PSUs does not make a dent in deficits because even the modest
projections of sale revenues of Rs 10,000 crores annually
have never been realized, and even if realized will hardly
make a difference. And in any case, deficit reduction is
not an end in itself. Improved services and quality infrastructure
are the goals we should seek as better value for the money
a centralized government it is impossible to persuade people
to pay more taxes. When higher taxes show no prospect of
better services, people devise ingenious ways of avoiding
taxes. Despite public expenditure accounting for 28% of
GDP, the allocation for education, health care and social
security is a meagre 5% of GDP, as opposed to 25% in OECD
countries. Naturally people do not see how their tax money
is benefiting them. Hundred rupees in their pockets are
far more wisely spent than taxes in a centralized government.
And when people have to pay bribes for the simplest of services,
it is hard to summon the will to pay more taxes.
is easy to prescribe, but difficult to deliver in a poor
country. The poor family that gets real income of Rs 100
every month as food subsidy cannot give it up to fill the
fiscal hole. This is true everywhere. When food subsidies
were sought to be drastically reduced in Poland in early
80's, it led to food riots, and eventually paved way for
the rise of Solidarity under Lech Walesa and collapse of
communism in Eastern Europe. But if such subsidies are administered
locally, and people see alternative uses for their money,
they are more likely to accept desubsidization. If the amount
saved by desubsidization can be locally used for building
roads, construction of toilets, improving health facilities
etc., people can then see where the money is going and are
willing to give up consumption subsidy in order to build
a capital asset or improve the quality of life.
to wages, we cannot realistically reduce this burden. In
reality the number of government employees as a proportion
of population (1.3%) is not high by global standards. Wages
are not translated into public services because of two reasons.
First, most employees are wrongly deployed. We have too
few teachers, health workers, judges and policemen, and
too many clerks, peons and drivers. Second, in a centralized
milieu employees are utterly unaccountable. Authority has
never fused with accountability, and we have a system of
alibis for nonperformance. Only in a local government can
we retrain employees and re-deploy them in desired sectors,
and institute effective systems of accountability.
fiscal crisis, misgovernance and corruption cannot be addressed
by finance ministers. The problems are far more fundamental,
and need restructuring of our governance apparatus. Local
governments will not automatically reduce corruption, nor
will they promote better leadership overnight. The promiscuous
administrative and political culture is bound to permeate
into local governments too. But as employees are held to
account locally, we can check corruption. And as the citizen
sees the link between his vote and public good, better quality
of leadership will start emerging. But it takes patience,
faith and painstaking institution-building.
is showing us the way. In addition to wages, 40% of all
plan funds are placed at the disposal of local governments.
Our fiscal federalism is on reasonably sound footing. Some
42% of central revenues are now transferred to States -
29% as financial devolution, and the rest in the form of
plan assistance and centrally-sponsored schemes. The States
are demanding 50%, but the gap between the demand and today's
devolution is not large. The real failure lies in transferring
of functions, funds and functionaries from states to local
governments. Articles 243G and 243Wand the 11th and 12th
Schedules of Constitution listing subjects to be dealt with
by local government do not have the same force as the Seventh
Schedule providing for clear and distinct jurisdiction of
average district in India is larger than 80 nations of the
world, and our larger States are bigger than 90% of the
countries. We need to recognize the importance of local
governments. Elections for Mumbai and Hyderabad Municipal
Corporations are now being held. Mere elections of new mayors
and councils will not do. We should redesign institutions
and improve governance to give good value for our money.
Only then can the fiscal crisis engulfing us be averted.
It is high time we recognized that all governance is about
people and all politics is local.