Is decentralisation the answer?

There has been a sizeable push towards decentralisation as the silver bullet to solve many of our problems. It has been cited as the reason for the effectiveness of a response to the pandemic as the key to a low carbon future, to empowerment of the poor among many, many other ostensible positive effects. If the positive effects are so many and so varied, then this begs the question, why aren’t we doing more of it? Why, despite the passing of the 73rd and 74th constitutional amendment way back in 1992, (which provided for empowering rural and urban local governments respectively) have we made such little progress in devolving power to local governments?

Let us explore the matter a bit further to see exactly what decentralisation is expected to accomplish. One important argument is that decentralisation is an end in it itself; that putting decision making power closer to the people, isn’t this what democracy is supposed to be about?. But consequent to this argument is that bringing power to the people establishes clearer and more direct accountability mechanisms. This is what is supposed to lead to increasing equity and effectiveness of government services. A government is made accountable when people vote it out for poor performance and like consumers, take their business elsewhere when it fails to deliver. It is generally far easier to hold local government accountable for its failures in service delivery than state or central government.

While we do see a trend towards decentralisation in developed countries as this OECD report demonstrates, it is unclear whether this can be true in developing countries with their weaker institutions and poorer capacities.

Studies show that decentralising services to local governments do not necessarily improve outcomes and may even worsen them. What might be the reasons? The purely technical reason often cited are greater economies of scale and higher technical capacity at state levels. But a lot of the reasons lie in the political economy of local vs state governments. Decentralisation may actually weaken or distort existing accountability systems in sub-optimal ways. A local government may be more prone to local elite capture, Independence from politicians may be weaker in local government, monitoring systems for bureaucratic action may not as strong as at the state level. Where citizen awareness and local media capacity to hold the government to account are low, devolution may not strengthen downward accountability to the public, while weakening upward accountability mechanisms.

One main reason why decentralisation fails in the Indian context is that it is usually done in a haphazard way to meet legal requirements and prevents any actual transfer of power and responsibilities. In the case of the 74th amendment, decentralisation has gone further in panchayats, while it has all but stalled in urban centres, mostly because state governments are reluctant to give up control over the city. The observation, widely attributed to Raja Chelliah’ “Everybody loves decentralisation, but only to his level’ is quite apt in this context! While cities may have an elected mayor, this post is a nominal head, while decision making power rests in the hands of the municipal commissioner. Despite the large capacity of the city to raise taxes, this potential is poorly exploited leaving the city to be highly dependent on state government grants.

It is important to note that decentralisation is not a uni-dimensional concept but involves 3 facets – Political, administrative and fiscal. The inconclusive impact of decentralisation on service delivery, growth and development likely stems from the fact that there are many ways to decentralise, and the impact that decentralisation has would very closely depend on how exactly one goes about it, and the political and economic context of the country in question. The diagram (figure 1) shows the different dimensions of decentralisation and should make obvious the complexities involved in getting decentralisation right.

                                                            
1:OECD Report (2019): Making Decentralisation Work

The case of decentralisation just tells us what we should already know about development in general, that the use of standardised prescriptions in the wrong context has the potential to go very wrong, with drastic consequences for the lives of people. Developmental problems, and therefore their solutions, vary in different political-economic contexts. We need to pay very close attention to the development context in question, come up with solutions that fit the problem that we are trying to solve and avoid making bigger problems on our way to solving them.

References:

Angelici, M., Berta, P., Costa-Font, J., & Turati, G. (2021). Divided We Survive? Multi-Level Governance and Policy Uncertainty during the First Wave of Covid-19.

Bardhan, P. K., & Mookherjee, D. (2000). Capture and governance at local and national levels. American economic review, 90(2), 135-139.

Blöchliger, H., & Égert, B. (2013). Decentralisation and economic growth-part 2: The impact on economic activity, productivity, and investment.

OECD (2019), Making Decentralisation Work: A Handbook for Policy-Makers, OECD Multi-level Governance Studies, OECD Publishing, Paris, https://doi.org/10.1787/g2g9faa7-en.