It is now common knowledge that India is in the grip of a severe fiscal crisis. The combined fiscal deficit of the union and state governments is of the order of about ten per cent of the gross domestic product. As borrowings are diverted to meet the revenue deficits, and as interest burden on the exchequer keeps increasing, the crisis is deepening. While the economic dimensions of the crisis are well understood, it is often not recognised that this is largely a governance crisis.

Fiscal deficits can only be addressed by significant increase in revenues or reduction in costs. Revenues can be raised painlessly only by very high, sustained growth rates. As our infrastructure is weak and inadequate, and as the productive potential of the bulk of the population is shackled on account of low levels of literacy and poor health care, there cannot be rapid growth on sustained basis. To overcome these obstacles we need both resources and governance reform to effectively implement policies.

The more painful way of increasing revenues is higher taxation. As much of the tax revenue and public expenditure do not result in realisable public goods and services, citizens resist and evade high taxation. With rampant corruption in a centralised governance structure, there cannot be tax compliance in high-tax regime, nor is high taxation politically feasible in a liberal democracy without tangible improvement in public services and community assets. Another way of raising resources is privatising public undertakings, but our record and the difficulties encountered indicate that it is unlikely that significant revenues can be raised from public sector sales.

There are two ways of reducing public expenditure – reduction of wage bill and elimination of subsidies. Savings through wage reduction or retrenchment of employees are very hard to accomplish. In a centralised governance structure, no government has the power or will to antagonise the vast army of employees. In any case, the problems with public employment are not the excessive number of workers and high wages, but the wrong deployment and lack of accountability. We have too many support staff and too few teachers and health workers, and where public employment is in the right sectors, there is hardly any effective delivery of services.

Subsidies cannot be eliminated unless the beneficiaries are satisfied that the money so saved is improving the quality of their lives in some other manner. In centralised structures where such a link is not visible, desubsidisation is difficult. All these factors make our fiscal crisis a highly intractable problem in our centralised governance model.

This fiscal crisis can be addressed only through effective and far-reaching decentralisation of power and citizen-centred governance. People would elect better representatives and attach value to the vote in a mature and responsible way when their vote is directly and locally linked to public good. We accept tax burden voluntarily only when we see the link between the taxes we pay and the public services we receive locally. Finally, the vast army of employees can be redeployed from areas where they are redundant to sectors where they are needed only in local governance. Once employees are available in the needed sectors and institutions, they perform satisfactorily only when they are accountable to the local people, and when authority and accountability are together.

Citizen empowerment and subsidiarity
All this clearly establishes the need for effective local representation and empowered local governments. We should recognise that all politics is ultimately local, and the citizen is the centre of our political universe. In our democracy the spirit of the Constitution envisages that true sovereignty vests in the citizens. Therefore, citizen-centred governance based on the principle of subsidiarity should be the norm. The fundamental failure of our representation and governance so far has been because of the high degree of centralisation delinking the citizen from governance. In a rational and democratic model of representative democracy, it should be recognised that the citizen and his family occupy centre-stage. Most decisions that affect the happiness and well being of individuals are taken by the citizens and their families. The state comes into the picture only when the citizens’ actions have a bearing on others’ lives, or when common goods and services need to be provided for economies of scale or to harmonise relations between individuals and groups.

The first focus of governance in such matters should be the local community of stakeholders who have a common interest in a service or institution. For instance, the parents of children who attend the same school, the farmers whose lands are irrigated by the same source, the consumers who obtain essential commodities from a ration shop, or the producers who sell their product in a market constitute such stakeholders’ groups. To the extent feasible, the responsibility for organising and managing these services should be entrusted to these and other stakeholders’ groups.

Many public goods and services do not have clearly defined stakeholders. The people at large would need such services from time-to-time. Therefore, such tasks should be entrusted to local governments. Such local governments should have adequate functions entrusted to them, and commensurate resources should be devolved on them. All the public servants dealing with those functions should be clearly and fully accountable to such local governments. The state government should be responsible for limited tasks which necessitate economies of scale, or coordination and sharing among several local governments, or involve complex technical or managerial issues. Finally, the union should be entrusted with those national tasks which cannot be fulfilled at state and local levels.

This principle of subsidiarity should inform all our representative and democratic institutions. Not only is it a democratic necessity, but it is also a fiscal and economic imperative. Good governance in a democratic society is not possible in centralised structures. Therefore, our representative democracy needs to be reorganised facilitating the growth and empowerment of local governments and stakeholders. The insipid uniformity and stultifying central control are inimical to democracy, economic prosperity, release of human potential, social justice and good governance. This restructuring demands giving mandatory status to the Eleventh and Twelfth Schedules of the Constitution on par with the Seventh Schedule. We should also evolve mechanisms for devolution of sufficient resources and effective control of employees at each level commensurate with their functions. (Concluded)