Globalization and Decentralization: Emerging Issues from the Indian Experience
| Date | 01 September 2001 |
| Published date | 01 September 2001 |
| Author | H. Ramachandran,V.K. Agnihotri,B.B. Tandon |
| DOI | 10.1177/0020852301673007 |
| Subject Matter | Articles |
Globalization and decentralization: emerging issues
from the Indian experience
B.B. Tandon, V.K. Agnihotri and H. Ramachandran
Introduction
The structural reforms in India, which started at the beginning of the 1990s, are
manifested in two major national policy initiatives — the first deals with eco-
nomic restructuring and the second concerns decentralization of political power,
through the 73rd and the 74th amendments to the Constitution of India. These two
policy arenas are not independent of each other but are intensely interdependent,
although there is no evidence to show that the interdependence was recognized
before the changes were ushered in. As a result, more often the issues relating to
governance arising out of macro economic policies are perceived to be different
from those arising out of decentralization. It is necessary in this context to trace
the roots of the two policy initiatives, the former brought about by the com-
pulsions of the balance of payments and the latter by increasing inefficiency and
costs of delivery systems of development programmes. This basic difference in
the factors that led to the two reform processes of globalization and decentraliza-
tion resulted in an artificial distinction between issues relating to national
governance and those of local governance.
Technocrats and politicians shaped the former, largely concerned with macro
economic policies; the administrators had a limited role to perform. The decen-
tralization process envisaged greater decision-making powers to be vested with
the elected bodies at local levels. While reforms, both in the economic and the
political systems, are not merely token but unprecedented in scale, the corre-
sponding reforms in administration have not kept pace with the former. Since the
former processes are now irreversible, the latter must be scaled up to match them.
In this background, this article attempts to describe briefly: (1) the contents of
the economic reforms and issues arising out of them that impact on decentraliza-
tion and administration; (2) the basic features of decentralization and its impact
B.B. Tandon is Election Commissioner, Government of India, New Delhi. V.K. Agnihotri
is Additional Secretary to the Government of India, Department of Administrative
Reforms and Public Grievances, New Delhi. H. Ramachandran is Director, Institute of
Applied Manpower Research, New Delhi. CDU: 382(54)
International Review of Administrative Sciences [0020–8523(200109)67:3]
Copyright © 2001 IIAS. SAGE Publications (London, Thousand Oaks, CA and New
Delhi), Vol.67 (2001), 505–523; 019228
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on administration; and (3) the basic approach to administrative reforms that
are on the anvil. The larger blueprint for change, both in administration and
decentralization, is yet to be developed; meanwhile a number of reactive changes
are being brought about. Therefore, the approach in this article is to capture the
process of ongoing changes in the arena of decentralization and administration
through illustrative examples. These, after all, are the felt needs and the building
blocks of the evolving framework.
Globalization process in India — the backdrop
The 1980s was the decade of growth for the Indian economy — the only decade
in the century when annual growth rate exceeded 5 percent — with a clear break
from past trends. This was a result of positive changes in both the
productive sectors of agriculture and industry. But this decade for India was also
the decade of debt. In the 1980s, the government had a consistent deficit in its
revenue (current) account. Government expenditure grew in an unsustainable
manner and by the end of the decade, the interest burden on borrowing grew from
Rs 5000 million in 1981 to over Rs 160,000 million in 1991 (Vyasulu, 1996).
Added to this was the impact of the Gulf War. By the end of the 1990s the con-
tours of the economic crisis had been established. The problem manifested itself
through the Balance of Payment crisis, when the Government of India found that
available reserves were barely enough to pay for two weeks worth of imports and
that credit was no longer forthcoming from either banks or private investors.
The analysis of the crisis by the newly elected government in June 1991 was
that, as a result of several factors both from recent times and the past, the econ-
omy had been rendered inefficient, resulting in the improper use of resources.
The government therefore, focused on the following aspects:
• Enhancing efficiency and growth in the economy (instead of growth with
social justice as in the past);1
• reducing the role of the government in the economy2and placing greater
reliance on market forces; and
• integrating the Indian economy into the world economy to bring in com-
petitive pressures that would force Indian firms to modernize and upgrade their
technologies.
Key reforms in the industrial sector focused on dismantling the edifice of
regulation, licensing and control. Industrial policy has been an area where
reforms began early and have been taken the farthest. Restrictions on the entry of
foreign capital and technology have been more or less removed. A related reform
has been in the field of tax policy. Both a reduction in tax rates and a simplifica-
tion of procedures have been introduced. Over time, the ratio of taxes to GDP is
expected to increase, as well as the ratio of direct taxes in total tax revenue.
The proposals for tax reforms raise several issues, which have constitutional implica-
tions. There are only two central taxes that are divisible with the states, thus constrain-
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