Decentralisation reality vs rhetoric

In the Indian context, the decentralization process initiated by the 73rd and 74th Constitutional amendments exhibits a significant "birth defect" that needs rectification for effective fiscal empowerment of local bodies.

1. The assignment of functions to the third tier of government remains ambiguous. Local bodies lack clarity regarding their roles and responsibilities, with their functionaries appointed by state governments. While Constitutional amendments aim to establish units of local self-government, the actual devolution of functions is left entirely to the discretion of the states.
2. Articles 243-H and 243-X mandate states to confer tax levying powers to panchayats and urban local bodies. However, the extent of tax powers and the authority to change bases and rates are solely at the discretion of the states. Reluctance in assigning tax powers or providing adequate transfers results in local bodies often dealing with unfunded mandates, hindering their ability to function effectively.
3. Decentralization offers the opportunity to align revenue and expenditure decisions, yet this advantage remains largely unrealized due to the absence of a proper assignment system. Property tax, a crucial revenue source for local governments globally, remains underutilized in India, generating only about 0.2 per cent of the GDP.

The reluctance of states to decentralize decisions below them has hindered effective fiscal decentralization, as highlighted by economist Raja Chelliah. While states often complain about their lack of autonomy, they have been hesitant to devolve power further.

• Recognizing the need for fiscal decentralization, the 15th Finance Commission introduced entry-level conditions for states to avail grants, including finalizing audited accounts and appointing State Finance Commissions (SFCs). The 13th Finance Commission had also imposed several conditions.
• However, non-compliance with these conditions does not penalize the states; instead, it adversely affects the local bodies, undermining their fiscal empowerment.

• To address this issue effectively, there is a need to directly empower local bodies by amending the Constitution to include a Local List in the Seventh Schedule. This would ensure clarity in the assignment of functions and revenue sources.
• Additionally, states should be penalized (instead of local bodies) for failing to appoint SFCs, thereby incentivizing compliance and strengthening fiscal decentralization.
• Building capacity and providing support to local bodies are essential components of this process, ensuring they can effectively manage their new responsibilities.
• Ultimately, decentralization becomes healthy and sustainable when there is strong grassroots demand for it. Encouraging active participation and involvement from the local level is crucial for the success of fiscal decentralization efforts.

The 73rd and 74th Amendments to the Indian Constitution were introduced in 1992 and came into effect in 1993. These amendments aimed to decentralize power and empower local self-government institutions in rural and urban areas, respectively.

73rd Amendment (Panchayati Raj Institutions)

• Established a three-tier system of Panchayati Raj: Gram Panchayat at the village level, Panchayat Samiti at the intermediate level, and Zilla Parishad at the district level.
• Provided for reservation of seats for Scheduled Castes (SCs), Scheduled Tribes (STs), and women in PRIs.
• Outlined the powers and responsibilities of PRIs, including the preparation of plans for economic development and social justice.
• Mandated the constitution of State Election Commissions to conduct PRI elections.

74th Amendment (Urban Local Bodies)

• Created a framework for the establishment of municipal bodies in urban areas.
• Established a three-tier system of urban local bodies: Nagar Panchayat for smaller urban areas, Municipal Council for medium-sized urban areas, and Municipal Corporation for larger urban areas.
• Provided for reservation of seats for SCs, STs, and women in ULBs.
• Outlined the functions and powers of ULBs, including urban planning, infrastructure development, and provision of essential services.
• Mandated the constitution of State Election Commissions to conduct ULB elections.

Significance

• The 73rd and 74th Amendments marked a significant milestone in India's democratic decentralization process, promoting local self-governance and grassroots democracy.
• These amendments aimed to empower local communities, enhance participatory governance, and ensure more effective delivery of public services at the grassroots level.
• By providing constitutional recognition and legal framework to PRIs and ULBs, the amendments sought to address issues of local governance, social justice, and community development.

Challenges and Criticisms

• Despite the constitutional provisions, challenges remain in the effective implementation of decentralization, including issues related to fiscal autonomy, administrative capacity, and political will at the state level.
• Critics argue that the devolution of powers and resources to PRIs and ULBs has been inadequate, limiting their ability to function effectively and fulfil their mandates.
• There are ongoing debates and discussions on further reforms to strengthen local governance and ensure meaningful participation of citizens in decision-making processes at the local level.