HTLS 2020: India’s new era will be defined by the idea of decentralization – htls
The word was should not be used arrogantly. It represents an epoch, an age. A “new era” is more significant than the mere passage from one period to another. We are on the threshold of what could have been the roaring twenties of the 21st century. Unfortunately, due to the pandemic, it seems more like the 1920s and the new era is similar to AC (after Covid-19), in contrast to BC (before Covid-19). Human inclinations are often tinged with myopia, overreacting in the short term. But this too will pass, with a caveat.
The only comparable case of a global pandemic of this type was the Spanish flu. Its four waves apparently faded in 1920, lasting just over two years. With the outlook for vaccines improving, by the end of 2022, the worst of Covid-19 should be behind us. Further research on the Spanish flu, limited by lack of data and overshadowed by World War I, shows that it left behind several forms of legacy: (a) a shift in the global balance of power; (b) growth in some sectors at the expense of others; and (c) adverse health and education outcomes that last beyond 1920. All three are also relevant for Covid-19.
When a different “new era” was ushered in, Pax Britannica gave in to Pax Americana. The Pax Americana has been shrinking since the end of the Cold War, long before the pandemic and the recent presidential elections in the United States. Once the uncertainty around Covid-19 subsides, the greater economic and political influence of China, Brazil, India, Turkey and Indonesia will have to be taken into account, not forgetting Russia. So it is also about the restructuring of institutions and global governance, IBRD, IMF, UN and WTO, despite the threat looming over the latter due to protectionism and regionalism.
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In India, too, there have been exaggerated reactions to Covid-19 and confinement, tinged with myopia. The underlying reasons for optimism about India’s growth potential have not gone away. A $ 5 trillion target for 2024-25 is obviously unattainable, but all that has happened is that the timeline has been delayed a few years. At worst, those who spoke of 7.5% real growth by 2025 will settle for 6.5% and roll back that 7.5% target. Many factor market reforms (land, labor) and agricultural liberalization have been announced, pending for decades. These lead to efficiency gains and productivity gains and generate endogenous sources of growth, regardless of the performance of the world economy. Measured in US dollars, per capita income is around 2,100 now. I don’t know of anyone who has redone the post-Covid-19 forecasts, for a year like 2030. Before Covid-19, for 2030, a reasonable projection would have been $ 5,000, graduating from low-middle income to middle high. -income economy.
No matter how pessimistic one is, we will move to upper middle income, but closer to $ 4,000 and not $ 5,000. Such is the exponential power of growth that we often fail to appreciate its impact. The socio-economic fabric of India will be greatly transformed, with increased urbanization, reduced poverty and better human development outcomes and many unexpected changes, some driven by technology. If we turn our minds to 2010, how much of what has happened for 2020 was predictable? It is no different in 2020, looking ahead to 2030.
Beyond the growth figures and the obvious economic indicators, I believe that the new decade in India will be defined by the discourse and debate on governance. The handling of Covid-19 has also highlighted differences in governance capacity between states, cities, and districts. Governance extends beyond governance and involves citizens and civil society. Citizens and civil society will become more aware and exercise their rights, demanding better action from the government, but hopefully they will also become more aware of their responsibilities. Too often, the government has been interpreted as the executive, and the legislature and judiciary are rarely questioned. That will probably change, as it should. In the executive, the new decade will probably involve a recasting of the relations between the Union and the State, as enshrined in the Constitution, as a consequence of the Laws of the Government of India of 1935 and 1919.
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Despite the doctrine of basic structure, a Constitution is dynamic and reflects the will of the people. (1) What should the government spend on? (There are compensations. If we have to spend more on health, do we spend less on something else?) (2) What level of government should spend it? (Let’s not forget the third level.) (3) How will the resources be raised? What should be the nature of direct and indirect taxes? (4) How will the taxable pool be transferred? (Let’s not forget the third level again). (5) What regulatory structure is appropriate for areas abdicated by the government?
Some of these issues (mainly indirect tax) have been raised by the GST Council, the 14th Finance Commission and perhaps the 15th Finance Commission (the report is not in the public domain). But the debate over spending and the right layer for the provision of public goods and the consequent spending has yet to take place. Let’s think about it this way. India has 740 districts and most public goods are provided at the district and municipal level. They need resources and this brings in state finance commissions (not just the Union Finance Commission).
While there will always be states and UTs as administrative entities, governing an India graduating to upper-middle income status and beyond means ensuring governance across 740 districts, not states. In other words, the new era of India will be defined by decentralization, a notion beyond tax devolution, moving away from the excessive centralization of the Government of India laws of 1919/1935. In the past, there was a fear that Bharat, which is India, would remain a cohesive Union if there was too much decentralization. India’s resilience and continuity should inspire us with confidence that this is how we should define the new decade.
Bibek Debroy is Chairman of the Prime Minister’s Economic Advisory Council and a member of Niti Aayog