Start an Olympic-style competition for state governments

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.

4 thoughts on “Start an Olympic-style competition for state governments

  • 2015.Mar.25 at 09:42
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    I’m most disappointed with swaminomics blog since there is no article about budget.

    I have respect for the author as economist. And I still remember “Ideas for dream budget” and wanted to see how much author agrees/disagrees (and of course the reasons and details). And I’m still waiting. Will my wait will be over?

    Reply
  • 2015.Mar.16 at 09:12
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    Sir,

    The present government is already doing this. In one of the initial interviews of our FM[Mr. Jaitley]. He has already mentioned about this concept of competitiveness amongst states.
    I am not sure how much got implemented. But I believe the centre is already doing it.

    Thanks,
    Sham.

    Reply
  • 2015.Mar.12 at 16:55
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    I’m most disappointed with swaminomics as there is no article about budget. I still remember “Ideas for dream budget” and wanted to see an honest opinion from one of the best economics author. And I’m still waiting. Will my wait will be over?

    Reply
  • 2015.Mar.09 at 17:38
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    Well I was hoping for this article before the budget. But the FM is indeed moving in this direction. Also a very valid point about corruption, especially in states like UP, Bihar, WB etc The central govt. seems to be trying to overcome this with JAM initiative. How successful it will be we have to see.

    We should now focus on this aspect of our social funding. Panchayati raj connected central govt. with central administration. Thanks to technology its time to connect end user with the central govt.

    Reply

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