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