Democracy, Development and Decentralisation in India: Continuing Debates by Chandan Sengupta & Stuart Corbridge

Author:Chandan Sengupta & Stuart Corbridge [Sengupta, Chandan & Corbridge, Stuart]
Language: eng
Format: epub
Tags: Political Science, Political Ideologies, Democracy, American Government, State
ISBN: 9780415563178
Google: 4qyJQAAACAAJ
Goodreads: 11659090
Publisher: Routledge
Published: 2010-01-15T08:07:33+00:00

(a) a hierarchy of governments with delineated authorities (the basis of federalism);

(b) a primary authority over local economies for subnational governments;

(c) a common national market enforced by the national government;

(d) hard subnational government budget constraints; and

(e) institutionalised allocation of political authority.

An important condition laid out by Weingast (1995) for a federal system, what he calls ‘market preserving federalism’, is that local governments have ‘hard budget constraints’ as they do not have certain monetary powers that central governments enjoy such as creation of money and access to unlimited credit. McKinnon (1997) has extensively explored this condition and argues that federalism separates monetary and fiscal powers and demonstrates how it can force fiscal discipline on local governments. Weingast (1995) analyses two MPF success stories: 18th century England and 19th century United States, and emphasises the role of formal institutions and informal norms in contributing to the durability of MPF in these settings. Singh compares the Chinese and Indian models, observing that:

China does appear to satisfy some aspects of MPF, especially at the provincial level, but hard budget constraints are not clearly present for local governments. […] In India, on the other hand, while economic decentralisation has progressed down to the state level, local governments still have negligible fiscal or policy clout (Singh 2007: 14–15).

The path to MPF in both scenarios thus warrants more efficient decentralisation to local bodies, with greater sources of own revenue, transfers that do not distort incentives, and budget constraints that are firmer and subject to market discipline.

There are other contentions in favour of fiscal federalism apart from the efficiency and market preserving arguments. Diffusion of successful public policy innovation has been another argument in favour of fiscal federalism. The promotion of such a concept can be traced back to the work of Bryce who states that ‘federalism enables a people to try experiments which could not safely be tried in a large centralised country’ (1901: 353). Thus, the notion of ‘laboratory federalism’ became a common concept. Ample examples of such local innovation at ground level are available: Brazil's decentralisation experience has evidence of ‘subnational innovation’ corroborating the notion of ‘laboratory federalism’ (Baiocchi 2007). Although the experience of decentralisation in Brazil was mixed, the shift in government structure has led to some noteworthy democratic innovations; the most celebrated innovative package has been that of participatory governance. Participatory budgeting reform, which has drawn considerable attention, aims to include ordinary citizens in deliberations related to projects for specific districts and municipal investment priorities, as well as the monitoring of the outcomes of projects. The most successful example of participatory budgeting reform has been witnessed in the city of Porto Alegre in the south. Here, in the 13 years of its existence citizen councils have made decisions on hundreds of projects worth almost 20 per cent of the city's total budget and have satisfactorily included the preferences of poor and vulnerable groups. This model of participatory budgeting has been replicated across Brazil at an enormous scale. There are other noteworthy innovative practices with significant implications for development.

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