For decentralised development

The panchayati raj institutions should be strengthened in order to enhance the quality of development and democracy in the country.

THERE is a critical need to dovetail the constitutional mandate of decentralised governance with multi-level planning and multi-level public finance in the country. Now that the Ninth Plan has failed in this task, the Tenth Plan (2002-07) has to make some important policy choices. That the 73rd and 74th Constitutional Amendments meant to usher in decentralised governance coincided with the inauguration of the economic reform process in the country cannot be dismissed as a matter of chance. That market-mediated economic growth per se cannot promote balanced regional development in a country as spatially diverse as India and that the market by its inherent logic excludes those without exchange entitlements, are compelling reasons to highlight the significance of bottom-up planning for "economic development and social justice", now laid down in Articles 243G, and 243W of the Constitution. Along with this one has to read Article 243ZD providing for the creation of district planning committees (DPCs) and the federal finance provisions laid down in Articles 243I, 243Y and 280(bb) and (c) of the Constitution. By providing for the representation of the socially excluded categories such as women, the Scheduled Castes and Scheduled Tribes (SC/ST) and for the institution of the assembly of voters (the gram sabha), the necessary conditions for participatory planning are also well laid down.

By mandating the panchayats to prepare 'plans for economic development and social justice' based on area planning, the Constitution facilitates micro-plans that form the building blocks of a large part of macro-development plans at the State and national level. The cardinal consideration in a multi-layered federation like India is the well-known principle of subsidiarity, namely, that the functions which can be performed well at a particular level should be done at that level and not at a higher level. The country has failed in this task, with overlapping structures worsening the situation.

The third stratum of local self-government is only an extension of the second, of course with significant exceptions such as Kerala and Madhya Pradesh. Despite the emergence of regional parties at the Centre, the Union government continues to uphold a quasi-federation, choosing to have its finger in every pie.

The Constitution has assigned a key role to the DPCs. The Planning Commission and the State Planning Boards are not constitutional or statutory bodies. Even so, they have a constitutional responsibility to put the decentralisation planning process and agenda on the map of India's federal polity. The Ninth Plan has failed in this respect. Will the Tenth Plan unfold a different story?

The creation of a large number of programmes (currently, there are more than 200 schemes) called centrally sponsored schemes (CSSs), sponsored by the Union Ministries, has considerably distorted the multi-level planning process and inter-governmental transfer arrangements in India's federation because they deal with subjects included in the State List and the 'local' list mentioned in the 11th and 12th Schedules. The share of CSSs in the Plan budget of the Union Ministries has shot up to 70 per cent against a level of less than 30 per cent in the early 1980s. Not only has this happened at the expense of investments in priority areas like infrastructure, but CSSs have by and large bypassed the decentralised planning process. The matching provision of 25 per cent share by a State results in diversion of funds from priority areas by the States and even in fudging. These distortions become more glaring when one notes that the Comptroller and Auditor General (CAG) in his 1999 report has vehemently criticised "the wanton abuse of authority", gross misuse of public resources, indifferent implementation by States, cooking up of outcomes, concealing of shortcomings and other problems in the implementation of the CSSs. This may be seen along with the MPs' local area funds to the tune of Rs.1,000 crores (given to every Member of Parliament at the rate of Rs.2 crores), the MLA funds at the disposal of State legislators and the demand for extending this privilege to all the representatives of local self-governments whose number in the panchayats alone is over 3.4 million. It is high time that these distortions are rectified and rationality and constitutional propriety brought into fiscal federalism and multi-level planning in the country.

THE best bet to ensure basic minimum services of comparable quality to every citizen irrespective of his or her choice of location of residence is the institution of panchayats. In fact, the Tenth Plan Approach Paper (September 2001) has set several targets - such as, by 2007, all children to complete 5 years of schooling; reduction of gender gaps in literacy by 50 per cent by 2007; increase in literacy rate to 75 per cent in the Plan period; reduction of infant mortality rate to 45 per 1,000 births by 2007; all villages to have access to drinking water in the Plan period; reduction of poverty ratio by 5 percentage points, and so on. These targets can be achieved and sustained only with the active involvement of the panchayati raj institutions (PRIs).

But are these institutions on a sustainable path? If the facts relating to the 'decentralisation of panchayati raj institutions' contained in the Mid-term Appraisal of the Ninth Plan (October 2000) are to be believed, they are not. The big State of Bihar has thwarted the decentralisation process. As of date 11 States have not yet constituted DPCs. It is only in Kerala that the DPCs are alive and operational in all the districts as part of a decentralised planning process. Should development assistance under such a circumstance be automatic? If moving towards decentralised governance is a desirable objective, development assistance has to be linked to its progress.

To make the decentralisation process a viable and sustainable part of the Indian federation, PRIs should be made fiscally autonomous (raising at least 40 to 50 per cent of their expenditure requirements on their own). This is a function of tax assignments, revenue efforts by PRIs and the stage of development of the panchayat area. Moreover, given the shared responsibilities in a federation, every tier of government should play its rightful role in prudent fiscal management and generate some balance from current revenue (BCR) after meeting current expenditure. The BCR of States deteriorated steadily from the mid-1980s and turned negative from 1992-93, reaching an all-time high deficit of Rs.32,306 crores in 2000-01. The contribution of BCR to the financing of State Plans which was as high as 28 per cent in the Sixth Plan has fallen to (-) 52 per cent. This is to be seen against the fact that the States' overall debt has increased eight-fold to Rs.4.18 lakh crores in 2000-01 entailing a heavy interest burden. No wonder that out of every Rs.100 borrowed, Rs.60 is being used to meet current expenditures. This has meant drastically cutting down on capital expenditure.

The States' Plan expenditure has fallen from 27 per cent of the total States' expenditure in the Sixth Plan to 19 per cent in the Ninth Plan. The share of States in overall Plan expenditure has fallen from 52 per cent in the Fifth Plan to 37 per cent in the Ninth Plan. This will seriously affect the planning process of PRIs, many of which are still dependent on State grants. In many States there are engineers with no money for construction or maintenance, doctors without medicines, officers without funds to travel and supervise, teachers without school buildings and highly paid officers without departmental allocations, facts that render them functionally superfluous. Indeed, all these are but a waste of resources.

While the committed expenditure of the States mounted during the 1990s, the States' own revenue-GDP (gross domestic product) ratio declined. This happened when following the economic reform, especially after 1997-98, the tax-GDP ratio of the Union government too declined, significantly affecting the actual size of devolution under the Finance Commission awards.

Equally disturbing has been the poor financial performance and weak revenue base of the PRIs. A calculation made on the basis of data contained in the Eleventh Finance Commission's Report shows that the tax-GDP ratio of PRIs in 1997-98 was a pitiably low 0.025. The historical trend assuming a compound growth rate shows that the ratio declines to 0.021 in 2006-07, the terminal year of the Tenth Plan. This trend has to be reversed significantly through appropriate tax assignments and tax efforts. The local bodies, the States and the Union government will have to step up their revenue efforts along with an effective expenditure management to enable all borrowed funds to find their way into the building of really productive projects and programmes that yield remunerative returns. This is the only solution to the financial malaise facing the country.

Based on certain physical norms, unit cost, inflation rate and so on, the National Institute of Rural Development (NIRD) has calculated the capital and operation and maintenance (O&M) cost for drinking water supply, rural sanitation, street lighting, primary education, primary health care and rural roads, all of which are considered as core basic services, for five years (2000-05). This works out to Rs.225,731 crores. The PRIs cannot be expected to raise even a small part of this resource.

Most of the basic service targets mentioned in the Approach Paper may remain unrealised. Here again, empowering the PRIs can offer a useful answer. The NIRD estimates of expenditure for core services are made on the basis of a supply-driven delivery model where the governments bear all the costs. Under the present dispensation towards decentralised governance, and the market-mediated regime under way, one viable alternative is a demand-driven model where the community bears part of the cost. (For example, bearing the entire cost of O&M as in the World Bank-funded drinking water projects in Uttar Pradesh and Kerala. The Olavanna Panchayat model of Kerala where capital and O&M costs are shared by the community is a case in point). However, this requires substantial strengthening of the decentralised governance process.

To sum up, the constitutional mandate of a third stratum of government must be given a fair trial in the country. Although political decentralisation has made some progress, the country has miles to go on the road to decentralised governance. The PRIs remain the Achilles heel in the Indian federal polity today. They must be made vital instruments in enhancing the quality of development and democracy in the country. This is a critical challenge before the Tenth Plan.

M.A. Oommen is Malcolm S. Adiseshiah Professor of Development Economics and Decentralised Planning at the Institute of Social Sciences, New Delhi.