Rural democratic

decentralisation in India;

background, current situation,

challenges

Islamabad, September 2013

T.R. Raghunandan

Outline of the Presentation Part 1: Historical context:

Why we do what we do

Part 2: Action:

What we do (particularly on the fiscal side)

Part 3: Challenges, issues and the future:

What we are experimenting with, where we succeed and where

work is in progress..

1.1. A brief history Existence of self-governing village communities across

sub-continent that over millennia, served as main interface between predominantly agrarian village economies and

Custom and tradition elevated these earlier councils or assemblies called “sabhas” to a position of considerable authority.

“Panchayat” (an assembly of five respected elders) became pivot of administration, focus of social solidarity and principal forum for dispensation of justice and resolution of local disputes.

Characteristics of village panchayats remained unchanged during medieval and Mughal periods.

Local governments in British India

1687: Municipal corporation of Madras constituted, on the British model of a town council, with powers to levy taxes and deliver services, comprising of nominated members.

1870: Revival of traditional village panchayat system in Bengal

1882: Ripon Resolution, providing for rural local boards with two-thirds of membership to be composed of elected, non-official representatives and presided over by a non-official Chairperson.

The Indian freedom movement and

local governments

Indian freedom movement starts demanding “self-government” as the first political goal, before evolving to demand for independence.

1909: Royal Commission on Decentralisation recognises importance of Panchayats in the governance of India.

1919: Government of India Act 1919, brings in system of ‘dyarchy’, and transfers self government to the domain of Indian Ministers in the provinces.

1935-39: Provincial Autonomy under the Government of India Act, 1935 results in popularly elected governments in Provinces, who in turn enacted legislation for further democratization of local self-governments,

The first constitutional steps

Mahatma Gandhi: The entire edifice of Indian democracy

should be based upon one popularelection to the Village Panchayat andindirect elections from panchayats toState Assemblies and from the StateAssemblies to the Parliament.

Article 40 of the Constitution: The State shall endeavour to constitute

village Panchayats as institutions oflocal self government

More history.. 1953: Autonomous councils set up in tribal areas

1955: Balwant Rai Mehta Committee submits report and recommendsthree tier system of local governments in rural areas,

1959 to 1965: LGs set up in the first flush of enthusiasm, but then furtherelections are delayed, except in a few States, Gujarat andMaharashtra.

1972: West Bengal constitutes Panchayats at three levels andundertakes election,

1977: Ashok Mehta Committee, recommending two tier Panchayats,

1987: Big-bang devolution to Panchayats in Karnataka

1989: The failed 64th and 65th amendments

Salient features of the 73rd & 74th

Constitution Amendment Acts, 1993 Constitutional status for Gram Sabha (assembly of the community

in rural areas),

Three tier Panchayat system at the village, intermediate anddistrict levels. (State with populations of less than 2 million need nothave intermediate level), Single tier municipalities in urban areas

Elections from separately delimited territorial constituencies atevery level of LG

Reservation of seats and leadership positions for deprivedcommunities and women,

Regular elections every 5 years through independent StateElection Commissions,

State Finance Commissions to be set up once in 5 years torecommend financial share of LGs, Central Finance Commission todo the same, from central revenues,

Powers to be so devolved upon LGs to enable them to function asinstitutions of self government.

Article 243G reads as under, Powers, authority and responsibilities of Panchayats.-

Subject to the provisions of this Constitution, the Legislature of aState may, by law, endow the Panchayats with such powersand authority as may be necessary to enable them tofunction as institutions of self-government and such law maycontain provisions for the devolution of powers andresponsibilities upon Panchayats at the appropriate level,subject to such conditions as may be specified therein, withrespect to-

(a) the preparation of plans for economic development andsocial justice;

(b) the implementation of schemes for economic developmentand social justice as may be entrusted to them including thosein relation to the matters listed in the Eleventh Schedule.

Analogous clause for Municipalities too

Family welfare

Eleventh Schedule lists 29 matters as

below Land improvement, land reforms, consolidation

soil conservation.

Minor irrigation, water management

watershed devpment

Agriculture, incl.

extensionAnimal husbandry, dairying and poultry

Welfare of the weaker sections, in particular of SCs and STs

Markets Fairs

Technical training vocational education

Khadi, village and cottage industries

FisheriesSocial forestry farm forestry

Minor forest produce

Rural housing Drinking water

Fuel and fodder

Small scale industries, food processing industries

Roads, culverts,bridges, ferries, waterways

other means of communication

Non-conventional

energy

Education, including primary

and secondary schools

Poverty alleviation programme

Rural electrification, distribution of

electricity

Health and sanitationhospitals. Primary health centres

dispensaries

Cultural

activitiesLibraries

Adult and non-formal education

Public distribution system

Maintenance of

community assets

Social Welfare, Welfare lf handicapped and

mentally retarded

Women and

Child development

Public amenities, incl. street lighting

parking lots, bus stops

Twelfth Schedule

Regulation of land use andconstruction of buildings

Planning for economicand social development

Urban Planning, incl.

town planning

Safeguarding interests of weaker sections, including handicapped and mentally retarded

Burial and burial grounds, cremations,

crematoriums

Provision of urban amenitiesand facilities such as

parks and playgrounds

Urban forestry, environmental protection

and promotion of environmental aspects

Regulation of Slaughter houses and

tanneries

Fire services

Water supply for drinking,industrial and commercial

purposesRoads and bridges

Promotion of cultural,educational and

aesthetic aspects

Urban Poverty alleviation

Public health, sanitationConservancy and solid waste

management

Cattle pounds, prevention of cruelty

to animals

Slum improvement andupgradation

Vital statistics incl.

registration of births and deaths

Inclusion of people in governance: 537 District Panchayats, 15,694 elected

representatives. (37 % women, 17 % SC, 11 % ST)

6094 Intermediate Panchayats, 1,56,609 electedrepresentatives. (37 % women, 21 % SC, 7 % ST)

2,33,913 Village Panchayats, 26,56,476 electedrepresentatives. (37 % women, 19% SC and 12% ST)

6000 Urban LGs, with 600000 elected reps.

At the Village Panchayat level, each electedrepresentative’s constituency comprises of about 340people, (70 families)

Current position on Panchayat design –

champions emerging amongst States

Maharashtra, Gujarat, Rajasthan (1959 onwards): First champions – strong elected district governments (Zila Parishads)

West Bengal – (1972): Local government and rural land reforms going hand in hand

Karnataka (1987): big bang decentralisation –30 percent of State budget devolved to 2 tier LGs

Kerala (1996): Big bang decentralisation - 33% State budget devolved as block grants to 3 tier LGs and massive ‘peoples’ planning campaign’ launched.

Recent developments in decentralised

planning

2004: Newly constituted Federal Ministry of Panchayati Raj

organises 7 Round Tables on various dimensions of Panchayati

Raj

July 2004: 2nd Round Table passes resolutions on decentralised

planning; urges 11th Plan to be built on the foundation of participative plans developed from Gram Panchayat and

Municipality levels upwards

Recent developments in decentralised

planning

August 2006: Planning Commission issues fresh guidelines on

decentralised planning

Feb 2008: BRGF launched, giving untied funds for gap filling on

the basis of integrated participative planning.

Jan 2009: Planning Commission comes out with the Handbook

on Decentralised Planning

What are the dividends from

decentralisation? Political?

Politicians have always led decentralisation:

Yet evidence is that political benefits are shortlived for the visionary who triggers decentralisation.

Efficiency? Bureaucrats have generally resisted decentralisation:

Feeling that too many levels of decision are slowing down decisions; that we are paying a ‘democracy tax’ in the form of delays, the belief that corruption is decentralised.

Economists are newcomers;

Lack of data and good research prevents in depth examination of economic arguments

Equity? Civil society remains skeptical of benefits:

Elite capture hinders better targeting through Panchayats

Elements of good design for

devolution

Role clarity,

Finance to follow function,

Rules of devolution to be clear,

Clear accountability for devolved responsibilities,

institutions able to respond to the emerging demand for capacity support,

a minimum level of capacity to absorb a program of capacity building,

Role clarity for Panchayats through

Activity Mapping Identification of activities related to devolved functions

Attribution of appropriate activity to a Panchayat level, based on the principle that each activity ought to be undertaken at the lowest level that it can be undertaken.

Activity Mapping to trigger transfer of funds and functionaries,

Role clarity - the trigger for capacity

development and accountability…

Normal fear about devolution: Panchayats do not

have the capacity to manage enhanced powers.

Skeptics feel that capacity building of Panchayats

should precede devolution.

If you really give Panchayats clear roles and hold

them accountable for these, they will have an

incentive to seek out the capacity support they

need;

Capacity building then becomes demand driven;

Thus, devolution accelerates capacity building of Panchayats.

Role Clarity, challenges

Sizes of Panchayat jurisdictions vary from State to State,

Pull of competing loyalties because of dual control of staff,

Parallel committees fostered by departments and multilateral lending agencies continue,

Lip service to Panchayat system by co-opting office bearers into parallel systems,

Parallel system accounts not captured in Panchayat accounts

User groups created at sub-panchayat level with no connection to the Panchayat.

Some interesting good features

Bihar:

13000 teachers recruited at GP level and placed with GPs

50 percent reservation for women

Jharkhand:

Only state to merge DRDAs with ZPs through law!

Punjab:

Outsourcing of hiring of doctors by ZPs

Chhattisgarh & MP:

Declaration of dying cadres and appointment of field staff

at Janpad Panchayat levels

Money matters - Richard Bird and Enid Slack

Who has it?

(Central, State and local taxation system)

Where does it come from?

(Central & State transfers)

How does it come?

(Modalities of transfer)

Under what conditions can it be spent?

(General purpose or specific purpose transfers)

By whom?

(Extent and scope of decentralisation)

Centre

Constitutional framework for inter-governmental fiscal transfers

Share of

Central taxes

Recommended

By CFC

[Art.280(3)(a)].

Augmentation

to supplement

LG resources

[Art. 280(3)(b) &

(bb)]

Grants in aid (Art. 275)

Grants for any

public purpose

(Art. 282)

States

Local government

Funds recd

to supplement

LG resources

[Art. 280(3)(b) &

(bb)]

Share of

State taxes

Recommended

By SFC

[Art. 243(I)]

Power to collect and

appropriate own

revenues

[Art. 243(H)]

Entrustmentof

Schemes[Art. 243(G)]

A B

H

G

FE

DC

Central to State fiscal transfers- the changing scenario

Compiled from Expenditure Budgets, MoF

Centre to State Fiscal transfers made under Art. 280 & 275 Centre to State Fiscal transfers made under Art. 282

Sl

Item

Amt (Rs. Bill)

Sl Item

Amt (Rs. Bill)

2009-10

2010-11

2011-12

2012-13

2009-10

2010-11

2011-12

2012-13

1

States' share of

Taxes and

Duties[Art.280(3)(a)]

1648 2193 2554 3019 1

Central

Assistance for

State and UT

Plans (PlanningCommission)

845 931 1052 1300

2

Non-Plan Grants

& Loans

[includes grantsunder Art.275(1)]

460 499 554 643 2

Assistance for

Central

and CSSs

(PlanningCommission)

245 306 371 416

3Direct releasethrough MPLADS 15 15 30 40

4

Direct releases

to State/District

level

autonomous

bodies/implementing agencies

905 1187 1128 1334

Total 2109 2692 3108 3662 Total 2010 2440 2581 3090

Fiscal imbalance in India

Revenues % Expenditures %

National/Federal 66.19% 47.70%

State/Provincial 31.31% 45.19%

Local 2.5% 7.11%

Total public R&E 100% 100%

Source: 13th FC and MoF statistics

Inter-governmental transfers: Centre to

states1. An amount nearly equivalent to FC devolution

and grants gets sent to the State through Schemes from the centre.

2. A relatively small percentage of this is actually allocated to and spent by rural local governments.

3. The states also allocate funds from their resources.

4. Expenditure is being incurred by the Centre and States in the rural sector but not entirely through rural local governments.

Concerns regarding fiscal decentralisation

Own revenues of LGs very low and collection skewed, leading toover dependence on fiscal transfers,

Most Central and State fiscal transfers are tied and conditional;

States undergoing fiscal stress used to intercept & divert funds meantfor LGs,

Some States do not meet commitment to release their shares to LGs.

Parallel structures capture significant share of fund entitlements ofLGs.

Local governments

Finding solutions; ensuring

that finance follows function

State governments

Central Government

The difference between real and

not-so-real devolutionReal Devolution:

Clear role assignment,

Power to spend money,

Power to tax,

Discretion in spending money,

Power to hire fire and control staff,

Direct Accountability.

Not-so-real devolution:

Scheme bound expenditure,

Staff on deputation,

Limited power to collect resources

Somebody else (above or below) acting for the Panchayats

Somebody else (above or below) responsible for Panchayat performance

Insitutional design the key for good

inter-governmental relations

LGs cannot be excessively policed from above – both as a

matter of constitutional design and as being logistically

inefficient.

Good design the key to providing the right incentives for goodbehaviour by levels of government.

Putting in safeguards to prevent diversion of Central funds meant for Panchayats.

A legally mandated separately identifiablenon-lapsable fund for each LG,

A mechanism of tagging and tracking fundtransfers to LGs,

A budget control system that can identify lineitems of expenditure within the Stateconsolidated fund or the Panchayat fund, so asto prevent the possibility of overdrawal onindividual budget line items,

Just in time fiscal transfers,

Direct fiscal transfers to the poor – the universalidentity number?

The way forward – the current thrust of reforms

Activity Mapping

Fund allocations to follow functions-create budget windows for the local government in each department’s budget

Reform accounting and classification systems

Reform of fund flow mechanisms- state treasuries and bank transfers; allowing for just in time transfers

Clarify the agency function of panchayats through well designed contracts

Build up the taxation power of panchayats-concentrate on property taxes and user charges

Equalisationgrants

Poorest areas Not so poor areas

Incentives& Innovations

A model for fiscal

Sustainability?

Own revenues

Borrowings

Thank you