Despite its uneven history in
India, decentralisation is vital to strengthen participatory democracy,
facilitate responsive governance and enable public service delivery.
Much
has been written on decentralisation in India though, on the ground,
there is very little to show despite the 73rd and 74th Constitutional
amendments. The rationale for decentralisation comes from the need to
strengthen participatory democracy, facilitate responsive governance,
ensure greater accountability and enable public service delivery
according to diversified preferences of the people. The possibility of
greater visibility and linkage between revenue-expenditure decisions is
supposed to ensure greater responsiveness and accountability. There are
some who advocate decentralisation as an end itself while others take
this as a means to strengthen the democratic fabric through
participatory governance and responsive and accountable public service
delivery.
The history of decentralisation in India is somewhat
chequered. Although the village panchayats as institutions of governance
and justice existed for a long time, the founding fathers of the
Constitution were not keen to empower them. Dr. Ambedkar was
apprehensive that in the hierarchical society with highly skewed nature
of asset and power distribution, vesting more powers at the village
level would only perpetuate exploitation of the dispossessed. Not
surprisingly, the Constitution placed local governance in the State List
(Entry 5). Thus, administrative, political and fiscal decentralisation
was entirely left to the discretion of the State governments. Rajiv
Gandhi wanted to energise the local bodies in rural and urban areas to
make them the institutions of self-government by effecting 73rd and 74th
Constitutional amendments. Part IX was inserted into the Constitution
with Article 243 (A to O) specifying matters such as the constitution,
elections and the functions to be devolved for panchayats under Article
243 and for urban local bodies under Article 243 P to ZG. Schedules 11
and 12 were inserted into the Constitution detailing the indicative list
of functions to be devolved to panchayats and municipalities by the
State government. Article 243 I and Y mandated the appointment of the
State Finance Commission by the Governor every five years to balance
their functions with funds. Article 280 was seeded with an additional
term of reference (TOR) to the Union Finance Commission to take
cognisance of the resource requirements of local bodies. However, the
role envisaged in this seeding is only tangential or supplemental.
There
are five important issues for understanding the legal framework for the
decentralisation process in the country. First, the Constitution
assigns decentralisation including funding entirely to the discretion of
State governments. It does not clearly assign the functions or sources
of finance, but leaves it entirely to the discretion of the States.
While this may be to evolve the system of decentralisation appropriate
to a State considering the strength of its history, economy and
capacity, it also hinders the process. Article 243 (G and W) relating to
the powers, authority and responsibilities to rural and urban local
bodies merely specifies that the State government “….may, by law, endow
the panchayats and municipalities with powers and authority toenable
them as institutions of self-government and such law may contain
provisions for the devolution of powers and responsibilities upon these
bodies subject to such conditions as may be specified therein, with
respect to the preparation of economic development and social justice,
performance of functions and implementation of schemes entrusted to them
including those specified in the 12th Schedule”..It is entirely left to
the States to decide, what and how much powers and functions should be
devolved to the local bodies.
Secondly, the constitutional
framework does not (and perhaps should not) prescribe any pattern,
standard or model of decentralisation which again is left to the
discretion of State governments.
Third, there are no easy
mechanisms to ensure compliance of even the prescribed provisions of the
Constitution by the States. Most States have not complied with the
requirement of having to appoint gram sabhas (243 A), ward committees
(243 sabhas) district planning committees and metropolitan planning
committees. There have been several attempts to postpone elections
though they are required to hold them well before the expiry of the
prevailing elected body or before six months if the body is dissolved
for some reason, as required under 243 K and U. The States are required
to appoint a Finance Commissions every five years and their reports are
required to be placed in the legislatures with the action taken reports.
Unfortunately, the States’ record in this regard has been pathetic.
Their record of appointing the State Finance Commissions and actions on
their reports shows complete violations of Article 243 I and Y. The
State legislatures are required to make laws to ensure maintenance of
accounts and auditing of such accounts by panchayats and municipalities.
The record of experience is that these provisions have been observed in
their violation rather than compliance in most of the States.
Fourth,
on the financial side, local bodies do not have any independent
revenues. There is no separate list of tax bases assigned to them in the
Constitution and they have to depend on the State governments to levy
the taxes that the States choose to devolve. There is also the problem
of administrative capacity and interest groups resisting payment of
taxes and user charges. Unlike in theory which states that the
Wicksellian link is stronger at the local level as the people can the
relate the tax payments to services rendered, in actual practice,
free-rider behaviour permeates and influential groups would somehow like
to pass the burden of financing services to the non-residents.
Does
the framework allow the Union Finance Commission to act as a champion
of decentralisation? While one would like to think that an organic link
is provided to it by seeding an additional term of reference in Article
280, a careful reading of the Article shows that the role is confined to
“…recommend measures to augment the Consolidated funds of the states to
supplement the finances…” of local bodies on the basis of the
recommendations of the State Finance Commissions” (emphasis added). When
the Constitution itself does notprescribeany particular type or
standard of decentralisation and when the language of the additional TOR
clearly shows that the Commission is only required to recommend
measures to augment the Consolidated Funds of the States to supplement
the resources of local bodies, how can the Commission arrogate itself
into undertaking a larger mission of championing decentralisation?
In
this context, the criticism that the Fourteenth Finance Commission
(FFC) did not continue the decentralisation reform initiated by the
Thirteenth Finance Commission (TFC) needs explanation. Specifically,
while the TFC initiated a package of conditionalities for availing the
performance grants which was not continued by the FFC. The important
features of the TFC recommendations included linking the grants to local
governments to previous year’s divisible pool of taxes and linking a
significant proportion of the grants for performance. The performance
grants were linked to a list of 13 conditions to be fulfilled by the
State governments intended to further the process of decentralisation.
In contrast, the FFC while recommending a much higher level of
transfers, did not see Constitutional validity in linking the transfers
to the divisible pool. It continued the performance grants, but linked
them directly to the actions by the panchayats and municipalities rather
than the State governments. The conditions were simple, of merely
preparing the audited statement of accounts and incentives for raising
their own resources.
Thus, the FFC in its report explained that
it did not carry on the scheme of rewards and punishment because
truthful adherence to the Constitutional framework did not permit it to
do so. As stated in the Report, “…Under the Constitution, the State
legislature has the discretion to assign functions to the panchayats and
municipalities. We note that ….. the Constitutional provisions give
primacy to the role of the States in this regard, by placing local
government squarely in the State List. …. In our view neither the TOR
nor the Constitution permits the Finance Commission to play any role in
the devolution of powers to panchayats and municipalities or to promote a
particular model of decentralisation .” (Para 9:63; p.111). It is
another issue that only a fraction of the performance grants recommended
by the TFC were actually utilised and the Union government was the
beneficiary in the process!
That of course, begs the question as
to who will champion decentralisation. First, it is important to have
clarity in the assignment of functions and the local governments should
have clear and independent sources of finance. Second, there should be
clear mechanisms to ensure that States comply with the constitutional
provisions, particularly in the appointment and implementation of the
recommendations of the SFCs. Third, sustainable decentralisation comes
from the demands of the people and advocacy should focus on a
decentralisation agenda. Indeed, the framework needs to be evolved to
accommodate the demand for decentralisation. Even within the existing
framework, it is important for intellectuals and the press to pressurise
the States to comply with the Constitutional provisions like creation
of planning authorities and appointment SFCs, if necessary through
publicinterest litigations. The SFCs have an important role to play
which can be fulfilled only when State governments take them seriously.
(M.
Govinda Rao is an Emeritus Professor,of the National Institute of
Public Finance and Policy and was a Member of the Fourteenth Finance
Commission. Comments at mgrao48@gmail.com)