HTLS 2020: India’s new era will be defined by the idea of decentralization

We stand at the threshold of what could have been the roaring twenties of the 21st Century. Unfortunately, because of the pandemic, it seems more like the groaning twenties and new era is akin to AC (after Covid-19), contrasted with BC (before Covid-19).
Handling of Covid-19 has also underlined differences in governance capacity across states, across cities and across districts.(Dheeraj Dhawan/HT Photo)
Handling of Covid-19 has also underlined differences in governance capacity across states, across cities and across districts.(Dheeraj Dhawan/HT Photo)
Updated on Dec 08, 2020 06:20 AM IST
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ByBibek Debroy

The word era should not be used in a cavalier fashion. It represents an epoch, an age. A “new era” is more significant than mere passage of one period to another. We stand at the threshold of what could have been the roaring twenties of the 21st Century. Unfortunately, because of the pandemic, it seems more like the groaning twenties and new era is akin to AC (after Covid-19), contrasted with BC (before Covid-19). Human proclivities are often tinged by myopia, over-reacting to the short-term. But this too shall pass, with a caveat.

The only comparable instance of such a global pandemic was the Spanish Flu. Ostensibly, its four waves faded away by 1920, lasting for just over two years. With vaccine prospects brightening, by late 2022, the worst of Covid-19 should be behind us. Subsequent research on the Spanish Flu, constrained by the lack of data and its getting overshadowed by World War I, shows it left various forms of legacy – (a) a shift in global balance of power; (b) growth in some sectors at expense of others; and (c) adverse health and education outcomes lasting beyond 1920. All three are pertinent for Covid-19 too.

When a different “new era” was ushered in, Pax Britannica yielded to Pax Americana. Pax Americana has been whittled at since the end of Cold War, much before the pandemic and recent presidential elections in the US. Once uncertainty around Covid-19 settles down, one will have to reckon with enhanced economic and political clout of China, Brazil, India, Turkey and Indonesia, not to forget Russia. Hence, this is also about restructuring of global governance and institutions, IBRD, IMF, UN and WTO, notwithstanding threat to the last named because of protectionism and regionalism.

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In India, too, there have been over-reactions to Covid-19 and lockdown, tinged by myopia. Underlying reasons for optimism about India’s growth potential haven’t vanished. A $5-trillion target by 2024-25 is obviously unattainable, but all that has happened is that the timeline has been pushed back by a few years. At worst, those who spoke about 7.5% real growth by 2025 will settle for 6.5% and push that 7.5% target further back. Many factor market reforms (land, labour) and agricultural liberalisation, pending for decades, have been announced. These lead to efficiency gains and productivity increases and generated endogenous sources of growth, regardless of how the global economy performs. Measured in US dollars, per capita income is around 2,100 now. I am not aware of anyone who has redone forecasts post-Covid-19, for a year like 2030. Pre-Covid-19, by 2030, a reasonable projection would have been $5,000, with graduation from a lower middle-income to upper middle-income economy.

No matter how pessimistic one is, we will move to upper middle-income, but closer to $4,000 and not $5,000. Such is the exponential power of growth that we often fail to appreciate its impact. India’s socio-economic fabric will be greatly transformed, with greater urbanisation, lower poverty and better human development outcomes and many unexpected changes, some technology-driven. If we cast our minds back to 2010, how much of what has occurred by 2020 was predictable? It is no different in 2020, looking ahead to 2030.

Beyond growth numbers and obvious economic indicators, I think the new decade in India will be defined by discourse and debate on governance. Handling of Covid-19 has also underlined differences in governance capacity across states, across cities and across districts. Governance extends beyond governance and involves citizens and civil society. Citizens and civil society will become more conscious and exercise rights, demanding better government action, but will hopefully also become more conscious of responsibilities. All too often, government has been interpreted as the executive, with legislature and judiciary rarely questioned. That will probably change, as it should. On the executive, the new decade will probably involve a recasting of Union-State relations, as enshrined in the Constitution, consequent to Government of India Acts of 1935 and 1919.

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Despite the basic structure doctrine, a Constitution is dynamic, reflecting the will of the people. (1) What should government spend on? (There are trade-offs. If more has to be spent on health, do we spend less on something else?) (2) Which tier of government should spend it? (Let’s not forget the third tier.) (3) How will resources be raised? What should be the nature of direct and indirect taxes? (4) How will the taxable pool be devolved? (Let’s not forget the third tier again.) (5) What regulatory structure is appropriate for areas abdicated by government?

Some of these issues (primarily on indirect taxes) have been raised by the GST Council, 14th Finance Commission and perhaps the 15th Finance Commission (the report is not in the public domain). But the debate on expenditure, and on appropriate layer for provision of public goods and consequent expenditure has yet to occur. Let’s think of it this way. India has 740 districts and most public goods are provided at district and municipal level. They need resources and this brings in State Finance Commissions (not just Union Finance Commission).

While there will always be States and UTs as administrative entities, governing an India that graduates to upper middle-income status and beyond means ensuring governance through 740 districts, not states. Stated differently, India’s new era will be defined by decentralisation, a notion beyond fiscal devolution, moving away from excessive centralisation of Government of India Acts of 1919/1935. In the past, there were fears about Bharat, that is India, remaining a cohesive Union if there was too much of decentralisation. India’s resilience and continuity should instil confidence in us that this is how we should define the new decade.

Bibek Debroy is chairman of Economic Advisory Council to the Prime Minister and a member of Niti Aayog

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