Decentralization in South Asia

Decentralization is perhaps one of the most important governance and institutional reform initiatives toward reducing poverty in South Asia.

Decentralization involves the transfer of political, fiscal and administrative responsibilities and powers from the central government to intermediate and local governments.

The economic rationale to support this reform is that local governments, being closer to their constituencies, may be more responsive to local needs, and consequently, provide public services more efficiently.

Successful decentralization must take into account political, fiscal and administrative dimensions. Political decentralization is essential for decision-making power. Fiscal and administrative decentralization are necessary to implement decisions, have appropriate financial and human resources, deliver services effectively, and have accountability.

Political decentralization usually requires changes in constitutions and legal frameworks. Several South Asian countries in one way or another have moved ahead with political decentralization.

• Pakistanhas embarked upon a most far-reaching plan to politically devolve central powers to new local governments.
• India's 73rd and 74th Constitutional Amendments have led to the creation of three-tier Panchayat Raj Institutions (locally elected bodies) with potentially profound implications for decentralized governance.
• Nepal's Local Self Government Act of 1999 defines three types of local bodies, and endows them with some revenue powers and expenditure responsibilities.
• In Bhutan, the government initiated its 9th five-year Plan in July 2002, and prepared the geog plans (geogs are rural communities which constitute the lowest level of elected government in Bhutan). Devolution of resources and decision-making powers to the local level is a key aim of the 9th plan.

Although political decentralization has taken place, fiscal and administrative decentralization lag behind in most of the South Asian countries. Common challenges in the region include:

• Institutional capacity is yet to be developed.
• Roles and functions overlap at different levels of the local governments.
• Fiscal transfer systems from central government to local governments are not clearly defined.
• Accountability and authority have not been clarified.
• Human and financial resources are not sufficient.

The World Bank supports the governments through:

• Policy support including analytical studies on key issues, policy dialogue, and workshops and seminars.
• Lending projects aiming to improve key services (education, health, water supply, and infrastructure) through decentralization, strengthen local governments’ capacity, promote institutional reform, and empower communities.