Institutional Failure and Naxalist Movement in India

“ ‘Emergencies’ have always been the pretext on which the safeguards of individual liberty have been eroded.”

-Friedrich August von Hayek

New Institutional Economics, as against the traditional Neoclassical theory, evolved in the context of realizing the institutional necessity of enhancing economic performance. The celebrated assumption of Rationality was explicitly stated in an institutionally neutral understanding of the economic phenomenon, with the microeconomic idea of optimization and efficiency operating in the background. Extensively relying on the idea of exchanges and organization,  New Institutional Economics offers an understanding of the economics of exchanges and the transaction cost involved in it, which was considered to be zero until the notion of a positive transaction cost came into existence. Is the idea of transaction cost exclusive to economics alone? The answer would be that the concept of transaction cost need not necessarily be economic in nature. Political transaction cost is, in fact, an important subset of transaction cost. Literature has stressed upon the role of organization and institutions in determining the level of transaction costs where political governance evolved as a means to reduce the political transaction cost (Gonzalo Caballero, 2016). In fact, the extent of political transaction cost in the market quite exceeds the economic transaction cost.

The social nature of human beings by default gives them an exposure to political life. The same is in the case of any economic phenomenon. The idea of a ‘nation state’ implicitly demands for the need of a government and sovereign nation to satisfy the ‘social interests’ of the collective entity that is closely related to the ‘self-interest’ of the individual. Democracy as an institution, thus evolved as the most pampered ideology of the majority in fulfilling the above stated condition. Within this broad institution of democracy, government, or to put it rightly political governance emerged as the agency of achieving social gains (welfare, social provisions etc.) at reduced transaction costs (in terms of inequality, discrimination etc.), so as to bring out a commonly accepted individual behaviour. Considering institutions as imperative for reducing the transaction cost, in this context, political transaction cost and political governance can be taken as the agents of the higher institution of democracy with the people as the opposite actors or the takers of this hierarchy. Given this broader understanding of political transaction cost and governance, this article tries to analyze Naxalism and its related upheavals as a political transaction cost incurred by both the parties of transaction, that is the government and the citizens, in the absence of an institutional framework of constitutional rights for the tribal property rights. Thus, the extent of political governance in property rights determines the cost incurred.

Background of the Naxalist upheaval in India

The Naxalist movement started as a tribal outbreak in the Naxalbari village of West Bengal. As we trace back the history of the Indian legal system and land distribution pattern, post-independent India was not much different from that of British India. The structure of property rights in British India was colonial and feudal in nature. With the occupancy of the East India Company, the colonization of India got completed within a few years, with the British Crown switching in as the De Facto body of control in India. The poor, marginalized and the tribal population were heavily burdened and exploited. The caste system coupled with feudal anarchy worsened the situation. Peasants were the tenants of the feudal lord, having no claim or privilege over the produce or on the land. Literature clearly reveals that the institutional failure of political governance and reformative policies is the root course for Naxalist insurgency in India. No matter whether an abstract and intangible concept like Naxalism could be regarded as a transaction cost or not, it would be better to consider Naxalism as an outcome of the huge transaction cost incurred due to the institutional failure of the Constitution and property rights in ensuring the ‘public good of civil rights’ for the tribal community.

According to the constitutional framework, the government was the agency of the transaction in question and tribes were the beneficiaries. Property as well as both individual and community rights are an indispensable part of any transaction. The lack of coordination in ensuring the proper distribution and allocation of land to the tribal people resulted in the incurring of huge positive transaction costs. The lack of institutional framework may result in violence and the cost incurred can be traced by studying it under two broad categories of political transaction cost.

Tangible transaction cost

The various tangible transaction costs refer to the costs that are measurable and quite evidently visible. The lack of institutional framework, over the period of 52 years has resulted in huge administration costs, worsened by increasing complexity as a result of the lack of proper administrational coordination. One of the first forms of transaction costs in this exchange was the monetary investment made by the government in various military and paramilitary troops for curbing the Naxalist Insurgency in India. In addition to the deployment of military groups, various paramilitary troops like CRPF and local community groups through popular mobilization participated successfully. The monetary cost of this participation can be directly measured by studying the defence allocation for these troops by the government.

Also, a certain amount of administrative cost was included as well in terms of initiating and enforcing various legal frameworks. The introduction and implementation of laws supporting land allocation and property rights for tribal populations were considered to be the best step taken by the government for tackling the Naxalist uprising. The transaction cost thus includes the cost of holding parliamentary sessions over the years, creation and amendment of legal frameworks, entrusting new departments in alignment with the new tribal laws etc. The second set of costs incurred entails the amount of money spent by the government in restructuring the entire administrative system to reduce corruption and for increasing transparency. Over the years, the transaction cost was reduced by the implementation of acts such as the Bengal Land Reforms of 1977 and Nationwide Land Acquisition Act of 2013 etc. Eventually, the Naxalist movement lost its presence among its strong centers as well as among the rural and tribal population. The government has now undertaken provisions and made a huge amount of investment in education, property rights, poverty alleviation programmes and basic development.

Intangible transaction cost

The intangible transaction costs refer to the costs that cannot be quantified as such or are not clearly visible. The intangible cost accounts for the major proportion of the political transaction cost of institutional absence in this situation. One such cost is the unquantifiable loss of national security and peace. The Naxalist insurgency through the institution of violence created a parallel institution that questioned the democratic values and principles of the system. As the counterinsurgency movement was strengthened by the UPA government through the Integrated Action Plan (IAP), the government forces had actually undertaken a policy of violent suppression and confrontment of the rebel group. On the surface level, the action was successful in bringing the situation under control, but inside it further threatened the position of marginalized tribal groups and individuals. The Naxalist movement was outrageous but the counterinsurgency was brutal. Aimed at the Naxalist group, government retaliation was not free from the cost of innocent blood. The Naxalist movement could be justified in terms of the underlying justification of tribal deprivation and crisis, but the outbreak was quite outrageous. A number of young scholars and students were encountered and arrested during the emergency period under the UPA government. The doubts regarding the affiliation of individuals with Naxal groups further threatened the tribal population. Thus, the second cost was the unquantifiable loss of human life, broken social relationships and threatened community existence.

The lack of institutional failure in West Bengal took the form of Naxalism that emerged as an anti-social movement. The root cause of this movement, however reveals the case of extensive violation of tribal rights and issues of social justice. Between the institution of the government and the people, the transaction cost incurred was huge and divergent. The restructuring and reformulation of the institutions brought back coordination and reduced the complexity of transaction. However, the transaction cost has the potential to affect economic phenomenon as well. Economic efficiency cannot be achieved in a context of political turmoil and discrepancies. Hence, it is stated that the political transaction costs are high in the market than the economic transaction costs.

Today, the reduced transaction cost associated with the stated problem can be realized by looking at some statistics. The number of people participating in voting has tremendously increased especially in villages which were the Naxals were popular before. The 2014 election recorded 66% voter turnout as against 59% before. Jharkhand is one such classic example of reduced political transaction cost through the means of political good governance. The violence that was earlier recorded has dropped from 2213 incidents in 2010 to 851 incidents in 2017. Evidently, the spread and influence of the Naxalist group has severely dropped from presence in 223 districts of 20 states in 2008 to 90 districts of 11 states in 2019. Further, the operational strength has declined from 10,000 fighters to 6,000 cadres now (Rawat, 5 May, 2019). This alone justifies that transactional cost exists both in the presence and absence of institutional framework. But the importance of institutions arises with reducing the transaction cost and ensuring the efficient operation of economic phenomena so as to achieve greater good.

Picture Courtesy- Hindustan Times

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