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.
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 to enable 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 not prescribe any 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 public interest 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 firstname.lastname@example.org)