Decentralization in India

Given India’s size and diversity, decentralization is very important for the country’s strategy for poverty reduction. From the first central initiative to establish local governments in 1957 to the 73rd and 74^th Constitutional Amendment in 1992 and 1993, the country has moved in this direction. The two constitutional amendment established mandatory provisions for decentralization to local governments in India.

The subsequent State and Municipal Acts created a policy conducive to decentralized governance, and these are being strengthened through devolution of resources, such as centrally sponsored schemes and finance commission block grants.

On rural decentralization, The World Bank's policy assistance offers three-phase studies.

1. The first study, "Overview of Rural Decentralization in India" concluded that:

• Political decentralization has been successful.
• Essential legal framework is in place.
• India is among the best performers on political decentralization, but ranks in the middle on fiscal decentralization, and close to last on the administrative dimension.
• Accountability is limited at local levels.
• Disadvantaged groups are represented less in local elected bodies.
• Roles and functions of the three levels of rural local governments lack clarification.
• Monitoring system needs to be developed.

2. The second phase was to help states in improving the design and monitoring of rural fiscal decentralization. The aim was to highlight the mismatch between policy objectives, accountability and current practices. The study report, which focused on Karnataka and Kerala, "Fiscal Decentralization to Rural Governments“, made recommendations for the way forward. The recommendations include:

• Clarifying expenditure assignments.
• Consolidating schemes.
• Enhancing panchayat resources.
• Redesigning transfers.
• Creating information systems on local finances.
• Improving accountability.

Based on the recommendations, the World Bank has approved a lending, Karnataka Panchayts Strengthening Project, to help the government of Karnataka improve the flow of funds to village governments (Gram Panchayats) and develop the capacity of the three tiers of the governments.

Following the report, the government of West Bengal requested the Bank to do a similar study for them. The report will be presented to the government as input to their implementation of fiscal decentralization to local governments.

3. The third phase is to evaluate service delivery, in particular for those sectors characterized by externalities and meritorious goods (for example, water and sanitation, health, education, natural resources, judiciary). The study will propose recommendations for improving assignment of expenditure responsibilities and service delivery for rural areas.  To this end, it proposes a conceptual framework, then applies the criteria elicited from this framework to four key sectors: health, education, drinking water and sanitation, and employment programs. The study demonstrates the approach for a small number of sectors that have been “devolved” to rural governments (panchayats), but it is immediately applicable to any other sector of the 29 subjects eligible for devolution. 

On urban decentralization, the World Bank has carried out Urban Finance and Governance Review  to review financing and governance of urban local bodies, to which states have devolved some of their responsibilities. The report found that the challenges for urban decentralization are very similar to rural decentralization, and recommends options for decentralization reform.

More analytical studies on India