Editorials -Economy Watch – Can India Grow ?-Unleashing the million dreams in to billion dollars through decentalization !!!

In this excerpt from ‘Can India Grow?’, authors V. Anantha Nageswaran and Gulzar Natarajan drive home the point that decentralisation is imperative to both the execution and formulation of public policy in India

India’s continental size, large population, and vast diversity, coupled with its inherently complex nature, mean few universal strategies exist for addressing public policy challenges. Context matters, and policy and implementation designs have to be tailored accordingly.

Multiple pilots or multiple policy experiments should be conducted simultaneously, greater decision making discretion during implementation is likely necessary, and one-size-fits-all approaches should be avoided.

No single answer will emerge that can be applied everywhere in India—far from it. Instead, a plurality of solutions should be anticipated, encouraged, and even demanded. The bureaucracy, because it must enforce uniformity, might find a plurality of policies and approaches difficult to accept. Officials first need to become aware of this gap between their conditioning and what the situational reality demands. That is the first step toward accepting and then mastering the situation.

Lacking precedents, role models, or templates from others’ experience, India’s policymakers and politicians should have the courage to craft policies based solely on what, in their best judgment, is likely to work in the Indian context or contexts, rather than on whether the policies comply with prevailing wisdom or Western practices. Having the courage to buck trends, fashions, and fads in the best interests of India is vital.

India needs to encourage new models of development across sectors in small pilot programs. Central government departments and states should be encouraged to innovate with policy design and implementation, using technology and external expertise, through public-private partnerships, collaborations with nonprofits, and so on.

Innovation is critical because the public systems are acutely enfeebled: in many cases, the prevailing service delivery models and systems are irreparably damaged, and Indian policymakers may need to junk them completely and embrace new models of engagement.

In every field, the government of India should make available, in an accessible manner, various models of intervention and all actionable templates and supporting documents that states can readily adopt and implement without further tweaking.

In a large sample of districts, at least a few would embrace any initiative, and at least one or two would effectively implement the intervention over a five-year period. These districts could in turn become potential champions of the intervention and models for emulation by others, and so spearhead the gradual nationwide rollout of the intervention.

Several such positive deviances across a wide spectrum of interventions, coming together over a period of time, stand the best chance of achieving nationwide implementation of innovative public service delivery interventions. In more politically complex reform areas, such as banking, this form of experimentation has the potential to generate an inexorable tide in favor of reforms.

Here the evolution of China’s economic growth, as chronicled by Ronald Coase and Ning Wang, is instructive.

The authors examined Chinese growth since the late 1970s and challenge the conventional wisdom that it was driven by an omnipotent Communist Party through tight central planning and the benign leadership of a group led by Deng Xiaoping.

They point instead to a decentralized and flexible model of growth that allowed experimentation with several ideas, a “million marginal revolutions.” All the major initiatives now lauded as great successes—including the decollectivization of agriculture, the establishment of special economic zones, town and village enterprises, and financial market deregulation—emerged as bright spots from among the numerous variants of each that were experimented with across the country.

Most of these experimental versions failed, but because they were not yoked to high-profile central programs there was space for the experimentation and risk-taking so essential for refining the implementation design of large-scale policy interventions. Deng famously exhorted his constituents to “try bold experiments, blaze new trails.”

Such decentralization will inevitably cause disequilibrium and disruption for some time. But it stands a far better chance of producing new, sustainable public service delivery models than the current top-down norms- and components-based strategies.

Practice cooperative and competitive federalism

Philosophically, the empowerment of states and local governments is the linchpin of India’s future growth strategy.

If India is to scale up its fragmented agricultural and industrial production, states should not only embrace policy changes made by the federal government, but they should also actively propose their own. Issues pertaining to land, labor, and education are the concurrent responsibility of the central government and the states.

However, the failure or reluctance of states to adopt proposals promulgated by the central government is a major obstacle in a competitive democratic framework. Therefore, it will be better if states are encouraged to initiate changes of their own, with the central government stepping out of the way.

The central government should pursue the twin strategies of both cooperative and competitive federalism. It needs cooperative federalism to obtain support from the states for the land acquisition bill, labor codes, and similar bills that make up a large part of its parliamentary legislative agenda.

It would also need their support for the effective implementation of the federal government’s various flagship programs. But this would have to be complemented by triggering healthy competition among states in the achievement of various program objectives.

The federal government will have to mobilize support among states for reforms and program implementation through continuous formal and informal engagement with chief ministers. It must consciously debunk the entrenched notion of the federal government as the sole authority for formulating plans and providing funds.

Frequent informal meetings with the chief ministers, preferably at the regional level, and visits to states other than for ceremonial purposes (such as ribbon cutting or inaugurals) would help.

The National Institution for Transforming India (NITI Aayog), a government-established think tank, should be entrusted with the responsibility of creating a framework for fostering competition among states.

Included should be standard mechanisms, such as comparative ratings, third-party assessments, and even financial incentives. The success of the World Bank’s Ease of Doing Business rankings in fostering competition among states should be emulated to develop similar indices for agriculture, education, healthcare, and law and order. An annual festival of the states culminating in awards for best performance on these indices and a few national programs can be a powerful means to encourage competitive federalism.

The multiple-round Challenge competition to select cities under the Smart City Project is a good example of cooperative and competitive federalism at work. The project cost is shared between the central government and the states.

Instead of being prescriptive, the central government allowed cities to identify and prepare reports on their preferred set of technology and other interventions. The cities then competed among themselves for funding based on the strength of their respective proposals.

Finally, the Ministry of Urban Development provided support with model bidding and contracting documents, technical specifications, and so on. This could form a template for sectoral and program engagement between the central government and the states.

But devolution, too, must go deeper. Substantial devolution of authority, responsibility, and resources to the states, and then from the states to corporations, to municipalities, to gram panchayats (village government), and to municipal and panchayat wards, is urgently needed.

Some or most of these lower administrative units may fail. They may be too overwhelmed by the sudden change in their situation to cope. They have to be open to accepting new ideas, getting new people in, and assigning new powers and responsibilities. Some may buckle under the pressure. The Peter Principle is powerful. But some will succeed, and over time, others may start to emulate them.

To sum up, federalism must be an important part of India’s sustainable growth strategy. The central government has to make it its top priority. A top-down strategy is ill-suited to addressing India’s reduced and fragmented production sector.

Step back from the ring: manage both strategic priorities and hygiene factors

Reflecting the grip of short-termism, it is often said that decision-making at listed firms occurs on a quarterly basis. Similarly, governments are captive to the demands of electoral cycles.

In countries like India, with separate state and local government elections, electoral cycles can be extremely short. This, coupled with the intense media scrutiny, means that public policy decisions are dictated by the immediate and the quantifiable, often at the cost of the important and the structural.

For example, while building schools and bathrooms and recruiting teachers are important activities, they count for nothing unless the learning outcomes are adequate. Similarly, getting healthcare outcomes right requires going beyond making primary care centers function better or unveiling universal health insurance plans to produce more fundamental reforms of the medical education and health regulatory systems.

Building public housing for the poor is important, but affordable housing depends on the presence of critical market enablers, such as a mortgage market and making low-income housing attractive to developers.

Coal-block auctions are not the same as creating a liquid and broad-based market for coal. Labor market reforms are not just about changes to a few labor regulations but should also address the deeper causes of the predominance of the informal sector.

In all these cases, the immediate and the quantifiable, in addition to being important policy ingredients, are essential for the political economy.

Popular narratives on each of these issues are woven around the immediate and quantifiable. Governments doubtlessly need to do the immediate and the quantifiable more effectively.

But the important and the structural, which involve strategic choices, lay the foundation for more sustainable growth. The latter are as diffuse and transactional as the former are focused and logistical or decisional.

Furthermore, even as the former are the business of individual sectoral departments, the latter require very close interdepartmental coordination. They also entail making difficult trade-offs, taking on strong and entrenched interests, and embracing a long and tough slog—all of which require mobilizing broad-based coalitions.

The central government should view the former as hygiene factors, to be rigorously monitored for their effective implementation. This would placate the opinion makers and political constituency, besides ensuring achievement of program outcomes. Even though the near double-digit growth would not materialize, the government would most likely win another term in office. But what would elevate the government’s legacy to a different level would be its commitment and ability to plan and execute the strategic reforms.

While the immediate and quantifiable can be a large laundry list, the list of strategic reforms would have to be more carefully thought out.

The ministries may be empowered and motivated sufficiently to lend leadership to the effective implementation of their programs. But the success of the important and the structural would require political leadership at the highest level. In fact, given the nature of these reforms, tackling them would require considerable political capital and systemic bandwidth.