#215 Of Openings and Possibilities

How to think about Delimitation of Lok Sabha constituencies, Way Forward for India-US collaboration on Semiconductors, and Reading Recommendations

Programming Note: This is a solo edition. RSJ will be back next week.

---

India Policy Watch: Delimitation as an Opportunity for a Grand Bargain

Insights on issues relevant to India

— Pranay Kotasthane

Articles on the impending delimitation of Lok Sabha constituencies keep making an irregularly regular appearance in my social media feeds. Most of them see delimitation as a nuisance, a problem that cannot be resolved, and they offer no better solution than to push it back by another 25 years, as was done in 2001. Let sleeping dogs lie.

Many state governments, particularly regional parties in southern Indian states, have repeatedly expressed their opposition to any attempt at changing the existing proportions of Lok Sabha seats. Most recently, Telangana IT Minister KT Rama Rao said that southern states must not be penalised for “controlling their population growth and concentrating on development.”

Though most politically palatable, I think this “delimitation is best avoided” framing is problematic. Not least because I think it offers a golden opportunity for a grand bargain to correct several problems with Indian federalism.

Before I get to the opportunities, it’s important to understand why blocking the delimitation of constituencies is fundamentally undemocratic and unrepublican. In any democracy, constituencies are based on the idea of equal representation. The principle is that each vote must have an equal value. This core principle is the basis of delimiting constituencies so that each representative represents roughly the same number of registered voters.

This principle went out of the window once Indira Gandhi’s government inserted family planning into the debate on representation. Until the 1971 elections, the seats in the Lok Sabha had increased as per this principle. But an amendment brought in during the Emergency rule froze a regular revision in the name of family planning. The can was kicked down the road again in 2001 by the NDA government. So, after 50 years of dilly-dallying, we are now in a situation where a registered voter in UP is most underrepresented (one seat per 30 lakh registered voters in 2019) while a registered voter in Tamil Nadu is most overrepresented (one seat per 18 lakh registered voters). Interestingly, there were more actual voters per constituency in TN than in UP on average in 2014 (Vaishnav & Hintson). It perhaps indicates that a large number of registered voters in UP have migrated outside their constituencies but still remain registered there.

It seems ludicrous to me that a principle that forms the bedrock of any democratic republic can be violated in the name of states’ performance on family planning. While the Indian State has to cater to today’s citizens, how can we say— without batting an eyelid—that representation should still be based on a population structure from half a century ago?

The Delimitation Commission is not the National Population Commission of India. The differences in population reduction rates don’t justify doing away with a fundamental principle of democracy. To punish Indian citizens in this way because their state governments are incompetent makes no sense. We don’t even need to discuss the empirical fact that fertility rates of states across India have declined substantially and are converging, albeit from wildly different starting points.

The other argument in opposition to delimitation—that states which generate more economic activity shouldn’t be “punished”—is even more facetious. Economic trajectories of states cannot be the basis of denying equal representation. The Delimitation Commission is also not the Finance Commission of India. Will the same states volunteer to agree to share seats between themselves based on the differences in their GSDP growth rates or literacy rates?

Thus, none of the arguments opposing delimitation makes moral or constitutional sense. Since no state will agree to a decrease in the number of their Lok Sabha MPs, we seem to be heading in the direction of increasing the strength of the Lok Sabha in the new Parliament. However, this change would need a constitutional amendment.

But principle-based arguments alone won’t satisfice anyone. We have to acknowledge the moves towards, and those opposing Delimitation are finally about increasing relative political power. There are understandable fears that this exercise makes it easier for any party that can mobilise votes only in a select few most populous states. Moreover, political power displays an endowment effect—no stakeholder wants to concede an inch. Hence, this debate will be settled not by principles but by politics. And therein lies the opportunity to fix some of the ills of India’s federalism.

Instead of blanket opposition to Delimitation, the states that perceive they might lose out should agree to it subject to three conditions.

First, a step jump in the vertical devolution of resources. In edition #131, I explained that India’s fiscal federalism debate resembles the Fable of the Monkey and the Two Cats. All federalism debates focus narrowly on horizontal devolution, i.e., the formula for sharing resources between states. The conversation then gets inaccurately framed as a ‘north vs south’ debate — how the taxes collected from the “progressive” south are frittered away in the northern “wastelands”.

But the real solution lies in increasing vertical devolution, i.e. how the tax resources are split between the Union government and all states as a whole. If the Union government keeps less money to itself, all states stand to gain together.

States on the receiving end of Delimitation must demand that the next Finance Commission’s terms of reference should include a glide path towards increasing vertical devolution to 60 per cent of the divisible pool from the current 42 per cent since states collectively account for 60 per cent of government expenditure.

Second, the state of UP must be divided. Just like the disproportionate power of a commercial entity is a market failure, one state having disproportionate power is a major political failure. UP today alone accounts for nearly 15 per cent of the Lok Sabha strength. This is an unhealthy dominance for a Union of States. The fears against Delimitation are at their core arguments against increasing UP’s hold over the Union further. Breaking UP could then assuage many concerns. And we aren’t breaking any new ground here. In the past, Jan Sangh and the Bahujan Samaj Party have both spoken about splitting the unwieldy state into smaller parts.

Third, change the composition of the Rajya Sabha. My colleague Nitin Pai has argued earlier that Rajya Sabha must live up to its name, “Council of the States”. That requires two major changes: going back to having domicile requirements for Rajya Sabha members such that they truly represent the state they claim to do and allocating the same number of seats to all states.

These three conditions offer the opportunity for a grand bargain. Such chances don’t come often. Opposing equal representation at all costs is a poor move.

P.S. 1: Many other ills impede our federal structure. Most of our states are too big to be ruled efficiently—they should be divided further; citizens should be able to vote in their constituency of current residence easily; we should get rid of the Mogambo anti-defection law to wrest power back from political parties; and we need decentralisation beyond the states.

P.S. 2: Conversations with MR Madhavan, Shruti Rajagopalan, Nitin Pai and several others have shaped my views on this topic. We also discussed it in this Puliyabaazi episode.

---

Matsyanyaaya: Hot Chips

Big fish eating small fish = Foreign Policy in action

— Pranay Kotasthane

The Indian PM will be in the US for his first official State visit next week. Among other things, there are rumours that the visit could see a US company announcing a semiconductor assembly facility in India.

Taking a step back, Douglas Fuller and I have an article in Hindustan Times proposing concrete ideas in this domain. Here’s the operative part:

Design: On the face of it, the India-US connection is already a crucial arm of the global semiconductor design ecosystem. The chip design stage requires large numbers of skilled engineers, which is where India’s strength lies. India’s Silicon Valley in Bengaluru took off with an American semiconductor firm, Texas Instruments, starting its design centre there in 1985. Today, the top 10 American semiconductor firms by revenue have design centres in India. Over time, many Indian chip-design-as-a-service companies have also sprung up, catering to the design centres in India and abroad.

An essential cog of the design integration process is specialised software called Electronic Design Automation (EDA) which is used to model, analyse, simulate and verify circuits. The world’s top three EDA companies, collectively having >97% market share, are American; they, too, have their research and development centres in India. Technology upgradation of these design centres and further investments by more American companies will serve the crucial goal of developing a skilled workforce.

Further, a critical Indian public policy concern today is the indigenisation of intellectual property. Even though India is believed to have 20% of the world’s semiconductor design engineers, the cumulative annual revenue of domestic semiconductor design companies is less than ₹150 crore, as most of the intellectual property (IP) is owned by foreign companies. The key to transitioning from design services to viable chip-as-products design requires a vibrant downstream market. Taiwan and China saw the creation of many fabless chip companies because each economy had significant demand from its domestic market for chips. India stands to benefit from western de-risking by developing extensive electronics assembly as an alternative to Chinese production. Such assembly could eventually provide a sizable domestic market to spur Indian-designed chips.

Another area of collaboration is open-source IP. Open-source alternatives can reduce the costs of chip design substantially. The US and India can jointly encourage commercialising open-source processor alternatives, contributing to supply chain resilience in a market that’s overly dependent on a single company, Arm.

Fabs: The second stage – chip manufacturing – is India’s weakest link in its semiconductor ambitions. It doesn’t have much to offer, while the US is still home to significant fabrication capacity. The Indian government has announced ambitious plans to kickstart commercial chip manufacturing in India. While investment decisions by US companies will be influenced by several factors beyond government-to-government alignment, the US government reiterating India as a trusted technology partner would help reduce the geopolitical risk for companies. Any investment by an American company in a mature technology node fabrication facility in India will have the effect that the Indo-US civil nuclear deal had in the 2000s.

Chip design start-ups need access to prototyping facilities for testing before committing to high-volume commercial production. This is a costly and time-consuming process. India and the US can jointly sponsor a prototyping foundry that start-ups from these places can easily access.

Assembly: Outsourced Assembly and Testing (OSAT), as the third stage, should be a perfect fit for investment in India. OSAT plants test the manufactured chips for defects and ensure protective packaging for all finished chips. This stage requires high capital investment, though not of the same order as fabs. Further, this stage requires large numbers of relatively low-skilled labour, whereas the manufacturing stage requires a sizeable high-skilled workforce.

With low-skilled labour better available in India, American companies can benefit by offshoring these operations to India. The Indian government has announced several attractive financial incentives, such as an upfront subsidy of 50% of the cost of capital for an OSAT facility. Announcements by American OSAT companies to set up Indian operations would be crucial for reducing the overdependence on East Asia for this stage of the supply chain. Another concrete step the two governments can take is to announce joint ventures by a university from each country for doctoral programmes in advanced packaging. Research and development in packaging is a frontier area for semiconductors, and collaboration here will provide India and the US with a strategic advantage.

---

HomeWork

Reading and listening recommendations on public policy matters

1. [Podcast] DO NOT MISS this Puliyabaazi with political scientists Devesh Kapur and Amit Ahuja, editors of the excellent new book Internal Security in India: Violence, Order, and the State. We discussed the distinction between "law and order" and "law or order", the supply chain of internal security, and the secular reduction in mass violence in India and what it means.

2. [Article] India’s Emerging Crisis of Representation by Milan Vaishnav and Jamie Hintson is a terrific resource for understanding Delimitation.

3. [Paper] Those of you following the baby steps India’s taking in electronics manufacturing will enjoy this Takshashila Discussion Document by Satya Sahu and Miheer Karandikar on India’s position at the WTO on electronic items.

4. [Paper] Leading up to the PM's state visit to the US, read this paper assessing and debunking arguments against closer India-US ties by Yusuf Unjhawala.

---

Cover Image: Stable Diffusion Web