State Size, State Capacity and Decentralisation

Mandakini Devasher Surie

The current political deadlock over the creation of Telangana and subsequent demands for new states has raised interesting questions about the relationship between state size and good governance. The big question is does size matter? Are smaller states better and more easily governed? In a recent article, Mani Shankar Aiyar, Former Minister for Panchayati Raj, argues that the question of whether small or big states are better governed is largely irrelevant and that “...both large and small states will continue to be badly governed until there is effective devolution of funds, functions and functionaries to local authorities” through decentralisation. In another article, Pratap Bhanu Mehta argues that “the success of a state depends on state capacity rather than state size” and that “state building” rather than state creation is of key importance. I think that these arguments are interlinked and need to be looked at more closely.

The issue of state capacity is crucial when we talk about the ability of states to govern effectively. State capacity is in part linked to how well states decentralise or devolve powers to lower levels of government. The 73rd and 74th Constitutional Amendments have made provisions for the decentralisation of administrative and fiscal powers to rural and urban local bodies. In basic terms, decentralisation involves the assignment of responsibilities (functions) at each level of government, backed by sufficient resources (funds) and staff (functionaries) needed to carry out the duties assigned. The 3F’s are basically the backbone of any decentralised form of government and if implemented well can pave the way towards better service delivery and greater accountability in government.

In theory, these reforms ensure that governments at each level have the requisite resources to carry out the duties assigned to them. But in practice, decentralisation reforms have progressed slowly resulting in a gradual undermining of the state’s ability to govern effectively. A quick glance at the Devolution Index 2008-09 shows that decentralisation to rural local bodies or Panchayati Raj Institutions (PRIs) has generally been uneven and incomplete across most States (see Figure 1)

Source: NCAER, 2009

When it comes to the 3Fs the Index reveals that:

• Functions: Most states have not devolved all the 29 listed functions to PRIs. On average states have only devolved 21.3 out of the 29 functions. The activity mapping of functions has also been poor. Activity mapping involves breaking up activities into smaller units and assigning them to specific tiers within government. On average, States have carried out activity mapping for only 17.6 out of 29 functions

• Funds: Finances have not followed the assignment of functions. PRIs lack the capacity to raise or collect internal revenues and taxes such that they are largely dependent on grants-in-aid from central and state governments;

• Functionaries: PRIs lack adequate infrastructure and staff to carry out their duties. As PRIs are unable to hire or fire their own staff, they are reliant on state governments to provide them with functionaries. Inadequate and skeletal staff at local levels is a major hindrance to effective decentralisation.

Without the clear assignment of functions, sufficient funds and staff, PRIs have poorly defined and unfunded mandates. So even as we debate the creation of new states, existing states are still struggling to provide the right kind of capacity support and infrastructure to their local bodies. The whole objective of devolving power to Panchayati Raj Institutions was to activate and create a host of empowered local governing bodies that would determine local development objectives. Sadly, this is not happening as fast or as well as it should. A state is only as effective as its smallest administrative unit. Without effective decentralisation, the capacity of a state (however, big or small) is limited. Yet, we are in a situation today, where in most states, even the smallest units of government lack the basic capacity to implement let alone govern.

In the coming years, as the quantum of government expenditure on centrally sponsored schemes increases with programmes such as the National Rural Employment Guarantee Scheme, Sarva Shiksha Abhiyan and National Rural Health Mission, the pressure on states and local bodies to deliver will continue to increase. New states will face even greater challenges as they get their houses in order. States, old or new, need to get much faster and better at decentralising powers to local bodies. While the debate about small versus big states promises to rage on, I think we can all agree that size will make no difference in the absence of the fundamental instruments of decentralised governance and the basic institutional and human capacity to use these instruments effectively.

For more on the state of decentralisation in India today check out the Accountability Initiative’s Panchayat Briefs series. The first brief in this series examines the ability of decentralisation to promote inclusive governance. The second brief takes a broad look at the state of decentralisation in India.

Mandakini Devasher Surie is a Research Associate with the Accountability Initiative.