Six years ago, the Stanford Centre for International Development, with the support of the Indian diaspora in the Silicon Valley, began hosting an annual conference on India?s economic reforms, which brought together a range of American and Indian scholars, policymakers, TiE entrepreneurs and corporates. However, three years ago, it became evident that the next generation of reforms must engage the state governments. The big agenda of reforms by the Centre on trade, industry, tax policies, telecom were substantially over. On the daunting unfinished agenda, like foreign investment, banking and finance, labour or subsidies, securing political consensus would be time-consuming. State reforms, however, in agriculture, education, health and infrastructure hold the key to our growth strategy.
Therefore, a process called the ?Stanford Mirror Conference? was initiated to engage state-level political, official functionaries and others in a dialogue on their economic challenges. Such conferences have been held in West Bengal, Punjab, Kerala, Andhra Pradesh, Maha-rashtra and Karnataka. In the current series, these mirror conferences have re-engaged Punjab and come to Rajasthan.
The Jaipur conference brought academics from Stanford to interact with senior political functionaries of the state, academic institutions in Rajasthan, senior officials and students of some universities. Drawing credence from the recent World Bank report entitled, Rajasthan?closing the development gap, Vasundhara Raje highlighted achievements and medium-term policy initiatives that can improve on the momentum of the 1980s and 1990s and approximate a growth rate of 8%.
The paradox of a decline in growth of per capita income to 2.2% per year compared to 3.4% in the 1990s, and poverty rates of 15%, far below the national average, cannot be explained merely by lower incidence of income inequality and more egalitarian distribution of land-holdings. At any rate, the path forward must involve revival of agricultural growth by reducing the sector?s vulnerability to drought and diversifying cropping patterns, making it less water-dependent and cereal-dominated, coupled with improving infrastructure and regulatory reforms to improve the investment climate and increased reliance on innovation for further progress in the human development index. Rajasthan, to its credit, has left behind its image and stagnation associated with the Bimaru states, but will have to reinvigorate its efforts to join the ranks of the faster-growing western parts of India.
TN Srinivasan, broadly endorsing the World Bank report on Rajasthan, focused on Centre-state relations. The federal system with strong unitary features had become somewhat dysfunctional, given the heterogeneity of political parties in office across various states. In the broad scheme of devolution, the constitutionally mandated Finance Commission has the core function of recommending sharing of central taxes and in fairness endeavoured to combine considerations of equity with efficiency, but suffers the handicap of a five-year horizon. The Planning Commission, which he described as ?an extra-constitutional body? set up by a resolution of the central Cabinet in 1950, makes grants to the states in support of Five-year and annual plans of states. These were not wholly free from discretionary transfers. This was even truer of devolutions from central ministries on centrally sponsored schemes.
• States have a huge task, but inadequate financial and decision-making powers • Heterogeneity of govts and regional parties is a hurdle in reasoned debate • A fresh initiative by the PM can trigger awareness on the need to rethink |
The process of design, selection and initiatives on new schemes, whose consequences are borne by the states, suffer inadequate consultation. In fact, according to Prof Roger Noll, since money creation was an exclusive privilege of the central government?including the benefits accruing from seignorage and with the nationalisation of insurance companies and commercial banks and the Reserve Bank determining the Cash Reserve Ratio and the Liquidity Ratio, ?the Centre had a large (almost disproportionate) say on how financial resources should get allocated among levels of government and the private sector.? In short, states have been burdened with enormous responsibility but handicapped with inadequate financial power and participation in key economic decisions.
If TN Srinivasan?s logic were to be fully accepted, it would involve substantial rewriting of the Constitution, for which there is neither appetite nor consensus. This does not mean that the issues he raised are not relevant. Incremental progress can be the best outcome. This means strengthening the consultative mechanism for vastly improved interaction with the states, particularly on policies that affect their economy. It is well recognised that neither the National Development Council nor the Inter-State Council are effective consultative bodies.
The Special Empowered Committees on Vat is a one off example with a mixed experience. Heterogeneity of governments and regional parties do not enable convergence of opinion. Too often, debates acquire a Centre versus state character and are scarcely viewed in a bipartisan spirit. We need to get out of this cycle and constituting another commission may not be the answer. Recommend-ations of such commissions are never well received by successor governments and the cycle of setting up another commission begins all over again!
While such complex issues do not have easy answers, the Prime Minister, given his experience and stature, can convene a special meeting of the National Development Council and follow it up with a special discussion in Parliament. Unfortunately, political parties remain distracted and Parliament does not foster debates on issues of far-reaching importance. A fresh initiative by the Prime Minister can trigger enhanced awareness on the need to rethink on the accepted paradigms. Engaging state governments in a dialogue on emerging development dynamics is critical to forge consensus. The ?Stanford Way? is a credible step in this direction.
