation).

Progress and National Scale of Implementation

• Scale of the Reform The initiative is nationwide, covering 36 States and Union Territories.
  • With each expected to implement reforms across 23 Priority Areas, the total number amounts to 828.
• Current Status (as of 23 January 2026):
  • Implemented: 630 Priority Areas have been completed, representing 76% of the total.
  • Under Implementation: 79 Priority Areas, accounting for 10%, are actively being processed.
  • Exceptions: A limited number (14%) of areas have been identified as not applicable/implemented.
• Monitoring and Tracking Mechanisms The progress is tracked through a digital MIS platform. This system enables:
  • Real-time monitoring of status. 
  • Identification of bottlenecks.
  • Dissemination of best practices.
  • Regular high-level reviews and monthly monitoring by the Cabinet Secretariat.

Best practices and reforms beyond Priority Areas

These best practices are documented and shared via an MIS portal to facilitate peer learning across jurisdictions. The chapter details specific innovations across several key domains:

• Land Use Flexibility States have introduced measures to speed up land availability and flexibility:
  • Elimination of Conversion Requirements: Andhra Pradesh and Uttarakhand have removed the requirement for land conversion or change in land use for specific categories to reduce procedural delays.
  • Negative Lists for Zoning: Assam, Jammu & Kashmir, Odisha, Puducherry, and Tripura have shifted from prescriptive zoning to a negative list approach. 
    • In mixed-use zones, all activities are permitted unless explicitly prohibited, offering greater flexibility.
• Building and Urban Development To improve the utilisation of urban land and facilitate project execution, particularly for industrial and commercial projects:
  • Liberalised Norms: Haryana, Madhya Pradesh, Odisha, Tamil Nadu, Uttar Pradesh, and Uttarakhand have liberalised building bye-laws. 
    • This includes simplifying norms related to setbacks, Floor Area Ratio (FAR), parking, and minimum plot area.
  • Impact: These changes have reduced land loss and enabled higher density and utilisation of urban land.
• Third-Party Inspections and Self-Certification States are reducing bottlenecks by moving away from routine departmental inspections:
  • Building Approvals: Chhattisgarh, Mizoram, Rajasthan, Tripura, and Uttar Pradesh have introduced third-party inspection mechanisms for building plans.
  • Environmental Clearances: Andaman & Nicobar Islands, Andhra Pradesh, Goa, Tamil Nadu, and Uttarakhand now allow self-certification or third-party certification for the Consent to Operate, reducing the regulatory burden.
• Labour and Safety Reforms
  • Women's Employment: Bihar, Gujarat, Odisha, Maharashtra, and Telangana have removed restrictions preventing women from working in a wider range of industries and commercial establishments.
  • Fire Safety: Assam, Odisha, Telangana, and Tripura have streamlined fire safety regulations by utilising accredited third parties for inspections.
• Trust-Based Regulation (Decriminalisation) To reduce the fear of penal action for minor procedural lapses, several states specifically: Chhattisgarh, Gujarat, Haryana, Karnataka, and Uttar Pradesh, have enacted State-level laws similar to the Jan Vishwas Act. 
  • These laws repeal outdated provisions and decriminalise minor offences, reinforcing a shift toward trust-based regulation.

Case Studies from Tripura, and Andaman & Nicobar Islands

• Tripura: Comprehensive Reform and Investment Tripura is presented as a case of holistic deregulation covering multiple domains, including land, building regulations, labour, utilities, and overarching statutes.
  • Investment Surge: Following these reforms, the state saw tangible results at the Rising Northeast Investors Summit 2025.
  • Implementation: A substantial number of Memoranda of Understanding (MoUs) progressed to actual implementation, with Tripura accounting for a significant share of the total investments committed to the Northeast region.
• Andaman & Nicobar Islands: Land Use and Credit Flow The introduction of an online process for Change in Land Use cleared a backlog of hundreds of applications within months. This administrative efficiency had direct economic spillover effects:
  • Tourism Capacity: It enabled the creation of additional tourism infrastructure.
  • Financial Inclusion: There was a visible improvement in the flow of credit to households and entrepreneurs, as land assets became easier to leverage.
• Broader Implications for State Capacity The outcomes prove that deregulation is not merely a pro-business reform but a mechanism to strengthen the State itself.
  • Redirecting Energy: By lowering friction at the interface between firms and the government, administrative energy shifts from routine policing to high-value tasks like coordination, monitoring, and problem-solving.
  • Continuous Governance: The initiative demonstrates that deregulation works best when pursued as a continuous governance process rather than a one-off checklist exercise.
• Future Outlook (Phase II) Building on the success of Phase I, the text notes that Phase II of the Compliance Reduction and Deregulation initiative was rolled out in January 2026.
  • This phase expands the scope to additional priority areas, including environment, education, health, and labour.

Conclusion

 India's transition to Strategic Indispensability relies on upgrading state capacity from rigid compliance to adaptive, entrepreneurial governance. This capacity is co-created; it demands a private sector focused on technological depth rather than rent-seeking, and citizens who uphold civic norms and delayed gratification. As recent deregulation efforts prove, minimizing friction shifts administrative energy from policing to problem-solving. By aligning the incentives of the state, firms, and citizens, India can evolve from a regulator to a catalyst for transformation, cementing its status as a stabilizing global anchor.

Glossary

Mains Questions

1. Discuss the concept of the Asymmetric Burden on Action as a primary obstacle to entrepreneurial governance in India. How does the Survey propose building an architecture of forgiveness to navigate this challenge?
2. "State capacity is not solely a function of government intent but is 'co-produced' by the private sector and citizens." Analyse this statement with reference to the hybrid zone of the corporate sector and the societal norms regarding the commons.