Have Economic Reforms Trumped Democratic Decentralisation?

Since the early 1990s, India has embarked on constitutionally mandated reforms to institutionalise democratic structures of local governance. The 73rd and 74th constitutional amendments impelled central and state governments to create a third tier of government comprising panchayats and municipalities endowing them with relevant powers. Many hailed it as a profound stride towards realising the Gandhian dream of gram swaraj. After more than two decades of devolution, there is considerable agreement now that the project of democratic decentralisation may not have gone the distance in accomplishing the visualised goals (GoI 2013). 

 

A major discontent is about the failure of local bodies to emerge as empowered institutions of self-government to pursue grassroots planning and development as envisioned under Article 243G. More so despite all the states having complied with the obligatory provisions like conducting regular elections for local governments and providing reservations to disadvantaged sections. Reluctance on the part of state governments to devolve much-needed powers is seen as a major hurdle towards empowering the local governments. Given their clear onus, why are the states unwilling to devolve powers to local governments? Assessments in this regard highlight a lack of political will within the ruling elite at the subnational level as a prominent cause hindering the devolution (IRMA 2008; Singh 2007). There have been instances of state governments even reversing some of the proactive steps taken towards decentralisation. It is an irony that the states at large which demand greater devolution from the centre remain apathetic when it comes to substate-level devolution. 

 

Any attempt to answer the above impasse can afford to ignore the influence of the larger political economy that has unfolded since the 1990s in the wake of the ominous economic reforms adopted with the attendant processes of liberalisation, privatisation, and globalisation (LPG). There are compelling conceptual and policy driven reasons to explore the linkages between economic reforms and democratic devolution. Embarked almost simultaneously, both the strategies of decentralisation have recorded chequered progress. The ruling elite, both at the centre and state governments, notwithstanding political affiliations, have wholeheartedly supported economic reforms as a means to reverse the tenets of the dirigisme so as to integrate the economy with the global capitalist system. The votaries of reforms have found strong grounds to argue that the reforms were a necessity owing to the prevailing macro­economic crisis and that they enabled the economy to overcome the crisis while achieving unprecedented rates of growth (Bhagwati and Panagariya 2013; Ahluwalia 2013). On the contrary, many have contested that reforms imposed from outside have not only failed to address the basic challenges of poverty and inequality, but have emerged paradoxically as a threat to democracy including for local governance decentralisation (Choudhary 2007; EPW 2018). 

 

The paper is an attempt to examine specifically whether the goals of democratic decentralisation have been hampered by economic reforms and if so, in what ways. The analysis has been attempted with reference to Gujarat in western India depicting a stark contradiction between the outcomes of economic reforms and democratic decentralisation. Gujarat is hailed apparently as a state having its own unique “model of development” accomplished through vigorous economic reforms (Hirway 2014). As regards democratic decentralisation although Gujarat had made some remarkable progress before 1993, it is currently seen as a laggard having failed to devolve powers to local governments to the expected level (Alok 2014). 

 

 

It is well-documented that decentralisation emerged as a common political and economic strategy of governance reforms for reversing the downside of centralisation across regimes (Manor 1999). However, the overall process of what drives decentralisation is seen as complex even though decisions are largely political in nature. Two issues relevant to the success of decentralisation are the motives it involves and the existence of pre-conditions. Both genuine and partisan motives have been identified as driving decentralisation (Manor 1999). Genuine motives could include goals like deepening democracy and enlarging citizens’ opportunities for participation. In the latter case, it may become a mere substitute for centralisation preempting any local dissensions. In the Indian case, though the stated reason for democratic decentralisation was enabling the local bodies to emerge as responsive institutions, certain partisan motives were also attributed as the then ruling party with its strength eroded was trying to consolidate its base. 

 

As regards pre-existing conditions, it is argued that effective decentralisation is a theoretical implausibility under conditions of rampant inequalities (Gurukkal 2006). Social and economic inequalities may preclude the weak from fully participating in decision-making, and the outcomes could be more acute exclusion defeating the basic purpose of decentralisation. Irrespective of preconditions, the success could also be influenced by the degree of devolution either given the ideological moorings of the ruling establishment or the incentives that may confront the governments and bureaucracy to decentralise. Generally, the devolution of adequate powers along with measures for accountability has been crucial to the success of decentralisation. While ideology may impel governments to adopt substantive or big-bang devolution, sustaining it could require suitable incentives (Ragunanadan 2012). 

 

Recent theoretical arguments on decentralisation are more about incentivising different players to respond favourably to its needs (Oommen 2005). Incentives could be both political and economic. Politically speaking, decentralisation may be used by ruling parties, especially at the state level, to consolidate their base through grassroots politics while enhancing governance credibility by improved delivery of services. Various pressures including demand for decentralisation could influence states to consider diverse options for devolution (Rao 2012).

 

Designing suitable financial incentives for governments to devolve could be another alternative. Explicit financial incentives by way of tied or untied transfers have been proposed to make lower governments respond to the needs of effective devolution (GoI 2009). Yet, the results of such incentives could vary as the outcomes may depend on the degree of incentives at stake. Incentives based largely on economic rationale could turn out to be narrow having mere instrumental consequences. State governments are more likely to attach greater importance to political and not financial incentives depending on their ideological position (Rao 2012). 

 

In terms of political influence, economic reforms could potentially turn out to be a major factor swaying the way states could perceive the benefits of decentralisation. For liberals, apparently, there is no dichotomy between democratic decentralisation and economic reforms as both can go together with their proclaimed common goals (Ragunanadan 2012). Decision-making in both cases is supposed to be more decentralised involving dispersed units having interface with market and civil society for synergetic outcomes. Even local governments could integrate economic reforms in their own domains by enabling efficient delivery of public services to become part of valuable markets. 

 

Skeptics and radicals offer counter arguments suggesting that economic reforms are bound to create hazards for local governments. Many visualise reforms and democratic decentralisation working at cross purposes as the theoretical and developmental paradigms underpinning the two are fundamentally contradictory (Jayal 2007). Democratic decentralisation, while is based on a distributive justice paradigm, economic reforms which even come as a part of the project to expand global capitalism, are based on accumulation paradigm being essentially centralising in nature (Figure 1).

 

 

The outcomes of economic reforms would be growth of monopoly and oligopolistic tendencies accentuating the concentration of resources and inequalities. Primitive accumulation, joblessness, and neglect of social sectors due to contraction of the state’s role are ways in which reforms deepen inequalities excluding the poor and weaker sections from governance and development (Patnaik 2014). 

 

The neo-liberal moorings compel reforms to rely excessively on markets and finance capital while leaning towards centralisation (Chandrasekhar and Ghosh 2009). With global finance capital assuming prominence, the economic decisions of a nation are more likely to be taken at supra-national level weakening the position of the nation-state. Full-blown reforms pit the state against the market, wherein the state’s role may be undermined severely. The state is then compelled to pander to the owners of global capital through various policy concessions to keep them invested (Patnaik 2014). A major consequence of such a development is the de-politicisation of decision-making as people are left with no major choices because of homogenised economic policies across the political spectrum. There could be a shift of class balance in society with neo- liberalism marginalising petty producers, peasants, and labourers. Though local governments and civil society may try and assert themselves (Alvares 1996), the state could suppress dissensions betraying its allegiance to the capital. 

 

Reforms also introduce new principles of governance that could compromise the autonomy of local governments. Maintenance of sound fiscal balance becomes a trait of public finance under reforms curtailing the resources of governments at various levels. The fallout of such a framework is a major expenditure compression with social sectors feeling the pinch (Gupta and Muzumdar 2018). The market-based approach of reforms usher in new mechanisms like self-help groups or user-groups based on individual rationality for management of resources and services with the potential to turn citizens into consumers. Parallel bodies favouring such principles are likely to be preferred over local governments (Reddy 2007).

 

Scholars differ regarding how democratic decentralisation may be sustained in the event of economic reforms turning inimical. For liberals, local governments can sustain themselves by trying to complement the reform process using their own strengths of inclusive governance. (Ragunanadan 2012). Those with radical/populist views spotting an inherent contradiction advocate an alternative approach that is countervailing (Chandrasekhar and Ghosh 2009). The need is about democratising power structures at all levels—local to global—to reverse the predatory nature of reforms. Economic democracy may need balancing based on political democracy. 

 

 

Before we look at the interplay of reforms and devolution, an attempt is made in this section to understand the political-economy that has emerged in the state of Gujarat. Gujarat in its present form took shape in 1960 pursuant to the linguistic reorganisation of Indian states. With nearly 43% of its population in towns and cities, Gujarat figures among the highly urbanised states of India (Table 1). The sex ratio at 919 is much lower than the all-India ratio (942) indicating an adverse gender balance. Socially, the state presents a mix of diverse groups and communities with the Hindu population accounting for 89.1% in the total (GoG 2014). The weaker sections comprising Scheduled Castes (SCs) and Scheduled Tribes (STs) formed 21.5% of the population and Other Backward Castes (OBCs) about 52%. Despite this mix, the state showcases the socio-economic domination of forward castes with widespread discrimination prevailing against the weaker sections and minorities (Shah 2014).