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Source: The post decentralization in India has been created, based on the article “Federalism for development” published in “Business standard” on 20th February 2024.
UPSC Syllabus Topic: GS Paper 2 – Polity- issues and challenges pertaining to the federal structure, devolution of powers and finances up to local levels and challenges therein.
News: The article discusses how giving more power to local governments in India, similar to what China did, can improve economic growth and political harmony. It emphasizes the need for local control over development strategies and better financial resources for states and local bodies. Fiscal Decentralization in Indian Federalism
Why does decentralization matter?
Decentralization is important because it allows local governments to create development plans that suit their specific needs. This approach can lead to more effective economic development compared to centralized planning, especially in diverse countries like India and China.
For more information on decentralization read here
What are the challenges of decentralization in India?
Political Discrimination: Different political parties ruling at the state and central levels can lead to unfair treatment of states. For instance, allegations of favoritism in Mumbai’s municipal corporation towards ruling party MLAs.
Risk of Inter-State Rivalry: As India moves towards a national market economy, decentralization should not result in trade barriers between states.
Fiscal Constraints: States accounted for about 55% of government expenditure but only 38% of tax revenue in 2022-23. Central tax collection practices limit states’ share, affecting their financial autonomy.
Centralized Development Schemes: Centrally-sponsored schemes often dictate state development strategies, reducing local autonomy. In the 2022-23 budget, these grants were about half as large as tax devolution to states.
Inadequate Local Governance Resources: Municipalities and panchayats lack sufficient access to fiscal resources, hindering their ability to effectively manage local development.
How can Indian states benefit from decentralization?
Tailored Development Strategies: States can develop strategies based on their unique resources, climate, and demographics, leading to more effective economic growth.
Reduced Economic Disparities: By focusing on local strengths, like specific crops or industries, states can bridge the economic gap. Decentralization allows for diverse approaches, potentially reducing disparities.
Greater Financial Autonomy: With more control over financial resources, states can better fund their development projects. Currently, states generate 38% of tax revenues but are responsible for 55% of government expenditure.
Local Political Harmony: Decentralization can reduce political conflicts by allowing states more freedom from central government’s influence, leading to more harmonious state-central relations.
Empowerment of Local Bodies: Municipalities and panchayats can have more control over local development, addressing specific community needs and attracting employment opportunities.
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What can India learn from China’s growth?
Regional Competition as a Growth Catalyst: Post-1992, Chinese provinces, municipalities, and towns independently pursued development, fostering a market economy through regional competition.
Balancing National Market with Local Autonomy: China’s success also involved reform measures to create a common national market. This approach demonstrates how regional competition can benefit national development.
Importance of Localized Economic Experiments: China’s varied economic experiments at regional levels were instrumental in its transformation, suggesting that India could benefit from allowing states to innovate and experiment with development models.
Learning from China’s Unified Political System: Despite China being a totalitarian state, India can adopt its economic decentralization model while respecting its democratic and diverse political framework.
Question for practice:
Discuss the potential benefits and challenges of decentralization in India, drawing comparisons to China’s approach to regional autonomy and economic growth.
