Friday, Dec 19, 2014

Only one word: decentralisation

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
Written by Surjit S Bhalla | Posted: February 15, 2014 12:57 am | Updated: February 15, 2014 5:29 am

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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