Strengthening decentralisation for improving human capital

Synopsis: The poor performance of India in human capital indicators can be improved. If the 3 tier decentralized structure of governance gets strengthened. 

Background:

• India has secured a poor 116 rank in the World Bank’s human capital index. Further, the data of the National Family Health Survey – 5 for 2019-20 highlights the poor performance in the domain of malnutrition.
• Similarly, issues in learning outcomes are highlighted by the National Achievement Survey 2017 and the Annual Status of Education Report 2018.
• Moreover, these statistics are expected to further worsen due to Covid-19 pandemic.

Therefore, the focus should be on enhancing the investment in human capital. This would require better decentralisation among 3 tiers – Centre, states and local bodies.  

Why should there be a focus on a decentralised approach?

• First, the government has launched various programs like Poshan Abhiyan and Samagra Shiksha Abhiyan. But they have failed to deliver optimum results.
• Second, international studies show there is a positive correlation between decentralisation and human capital formation.
• Third, India spends only 4% of its GDP on human capital which is very less in comparison to its peers. This means these minimum funds should be spent in the most optimum way. It is possible with decentralisation.

What are the existing mechanisms for decentralization in India?

• The constitution allows the centre to support states in their fiscal domain. This can be done through tax devolution and grants in aid. In addition, the Centre can make ‘grants for any public purpose’ under Article 282 of the Constitution.
• Education was moved from the state list to the concurrent list by the 42nd amendment in 1976. It ensured better coordination between centre and states.
• The enactment of the 73rd and 74th amendment gave constitutional status to municipalities and panchayats as the 3rd tier of government. Further various domains like education, health and sanitation are given to them under the 11th and 12th schedule.
• The 14th Finance commission (FC) called for distributing 42% of centre’s taxes among states, an increase from earlier 32%. This was effectively retained by 15th FC as well.

Challenges to decentralisation:

• First, significant fiscal support by centre to states is in the form of grants-in-aid and centrally sponsored schemes (CSS). As per SC ruling in Bhim Singh vs Union of India, these routes are for special, temporary or ad hoc schemes under article 282. 
• Second, states have been reluctant to transfer their power to local bodies under the 11th and 12th schedule.
• Third, the municipalities and local bodies are not fiscally empowered. This can be seen by low property tax collection which is under 0.2% of GDP, compared to 3% of GDP in some other nations. 
• Fourth, even state finance commissions (SFCs) are not constituted on time by respective states for recommending tax devolution and grants-in-aid to the third tier.

Way Forward:

• The centre must use the route under Article 282 in a cautious way as it is listed as a ‘Miscellaneous Financial Provision. It should give maximum fiscal support using Articles 270 and 275, which fall under ‘Distribution of Revenues between the Union and the State.
• The centre should also encourage knowledge sharing between the states which would help them in improving their fiscal potential.
• The 15th FC’s recommendation should be duly implemented. It recommended giving no grants to any state after March 2024 if it doesn’t constitute SFCs. 
• The 3rd tier of government should be vested with all the functions mentioned under the 11th and 12th schedule.

Thus, the need is to leverage the true potential of our multi-level federal system that would help in developing human capital.

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