Column: Fuelling federalism

Written by Nirvikar Singh | Updated: Jun 25 2014, 07:36am hrs
It is open season on giving advice to the new government on how to fix the economy. The government itself has a long to-do list. The Presidents address to Parliament had 50 paragraphs. Depending on how one counts, there are perhaps 40 different specific areas mentioned, which the government intends to address. That makes for a daunting collection of potential fixes. Some commentators have said that the list looks very much like that of the previous government. To the extent that these are important, but unsolved problems, that repetition is unavoidable. The concern was also with the tenor of the rhetorical stance, which seemed to some to be too much in the vein of government should fix everything. But perhaps that is inevitable toostrong leaders will have strong views on what should be done. The key will be balancing direction with delegation.

Indeed, the Presidents speech quoted the slogan Minimum Government, Maximum Governance. What might that mean in practice The continued announcement of central schemes and national missions does not bode well for making the slogan meaningful. The speech implies that the government will fix the problem that the federal spirit has been diluted, but the idea of cooperative federalism that is mentioned is a wishy-washy one in my view, and an organic Team India seems to require a centralised approach. On the other hand, there are a couple of references to incorporating best practices from the states in specific areas of policy, and a promise to address the concerns of the states in introducing the GSTthough addressing those state concerns is unavoidable, in any case.

In practice, the fact that the BJP/NDA rules in many of the larger states, combined with the strong national mandate, means that Team India will be easier to achieve than in the recent past. What developing state-specific development models means in practice will also be a critical indicator of how things will unfold. Ultimately, the states need to be given more fiscal room and policy freedom, and the Centre needs to be comfortable in affording them that space. The current Finance Commission will hopefully take the opportunity to nudge intergovernmental transfers in the right direction of greater delegation and freedom for the states. On topic of state finances, the Centre, if it wants to create 100 new cities, has to think about the fiscal model for these, as well as for existing towns and cities, and push for fiscal capacity building for cities through modern and effective property tax systems.

Perhaps paragraph 21 of the Presidents speech, beginning with My government is committed to providing a clean and efficient administration focussed on delivery, is the most important one of all the 50. The paragraph mentions transparency, accountability, freedom to innovate, restoring bureaucratic confidence, rationalisation of central ministries, digitisation of records, and more. The financial cost of doing all this is relatively small, but the non-financial barriers will be enormous. The multiplier effect of improvement in these matters is very large and there is a well-defined set of reforms that can be implemented (see my recent paper on Reforming Indias Institutions of Public Expenditure Governance). In this case, the Centre can and must also create new best practices for state and city governments to adopt.

As I noted, much of the list of goals and actions in the Presidents speech is familiar, obvious and unobjectionable. Health, education, sanitation and infrastructure are all areas where government has a proper role, but has not delivered. Better governance through internal organisational reforms and through decentralisation are likely to help improve delivery. Comparing the current stated approach with the previous rhetoric suggests some nuances that indicate greater possible attention to actually imparting useful skills, and doing so in a purposeful manner. The previous government did not quite seem to understand what it is like to work at real jobs. But even with greater appreciation for the practicalities, implementation will be an enormous challenge. In fact, India lacks enough people to teach the needed skills at all levels. The speech rightly emphasises using information technology to overcome this hurdle, including Massive Open Online Courses, but the need for using vernacular languages is surprisingly relegated to a rather different goal of transmitting culture. Practical skilling also needs to occur in vernacular languages to reach those who need it.

The focus on disseminating classic literature in different vernacular languages is one example of the threads that run through the Presidents speech, expressing the BJPs idea of India. These threads are somewhat separate from the issue of economic policymaking, and how this aspect of the governments agenda gets implemented will be of vital importance. Protecting minority rights also finds expression in the speech, so there will be cases where diversity and a particular brand of nationalism may not fit well together. These issues are part of the bundle that India got when it voted for the new ruling party, but the government will do well to remember that what the voters chiefly wanted was material wellbeing and dignity in everyday life, not myths of greatness.

The author is professor (Economics), University of California, Santa Cruz