Issues and Lessons

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In practice,devolution oftaxation to PRIs poses many difficult political and administrative issues.Manor (1999) has argued,though in an international perspective,that higher-level governments are disinclined to devolve tax-raising powers to local governments,on the one hand,because ofperceived apprehensions ofpower dwindling among central politicians;on the other hand,decentralized authorities are reluctant to impose taxes as it adversely affects their popularity.Lack ofadministrative capacities at the local level and reluctance on the part oflocal residents to pay taxes are other impediments to the mobilization oflocal revenue.

However,the 12th National Finance Commission,in its approach, attempted to strengthen the fiscal domain oflocal governments and advocated the financing oflocal public goods by the potential beneficiaries.At the same time,the commission discouraged the reluctance on the part of decentralized authorities to generate revenue:“The principle ofequalization extended to the local bodies would mean that while lack offiscal capacity,at the state level as well as the local level,can be made up,lack ofrevenue effort should not be made up”(Government ofIndia 2004d,p.26).

Issues and Lessons

India’s experience with decentralization raises many issues ofdifferent dimensions.Some could be relevant for other developing countries.A few are listed below:

Integrated view and action.Legislative,political,fiscal,and administrative dimensions ofdecentralization are interwoven and need to be addressed simultaneously.Reforms in one aspect ofdecentralization need to be accompanied by necessary changes in others.Legislative changes made 10 years ago were not coupled with suitable administrative and fiscal reforms.The administration has persisted in old habits and has been hesitant to devolve functions along with concomitant finances and functionaries.In a sequence,finance should follow function. Ability to monitor and evaluate the system.The legislative changes in the form ofa central act need to be followed by conformity acts and implementation by various state governments through the creation ofan enabling environment for local governments.The union government has to encourage the state governments,through an incentive or reward structure,to create this environment.This action is essential,as the statutory role ofthe union government is limited to seeing the fulfillment of the mandatory provisions ofthe constitution.11

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Free and fair local elections.Periodic elections to the PRIs by the State

Election Commission provide responsiveness and accountability on broad social issues.However,identification ofthese issues necessitates providing quality information to the voter.The passage ofthe Right to

Information Act helps the voter make informed choices.Forceful media already exist in India. Autonomous institutions.Elected representatives,autonomous SFCs,and other local institutions are the key to decentralized governance.These institutions need to be central and exogenous to the state government for their technical capacity enhancement and true autonomy. Strong fiscal information system.The system for designing,implementing, and evaluating decentralization policy,including intergovernmental fiscal policy,must be strong.The World Bank (2004,p.43) commented on the inferior quality ofpublished fiscal data on revenues and expenditures that were drawn in the reports ofthe national finance commissions and the SFCs:“This data is badly flawed and inflates the funds actually managed by panchayats considerably.”12 Higher-level government as role model.The higher-level government,particularly the union government,needs to abide by its own rules.Delaying the transfer offunds for PRIs to state governments,affixing strange and ambiguous conditionalities to the fiscal transfers,and consequently retaining unspent funds at the union level erode the foundation ofdecentralization. Authority to identify local needs and preferences.The PRIs must have a say in the design ofthe scheme or grant program.The CAA recognized the significance ofidentifying local needs and developing capabilities at the local level in the formulation ofthe PRI’s own plan.The provision for a district planning committee was articulated as mandatory under article 243 ZD.Planning must be undertaken at all levels ofPRIs;similarly,all urban bodies prepare their own plans.The consolidation ofthese sets of plans must be undertaken at the district planning committee.The consolidated district plan is then forwarded to the state government for integration into the state plan.Although district planning committees have been constituted in many states,such detailed grassroots planning is undertaken nowhere.

Oflate,the concerted efforts ofthe Ministry ofPanchayati Raj have galvanized people’s participation to initiate the process ofsocial and political churning to induce the institution ofpanchayati raj.Enactment ofright to information and ofrural employment guarantee in 2005 has further strengthened the PRIs,de jure.Also being contemplated is the enactment