Many people wonder what Niti Aayog, the successor to the Planning Commission, will do. It will serve as a think tank, making policy proposals. But history shows that policy proposals not backed by cash are typically ignored. Nobody would listen to the World Bank or IMF but for the fact that their advice goes with cash.
Niti Aayog should aim to create competition between the states, forcing the laggards to learn from the frontrunners. Cooperative federalism is the buzzword of the government, and the 14th Finance Commission has decreed a huge additional devolution of central tax revenue to the states. They will now have much larger untied resources to use as they please.
Till now they were bound by rigid rules of centrally sponsored schemes. Those schemes have mostly been abolished. So, the states are now free to experiment with new ideas. Competition between them could create a virtuous cycle that quickly expands the most promising new approaches.
But this will not happen in a vacuum. Niti Aayog should devise an annual inter-state competition in different fields, with the winners getting big cash grants. Medals alone won’t suffice: cash will make the competition truly serious. Niti Aayog should create the equivalent of a social and economic Olympic Games in which states vie with one another in fields ranging from GDP growth and improved school and health outcomes to agricultural yields and job creation.
The prizes cannot be only for the best performers; that will give a huge advantage to the advanced states. There must be prizes for states that register the greatest improvement. This will incentivize even the most backward states to do better. Above all, the competition results can become prime campaigning points in state elections, making them truly important.
We have already seen Bihar growing at 11% per year for several years under Nitish Kumar, and Madhya Pradesh has done something similar under Shivraj Chouhan. Madhya Pradesh used to be an agriculturally backward state but in recent years has registered agricultural growth of almost 20% per year. Bihar, MP and others of that ilk remain extremely backward going by most social indicators, but have proved that even the poorest and most backward can make giant leaps forward. This trend needs the utmost encouragement, and a formal competition between states is a good way of promoting it.
I have long argued that India is run by chief ministers much more than by prime ministers. Prime ministers deal with important issues like defence, international trade, currency, railways and national highways, but none of these brings them in direct contact with the aam aadmi. Ninety percent of Indians have never seen a central government official — the only government they know is the state government. For the villager, government means the collector, the patwari, the thana police, the irrigation and electricity officials, and other state officials.
In the old days, New Delhi had most of the tax money, and the states were supplicants for central cash. That era is finally over and we have entered a new era of cooperative federalism. Power has been transferred as never before from the PM to the CMs.
I am not entirely happy. True decentralization should have meant a much greater devolution of money to local governments, not just state governments. Local governments often lack the capacity to use funds productively, but that is true of many backward state governments too. Training and capacity development for state and local officials must be an important part of New Delhi’s future development strategy. Skill development is required not just for school-leavers but for local and state governments too.
State governments are hardly paragons of good governance. Some have been at the very forefront of economic development, with Punjab-Haryana showing the way in agriculture and most western and southern states leading in industrialization. But the central and eastern states have historically been slow growers with terrible social indicators and gross misgovernance. High corruption is evident even in the fastest growing states. Enormous development funds are wasted or stolen.
So, will decentralization mean even more waste and theft? Almost half the additional devolution of funds will go to badly administered states — Uttar Pradesh (15%), the north-eastern states (11%), Bihar (7%), and West Bengal (7%). Will such decentralization really improve outcomes?
This remains an open question. But competition can change political incentives and outcomes. If Niti Aayog is able to set the rules for an annual competition in development in different areas, the winners will be able to boast about their performance and the losers will have some explaining to do to their constituents. This can only improve accountability. It is not a panacea, but could greatly expand the gains from decentralization.