Subject ECONOMICS Paper No and Title 14: Economics of

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Paper 14: ECONOMICS OF GROWTH AND DEVELOPMENT-II Module 34: Democratic decentralization and development

Subject ECONOMICS

Paper No and Title 14: Economics of Growth And Development-II

Module No and Title 34: Democratic Decentralization And Development

Module Tag ECO_P14_M34

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ECONOMICS


TABLE OF CONTENTS

1. Learning Outcomes

2. Introduction

3. Basic federal structure of Indian economy

4. What is local self-government?

5. Role and nature of local self-government

6. Limitations of local self-government prior to 73rd and 74th

Amendment Acts

7. 73rd and 74th Amendment Acts: Changes in the structural features of

the local self-government

8. Summary

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1. Learning Outcomes

After studying this module, you shall be able to

Know about the basic structure of federal finance in India.

Learn how government functions at multi-levels.

Identify role and importance of local self-government.

Evaluate the working of local self-government.

Analyze structural changes and limitations of local self-government.

2. Introduction

The Indian economy is characterized by the federal structure having 29 states and 7

Union territories. This federal structure truly came into being with the Government of

India Act 1935 which defined clearly the distribution of powers between the Centre

(Central government) and the State (state governments). The independent India adopted

this federal structure of the government on the guidelines laid down by the U.S.A and

Canada constitutions.

This bifurcation of powers between the Centre and the State was done to control the

concentration of powers with the government at the Union and to ensure proper

functioning and development of the economy. This structure of Indian economy though

looks federal but is Unitary in nature and hence can be called quasi-federal structure. It is

so called since in such a system the central government and the State governments

act within a well-defined area, co-coordinating among themselves and simultaneously act

independently. Whereas the federal polity provides a constitutional set up to bring unity

in diversity and to achieve the common goals of national interest.

In this chapter, we will examine this federal structure of the government and analyze its

working. We then move to analyzing the role and importance of governments at the local

levels and their limitations and conclude the findings.

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3. Basic federal structure of Indian economy

Till 1992, Indian federal system had two-tier structure having the Central government

functioning at the Centre and the State government functioning at various states. The

distribution of power and functions of the government were given to state and the central

government both working in their well-defined fields and yet working towards the

common goal of achieving the economic development of the country. However, for

widespread and equity-oriented development of the country, it was decided to start the

developmental process at the grass root level in order to achieve the dual objective of

faster and inclusive growth of the country. And so came into existence the 73rd and 74th

Amendment Acts in 1992 of Constitution of India.

The 73rd and 74th Amendments Acts of the Indian Constitution brought the local self-

government system as the third tier of governance so that the economy not only achieve

its objective of economic development but also ensure social justice. Thus, the

distribution of powers and functions trickled down further to Local Self Governments

where the Panchayats functions at the village levels and Municipalities and Municipal

Corporations at the city levels. This implies that the Indian economy’s federal structural

now is a three-tier set-up.

These 73rd & 74th Amendment Acts has provided a constitutional basis for democratic

and decentralized planning process, thereby giving a legal status to rural (Panchayat) and

urban (Municipal) local bodies as self-government institutions. This has raised

expectations that it would trigger development at all territorial levels. Decentralization by

using the involvement of local level representative institutions in the developmental

process and in its implementation is being advocated in the interest of efficient utilization

of resources and for ensuring more equitable sharing of benefit from development.

https://en.wikipedia.org/wiki/Panchayat

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The following figure shows the three-tier structure of the federal system in India.

The Article 40 of Part IV of the Directive Principles of State Policy of the Indian

Constitution stated that necessary steps should be taken by the state to organize village

panchayats and to provide them with various powers and authority so that they are able to

function as units of self-government. The Panchayati Raj institutions were established

with the aim to achieve integrated and participatory economic development at the micro

level. The first and the second five year Plans introduced Community Development

Blocks and District Development Councils. According to the then ministry of

Community Development, Government of India, “The initiative for Community

Development programme comes from the people themselves. Village Communities not

only choose the priorities according to which the problems are to be tackled, but they

also undertake the major responsibility for implementing them. The role of the

Government is to assist all these activities at every stage. Officials guide and help the

villagers, provide technical advice and organize supplies, services and finance”.

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In 1957, the Balwant Rai Committee recommended establishment of the Panchayats at

the village, block and the district levels. As per this Committee, following observation

was made on decentralization: “So long as we do not discover or create a representative

and democratic institution which will supply the local interest, supervision and care

necessary to ensure that expenditure of money upon local projects conforms with needs

and wishes of the locality, invest it with adequate power and assign to it appropriate

finances we will never be able to evoke local initiative in the field of development.”

As per the Balwant Rai Mehta Committee’s recommendations the Panchayati Raj system

was to have three tiers at the village, block and district levels. At the village and block

levels there were to be elected democratic bodies. At the district level there was to be an

advisory body under the Chairmanship of the District Collector. MPs, MLAs and other

important persons were to be its members. The elected bodies were given the

responsibility to carry out necessary developmental activities. With its recommendations,

many Panchayati Raj institutions were set up in many states.

Thereafter, the 73rd constitutional amendment Act came into force on 24th April 1992 to

give constitutional status to Panchayati Raj institutions at the state and district levels. The

objective of these institutions was to dilute the powers and responsibilities of the Centre

and state to the panchayats with a degree of local autonomy to achieve the twin

objectives economic development and social justice. Apart from this, it was also intended

to generate greater local people participation in local government and to ensure better and

effective implementation of rural development programmes. In short, the entire purpose is

to ensure effective democratic decentralization.

The 74th Amendment Act of Indian constitution came in 1992 following the 73rd

Amendment Act. This Act gave constitutional status to the municipalities and aimed at

strengthening and regenerating the urban local governments so that they may function as

effective units of local government.

4. What is Local self-government?

Before discussing various features and functions of a local self-government, let’s first

define what a local self-government is. There have been many definitions of a local self-

government and this term has been used interchangeably with a local government. As per

Gokhale (1972) “A Local Government is the government of specific locality by the local

people through their representatives elected by them”. Similarly, according to Wilson et

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al (1994) “Local Government is a large geographically defined multi-functional

organization, pursuing a variety of social, political and economic objectives, either

through the direct provision or through the sponsorship, indirect funding, regulation or

monitoring of a very extensive range of services to its local community”.

Keeping these definitions in mind, we can briefly define a local self-government as a

government functioning in local areas or towns which are run by people elected by the

local people of the area, based on the principle of decentralization i.e. withdrawal from

the Centre. These local bodies have a great degree of autonomy while making their

decisions and they are responsible to the local people and the law. These institutions raise

finance or revenue through local taxation and spend these funds in carrying out various

local developmental programmes, projects and local services.

5. Role and nature of local self-government

Recognizing the importance of democratic institutions at the grass-roots level, the local

self-governments have been entrusted to carry out various functions so as to ensure

integrated and equity-oriented overall development of the economy. In India, there are

two types of local self-governments in India. One is the Municipal local self-government

and the other is Village local self-government. There are approximately 6,45,000 local

governments of India which includes Panchayats at the rural level and the nagar

panchayats and the municipalities at the urban level.

The village local self-government basically includes the village or gram-Panchayats. This

also includes the Zilla Parishad and they are the democratic set-up at micro level in the

Rural India. These village panchayats holds elections in their respective areas and the

elected person called Sarpanch becomes the head of the institution. These institutions

also reserves seats for women candidates. The village panchayats have the responsibility

to develop the village by executing various plan projects and making proper utilization of

available resources. For this, they need revenue which comes mainly from the property

and other taxes and also these panchayats receive grants-in-aid from the respective state

government.

The Municipal local self-governments, on the other hand, are the democratic institutions

which are set up at the grass-root level in the Urban India. These include municipalities,

development authorities, local trusts, town area committees etc. These bodies look into

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the local affairs of cities and towns and work towards achieving various locally specified

goals using their administrative, legislative and financial powers.

As far as the functions of the local government bodies are concerned, it is important to

know that these local authorities are able to deliver their duties by generating finances or

funds through levying various taxes and fees on the people. Also, they receive some

grants from the State in order to function properly. Some of the important functions of

local self-government are as follows:

a. To formulate proper town or village planning and to make efficient use of

resources to achieve the goals of planning.

b. To ensure proper supply of water; which is safe and clean to drink.

c. Construction of roads, drainage and sewage system.

d. Repair and maintenance of proper roads, sewage and drainage systems.

e. Construction and maintenance of public transport, highways, bridges, etc.

f. Providing street lighting, lighting of roads and public lighting.

g. Preservation of public gardens and parks.

h. Providing public health, sanitation and hygiene services.

i. Ensuring proper educational and community development.

j. Ensuring food and electricity supply and social justice.

k. Developing industrial or agricultural activities.

l. To ensure integrated and planned rural or urban growth.

The importance of local self-government can be seen with the help of above mentioned

functions since many of the civic services to the people can be best provided by these

local authorities as they are closest to them. These authorities know much better about

their local people needs and hence will function better to achieve the goals of economic

development and integrity. Thus, the economic progress of the nation as a whole can be

achieved by carrying out developmental programmes at the grass root levels with the help

of the local self-governments.

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The following figure shows some important characteristics of a local self-government.

Characteristics

6. Limitations of local self-government prior to 73rd and 74th

Amendments Acts

Even though the local self-governments are an important tool of the Government of India

to achieve inclusive economic growth yet they faced various day to day challenges before

the 73rd and 74th Amendment Acts came into being. These institutions were necessary for

a democratic society since they led to decentralization of powers. However, they did not

fully fulfill their objectives due to many reasons. Some of the major limitations of local

self-government in Indian economy prior 1992 were as follows:

These institutions were used by the Elite and powerful class especially in rural

areas to fulfill their objectives and not the national objectives.

There was a lack of devolution of finance, functions and administrative staff in

Panchayati Raj institutions.

One of the main limitations was the problem of financial autonomy since these

local bodies have to depend upon the State for funds to finance various

developmental local projects.

These institutions suffered from shortage of funds, federal constraints and

reluctant bureaucracy.

Located in local areas

Controlled by local authorities

Provide civic services to local people

Generate funds through local people/state

Requires local people participation

Enjoy local autonomy

Provides local leader ship

Accountable to local people

Aim at developing local areas

Based on decentralization principle

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There was little clarity about the role among the district, block and gram

panchayats.

These institutions failed to fulfill the objectives of gender equality, social justice

and others changes at the micro-level.

There was a constant clash of interest between the Panchayats representatives and

legislatures.

These local bodies also suffered from lack of supervision, coordination between

officials and the local people and also administrative problems.

The shortage of staff made the progress of these local institutions rather slow and

tardy.

They faced pressure from the political parties and thus suffered from corruption

and manipulations.

Their services were often discriminatory towards the local people because of

regionalism.

The elections of Panchayati Raj Institutions did not held regularly and there were

issues of discrepancies and transparency in their workings.

In order to make these institutions more strong and an alternate source of influence on

people, the 73rd and 74th Amendment Acts were initiated which brought with them the

new era of local self-governments and democratic decentralization.

7. 73rd and 74th Amendment Acts: Changes in the structural features of

the local-self government

By recognizing the importance of local self-government at the grass-root level and the

hurdles and challenges faced by these local bodies, the Government Of India initiated

73rd and 74th Amendment acts which made democratic decentralization participatory in

nature. They not only gave meaning but also substance to these local self-governments at

rural and urban levels. After the initiation of these acts, approximately all states and

union territories enacted their legislation and removed the hurdles in the path of their

functioning. Also, they gave way to the development and empowerment of poorer

sections of the society and to women empowerment. Elections have been taking place in

various parts of the states and seats have been reserved for women and other weaker

sections of the society to ensure social equity and justice. Also, there has been massive

increase in the participation of voters in the elections. Many states such as Kerala,

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Gujarat, Madhya Pradesh, Karnataka etc. have placed local level functionaries of

government departments under the control of panchayats. As per Johnson (2003) “the

World Bank’s three-volume study of Indian decentralisation (World Bank, 2000a; 2000b;

2000c) ranks India ‘among the best performers’ internationally in terms of political

decentralisation, but ‘close to the last’ in terms of administrative decentralisation. Most

States have held at least one round of elections since 1993. Reservations allowing the

participation of women, Scheduled Castes and Scheduled Tribes have been respected

(although there is great scope for corruption)... Finally, voter participation has been

high. In its study of 53 villages in Rajasthan and MP, for instance, the World Bank (Alsop

et al., 2000) found that voter turnout in Panchayat elections was well over 90% for all

categories (defined in terms of gender, class and caste). This is significantly higher than

the (still high) turnout for the most recent (1998) round of Lok Sabha elections, which

was 61% for women and 65.9% for men...”

However, even after bringing such dramatic changes and after so many years since 1992,

the 73rd and 74th Amendment Acts still have their drawbacks. There is still no clarity of

role between the district, block and gram panchayats. There has also been uncertainty

regarding their functional jurisdiction and problem of financial autonomy. Thus, they still

have to depend upon the State to carry out their functions and for funds to finance their

local developmental projects. Another major problem faced by these local bodies is that

they have to work as per the bureaucracy of the state and the political parties. Also, the

shortage of staff and lack of control over them also makes these institutions vulnerable

towards achieving their goals. Different states have shown different progress relating to

local self-government. There has been lack of coordination among the elected

representatives of the local self-government and the local people in the respective areas.

Apart from these, the growing population and rural-urban migration are further

challenges faced by the local self-government to ensure equity-oriented development.

Also, as per the World Bank report on rural decentralization in India (2000), the existence

of social divisions in rural India is biggest hurdle in the path of local self-government to

achieve its goal of social justice and inclusive growth.

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8. Summary

The above discussion on local self-government clearly shows that it is important for such

institutions to develop in Indian economy not only to ensure democratic decentralization

but also to ensure proper development of local areas in harmony with the national

economic development. Unless and until the economic growth is not inclusive, the real

development of the country cannot take place. And this inclusive growth can be brought

by strengthening the local self-governments in their respective areas.

The 73rd and 74th Amendment Acts which were initiated in 1992 gave powers to the local

self-government in order to increase the pace of regional development. These acts

brought a revolutionary change in Indian economy by introducing an element of people’s

participation in the development of the economy. However, these acts have not been able

to fully strengthen the local self-governments due to which they have been facing various

challenges to carry out their developmental work at the local levels.

Therefore, in order to make sure that these local bodies function properly following are

the suggestions:

There should be fiscal or financial autonomy which should be given to the local

self-governments.

There should be active participation of the people and the society as a whole to

ensure proper outcomes of the local developmental programmes initiated in the

local area.

There should be clarity regarding the functions of the gram, block and district

panchayats.

There should be other sources of revenue assigned to these local self-governments

by the state.

Coordination and co-operation from bureaucracy as well as strong political will of

the State are required for well-functioning of these local bodies.

There is a need to improve the administrative set up of these local bodies by

bringing the local civil servants under their control and making them responsible

to the local people.

There should be well defined accountability measures to ensure that the local

people’s needs are fulfilled.

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There should be regular workshops both at state and national levels to train the

local officials and to impart them with necessary skills to carry out their

respective jobs.

The elections must hold regularly as per the guidelines laid down by the

Government of India and there must be a transparency in the selection of the

chosen members of the local self-government.

Last, but on the least, the state government must ensure effective access of local

people to basic education so that there is not only equitable people’s participation

but also that it will ensure that the participated people are more informed about

the local area development and the local needs of the people.

To sum up, there is a lot to be done by the central and state governments for development

of local self-governments to ensure that local level development go hand in hand with the

national development and there is equal opportunity for all.

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Subject ECONOMICS Paper No and Title 14: Economics of