M Govinda Rao: Drags on decentralisation

To improve the delivery of services, it is necessary to unshackle local governments

When the Common Minimum Programme (CMP) of the UPA government speaks of "unleashing the creative energies of ... our productive forces of society", it is a realisation that the policies and programmes in the past have failed to tap the creative capacity of the economy.

Indeed, in a world of coalitions and politics of acrimony, the only consensus possible seems to be the status quo, as someone said, "We have a strong consensus for weak reforms". Yet, there are areas in which unleashing the productive energies is possible without political differences.

One such area where progress can be made is improving service delivery systems through decentralisation. Translating expenditures into outputs and outcomes has been a major concern, be it in education, healthcare, water supply and sanitation, or poverty alleviation.

Rajiv Gandhi's view that only a small fraction of the money spent actually reached the targeted in anti-poverty interventions sums up the poor state of service delivery. The more recent evaluation studies have confirmed this.

It is suggested that even as China and Sri Lanka spend much less on education and health care, their human development achievements are far higher than those of India. Thus, even as you increase expenditures on these services, unless the delivery systems are improved, the desired targets will not be achieved.

An effective strategy to improve service delivery is decentralisation. Locating delivery systems closer to people makes them transparent and participatory, enhances efficiency and accountability, and improves targeting.

On this, there does not seem to be serious differences among the political parties, at least explicitly. It is in this faith that the 73rd and 74th amendments to the Constitution were carried out to empower the local self-governments in rural and urban areas.

However, even after almost 13 years, the situation has hardly shown much improvement. This should be remedied because improvement in service delivery systems is intertwined with the success of decentralisation.

What ails fiscal decentralisation in India? Many states simply did not bother to decentralise in the true spirit. Indeed, everyone wants decentralisation, but only up to his level! The states that tried to decentralise found formidable problems, particularly in transferring the functionaries and funds, and this created problems in the design of decentralisation itself.

When the functions, functionaries, and funds were transferred following the constitutional amendment, local governments were not given an exclusive responsibility. The concurrent charge and responsibility sharing with the state governments meant there was no exclusive ownership of functions and to that extent accountability got diluted. The problems are even more with regard to the transfer of functions and functionaries.

The acceptable way to transfer state government employees in most cases was by keeping the power to promote, transfer and discipline with the state governments, which meant the employees are not accountable to the local political set-up or population.

Thus, a key implementable rule of ensuring the accountability of service providers to the people was violated. Without accountability and incentives, improvement in service delivery will remain a mirage.

Further, to make serving local governments alluring, the functions of state employees were capsuled into schemes, which they could continue to implement. It was also mandated that their salary was to have the first charge in local expenditures and no scheme should be discontinued.

Thus, a detailed study on Karnataka found that the district, taluk (block) and village panchayats together implemented 371 plan and 228 non-plan schemes in 2001-02. Most of the schemes meant that the local bodies were required to merely distribute salaries to the school teachers in government schools and health workers in public health centres and district hospitals.

They are also used as conduits to pass through funds to aided schools and other institutions. Much of the remaining expenditure is in undertaking the mandated tasks in the schemes. This meant that there is very little flexibility or autonomy for panchayats in allocating expenditures in accordance with the needs and preferences of the people.

The analysis of Karnataka decentralisation found little flexibility or autonomy for panchayats. Almost 58 per cent of the spending was on salaries, 11 per cent on grants to institutions, 10 per cent for transfers to individuals, and another 16 per cent was on specified schemes, leaving just 3 per cent for spending on the schemes preferred by them. Using local governments as merely disbursing agencies makes a mockery of decentralisation.

One reason for the lack of autonomy in spending is the lack of untied resources. This can come from either own revenue raising or through lump sum transfers from above. In general, panchayats at the district and block levels do not have sources of revenue and only the village-level panchayats have some tax handles.

However, lack of enforcement capacity has resulted in their inability to exploit even the sources of revenues assigned to them. The Karnataka study showed that per capita revenue raised by village panchayats in 2001-02 was just Rs 16.2.

It also showed that in 36 per cent of the 426 panchayats for which data were assembled, the cost of collection was more than the tax collected! On average, the cost of collection constituted 57 per cent of the revenue collected. With these low revenues, any worthwhile service delivery is not possible.

Low levels of local payments also mean the local population does not function as a watchdog, and participatory public service delivery loses its meaning. Overwhelming dependence on the devolution by the state governments also adds to uncertainties and fluctuations in spending.

The biggest problem in decentralisation is the lack of information. Hardly any state has found it necessary to assemble information on revenues, general and specific purpose transfers, expenditures on various functions, and the outcomes in terms of service delivery.

The state finance commissions have written their reports without using data on panchayats. The Union finance commissions have depended on the information provided to them by the agencies that they contracted to provide. The latter in turn contracted out the work and the data thus collected were unreliable.

The importance of having reliable data was clearly demonstrated in Karnataka. Thanks to the missionary zeal by the then minister M Y Ghorpade and the secretary, Raghunandan, data were compiled for all the 5,659 panchayats in the state by officials and researchers in 2002.

This has helped to undertake major reforms in the state. Within two years, panchayats' own revenues increased from less than Rs 50 crore to Rs 120 crore. They were also able to liberate the panchayats from the hands of electricity board, which deducted unreasonable amounts of electricity dues from the lump sum grants receivable from them.

Effective decentralisation can be an instrument in improving efficiency in service delivery. But for this, it is necessary to liberate local governments from schemes, employees, and state agencies. The task is not easy, but possible. Decentralisation works, but we should get the design and its operation right.

The author is Director, NIPFP. The views expressed are personal.

mgr@nipfp.org.in