Only one word: decentralisation

There are no costs involved in moving towards a more federalist structure called the United States of India — only benefits.

Written by Surjit S Bhalla | Updated: February 15, 2014 5:29 am
It is hard to imagine anyone in India not arguing for increased “power to the people”.  CR Sasikumar It is hard to imagine anyone in India not arguing for increased “power to the people”. CR Sasikumar

There are no costs involved in moving towards a more federalist structure called the United States of India — only benefits.

The year was 1967 and the US economy and polity were on the cusp of change. Technological change was happening, civil rights for blacks would soon begin to be a reality, the women’s movement was gaining momentum, the anti-war movement was on the verge of take-off; and social attitudes towards sex, marriage and life were soon to be permanently altered. On the screens appeared Mike Nichols’ movie The Graduate, easily one of the classiest movies of all time. (His first movie was Who’s Afraid of Virginia Woolf?). In that movie, there is one exchange that still resonates today, and with the same shock, and urgency, and prophecy. The exchange is between a very young man, Benjamin (Dustin Hoffman), who is being advised about his and the country’s future by an elderly businessman Mr McGuire (with whose wife and daughter Benjamin has an affair).

Mr McGuire: I just want to say one word to you. Just one word.
Benjamin: Yes, sir.
Mr McGuire: Are you listening?
Benjamin: Yes, I am.
Mr McGuire: Plastics.
Benjamin: Exactly how do you mean?

The year is 2014, and India, analogous to the US in 1967, may be on the cusp of a major change — politically, economically and socially. The most important one word in India might just be: decentralisation.
As Benjamin asked, “exactly what do I mean”? The following.

It is hard to imagine anyone in India not arguing for increased “power to the people”. The AAP’s surprise victory in the Delhi elections is just the latest proof of this demand for change sweeping across the world. Change being brought about because the ruling order (politicians or otherwise) talks, without actually speaking, and hears, without actually listening.

Of course, decentralisation can be taken to an extreme. In Delhi, the AAP demands that not only economic decisions but also foreign policy decisions be taken “by the people”. One can demur on that as one can demur on, consistent with the AAP theology, that Khaap panchayats can take a vote on censuring what women can do, wear, or say. So what do I mean by decentralisation?

I mean economic decentralisation, and power to the states. Some start in this direction has already been taken by the Congress-led UPA government (one of the few correct decisions they took in the last 10 years). When FDI in retail was allowed, it was with the condition that each state would have the right to allow, or not allow, FDI in retail. The same logic needs to be followed across the board on most economic decisions.

For starters, a new “state rights” law can be passed that stipulates that all Central government expenditures pertaining to poverty alleviation would be decided upon by individual states. At present, around Rs 480,000 crore, slightly above 4 per cent of GDP, is spent on subsidies pertaining to food, fuel, fertiliser, kerosene, LPG, mid-day meals and employment guarantee schemes. That is around Rs 4,000 per person and around Rs 20,000 per poor person. These subsidies are decided upon by the Central government, and in the last 10 years, by the theology of Sonianomics.

Given regional inequalities, we need to decide how this money is to be divided among the states. The Planning Commission has its methods, the Finance Commission has its calculations, and even the finance ministry has chipped in with its own (somewhat shaky) recommendations. Arriving at which state obtains how much is something a few rigorously tested quasi-academic studies can easily, and quickly, establish.

The first policy change will be, should be, that there are no more Centrally sponsored schemes, let alone any in-the-name-of-the-poor corrupt adventures. There will be the immediate benefit of the removal of politically inspired names (the Nehru this and the Gandhi that) for schemes meant to primarily help the poor. The states will be able to do what they wish with this money. Bihar should be able to obtain at least Rs 60,000 crore (out of total subsidies of Rs 480,000 crore) to spend as it wishes. At present, Bihar’s total budget is around Rs 100,000 crore, with non-Plan expenditures around Rs 50,000 crore. The allocated Bihar budget for Centrally sponsored schemes (like MGNREGA) is only Rs 5,000 crore.

If Chief Minister Nitish Kumar wants to spend this money on bicycles, computers and mobiles for girls (but beware of khaaps!), he would have every right to do so. Alternatively, Nitish would have the right to spend this money on schools, hospitals, or for digging underneath every temple in Bihar to look for gold, as Uttar Pradesh Chief Minister Akhilesh Yadav may also do. And alternatively, yet again like Akhilesh, Nitish might choose to take MPs on a fact- and gold-finding trip to Australia.

What will Nitish have to do in exchange? Short of not violating national laws, nothing. But he would have to agree to the following. His government would have the right to come up with new labour laws, which can be even more retrogressive than our existing 19th century laws, or with progressive laws that benefit his Bihar economy.

He would have the right to make a decision on what property tax rates to set, what fuel subsidies to allow, and whether to have caste reservations. His state can follow affirmative action policies (as his policy in benefiting the girl child), or he can increase caste reservations to 67 per cent of the population (as in Tamil Nadu). The half-pregnancy Supreme Court ruling on reservations (no more than 50 per cent allowed, as if people can be divided into halves) will be ruled unconstitutional, hopefully by the SC itself. If not, the people, through a referendum, can demand that there be a new constitutional commission, provided a two-thirds vote is obtained.

The costs of implementing new states rights are negative, that is, they are benefits. Let us assume that Nitish actually looks for gold. The citizens of Bihar will vote with their feet. Either they will leave Bihar for greener pastures, or they will kick him out. There are no costs involved in moving towards a more federalist structure called the United States of India — only benefits.

The writer is chairman of Oxus Investments, an emerging market advisory firm, and a senior advisor to Zyfin Research, a leading financial information company.

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First Published on: February 15, 2014 12:57 am
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    Aksa8
    Feb 15, 2014 at 4:32 am
    Since the article was clearly written in a Simon & Garfunkel frame of mind and though our minds' eye was, as always, stabbed by the flash of the neon light of Dr. Bhalla's wisdom, it may not be out of place to ponder over whether de-centralisation in "USI" would end up creating more "narrow streets of cobblestone" rather than the superhighways the nation aspires for.
    Reply
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      Aksa8
      Feb 15, 2014 at 4:32 am
      Since the article was clearly written in a Simon & Garfunkel frame of mind and though our minds' eye was, as always, stabbed by the flash of the neon light of Dr. Bhalla's wisdom, it may not be out of place to ponder over whether de-centralisation in "USI" would end up creating more "narrow streets of cobblestone" rather than the superhighways the nation aspires for.
      Reply
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        Athul Athul
        Feb 15, 2014 at 8:07 am
        Little pessimist abouut State govts making those funds available for the ones who really need it!
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          BAPTY.s Seshasayee
          Feb 15, 2014 at 8:04 am
          I WOUD like to put to an MGMT ECONOMIST IKE MR BHALLA THE following. By and large we all know what are the basics and most essential India and most of its states want. There is a divide between the west and east. But still we need to pep up our INFRASTRUCTURE, BIJLEE, SADK, PAANI, ROADS IN MANY STATES, EDUCATION, LITERACY, HEALTH CARE MEDICINES, HOSPITALS DOCTORS, EMPLOYMENT FOR YOUTH AFFORDABLE EDUCATION AND SAFETY FOR WOMEN ANYWHERE IN INDIA. ELIMINATION OF BORDER INSECUURITY, TERRORISM, IMPROVEMENT IN MANUFACTURING, AGRI PRODUCCTS, AND INFLATION CONTROL. WE ALSO NEED TO IMPROVE RESEARCH , AND INDIGENISATION OF DEFENCE PRODN.SO CERTAINLY THE CENTRE SHLD LAY BROAD GUIDELINES ON THESE AND WHERE POSSIBLE TRY AND STANDARDISE MINIMUM LEVELS ON MOST OF THESE PARAMETERS. AVOID STATES HANDING OVER DOLES WITHOUT ACCOUNTABIITY. GROWTH AND PROGRESS MUST TAKE PLACE IN ALL STATES. BASICALLY GOOD GOVERNANCE, ,COMPLETE ACCOUNTABILITY, NO BLIND FREEBIES AND DOLES, AND GET BACK ALL BLACK MONEY ABROAD AND REGULATE TAXATION TO SUITABLY REDUCE BLACK MONEY TRANSACTION IN ECONOMY AS A NATION TO ELIMINATE CORRUPTION. THANK U.
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            basudev
            Apr 6, 2014 at 11:22 am
            Very interesting article. I too have been telling this to my friends for years. India in its current form has too much power at the center, and as a result there is no one held accountable for a success or failure. If there is a failure, state leaders blame the leaders at the center, and vice versa. If there is a success, state leaders compete with the leaders at the center to snatch all the credit.If a state is given autonomy, its leaders will be directly answerable to the people, and that is not a small difference.
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              Harish Kumar
              Feb 15, 2014 at 8:48 am
              I agree. The present set up has failed, we need a strong federal structure, but, will it ever happen given the era of coalition politics and expected hung parliament of 2014.
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                Gangu true
                Feb 15, 2014 at 3:20 pm
                100% reservation. If you understand your own logic, 67% is as meaningless as 50%. Good luck. This will be the start of Perestoika, Glnost and a civil war to dissolve the defective idea that India has become.
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                  Raj
                  Feb 15, 2014 at 7:45 am
                  You seems to be out of your mind completely. Did you see Arvind's interview on VDTV with barkha. He said, local bodies can take decision only within law. He specifically mentiond khap panchayat - they can mble and take community decision but whenever they are in violation of IPC they should be prosecuted. That can be done even now - but current politicians won't do that - WHAT NOW??Raj
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                    Raj
                    Feb 15, 2014 at 7:45 am
                    You seems to be out of your mind completely. Did you see Arvind's interview on VDTV with barkha. He said, local bodies can take decision only within law. He specifically mentiond khap panchayat - they can mble and take community decision but whenever they are in violation of IPC they should be prosecuted. That can be done even now - but current politicians won't do that - WHAT NOW??Raj
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                      Rajendra
                      Feb 15, 2014 at 6:08 am
                      New consutional commission, reservation more than 50 percent and decentralization till permanent division in several states??????I think this amamie writing author has lost his mind.He has forgotten that India is not a federation of states, its a 'UNION" of states where a form of unitary government is applied and residuary powers are held by the center.When Baba Saheb Bhimrao wrote the consution, he could have easily made it a federal one but he chose not to. Because everyone in the consuent embly knew that India's main problem throughout centuries had been the existence of a weak central government which led to its frequent subjugation under foreign rule.So Mr Bhalla, not only your ideas are half/crooked-researched and moronic, you also have missed the political history of evolution of India and its nation building process.
                      Reply
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                        Rajendra
                        Feb 15, 2014 at 6:08 am
                        New consutional commission, reservation more than 50 percent and decentralization till permanent division in several states??????I think this amamie writing author has lost his mind.He has forgotten that India is not a federation of states, its a 'UNION" of states where a form of unitary government is applied and residuary powers are held by the center.When Baba Saheb Bhimrao wrote the consution, he could have easily made it a federal one but he chose not to. Because everyone in the consuent embly knew that India's main problem throughout centuries had been the existence of a weak central government which led to its frequent subjugation under foreign rule.So Mr Bhalla, not only your ideas are half/crooked-researched and moronic, you also have missed the political history of evolution of India and its nation building process.
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                          Ravikash
                          Feb 15, 2014 at 3:21 pm
                          Decentralization and devolving of power is a progressive step for any democracy but giving financial autonomy too soon to states, whose governance has not evolved from one of corruption and caste based politics and myriad other political paralysis to a more accountable structure, must be refrained from. Until state governments carry out a self catharsis process it is better the Union Government remains in control.The politics of reservation if left only to the whims of the state governments would limit the mobility of labour and hence productivity across industries. People confined to the boundaries of their own state due to lucrative quotas and unavailability of opportunities in other states doesn't befit the idea of democratic freedom which the largest democracy in the world stands for.
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                            rkm
                            Feb 15, 2014 at 5:33 pm
                            you are not right. Not all decision will be taken by AAP. There will be schedule as exist of center , state level list for taking decision. It is understood that if a person finds 100% wrong in a eny that means that person has atude problems. Since I am listening you keep saying against AAP party that also without going in details about. Sorry state of affair.
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                              Shiva G
                              Feb 16, 2014 at 2:53 am
                              Nice article by the author; he forgets one aspect where the political cl thrives; the avenues of scams will reduce and the power of scams will lie with the states. No one will be interested in central politics.
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                                Subhash Bhagwat
                                Feb 16, 2014 at 2:37 am
                                Mr. Bhalla's case for decentralization has some merits in the face of the current reality of the quality of central leadership. Comparing a decentralized India with the United States of America has some problems however. For one, individual states in the U.S. can, and most often do, impose state income taxes and, therefore, have "income" of their own. Will India need to make a consutional amendment to allow this? Second, the roots of many problems in the United States lie in its extreme decentralization. For example health care: The Federal Medicare for senior citizens works much better than state administered Medicaid for the poor and needy, the latter does exactly what Mr. Bhalla advocates i.e. use allocated funds whichever way the states want. The result is varying degrees of misery among the poor. Education, which in India already is a state matter as in the U.S., has created wide differences in quality of education by state, as if in today's shrinking world Texan kids could do with more or less math skills than Californian children. The differences impose enormous costs for testing for college admissions and increase inefficiency. Third, but not least, corruption in the United States is every bit as damaging although it happens "legally" when rich interest groups spend heavily to have laws ped that make corruption "allowable"! I am not opposed to granting more powers to states in India, just cautioning that not all that shines (USA) is gold!
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                                  Prof Ujjwal
                                  Feb 15, 2014 at 7:17 am
                                  You talk of decentralization, Mr Bhalla! And YOU yourself has been running a media campaign against AAP and its last Delhi govt which have been battling for Swaraj Law and full statehood to Delhi, while BJP and Congress have only mouthed slogan of statehood. That exposes your double standards.
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                                    Prof Ujjwal
                                    Feb 15, 2014 at 7:17 am
                                    You talk of decentralization, Mr Bhalla! And YOU yourself has been running a media campaign against AAP and its last Delhi govt which have been battling for Swaraj Law and full statehood to Delhi, while BJP and Congress have only mouthed slogan of statehood. That exposes your double standards.
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                                      vamsi
                                      Feb 15, 2014 at 6:38 pm
                                      Good article, exactly my thinking. Modi would be the man to do it as he knew the troubles faced as chief minister.
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