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R ef o r m i n g t h e G o v e r n a n ce L a nd sca p e: C ri t i c a l f o r R e g a i n i n g G r o w th

Author: Public and Social Policies Management, YES BANK LtdTushar Pandey- Senior President & Country Head

Shashwati Ghosh- Vice President / Swati Sharma- Associate

Fiscal federalism or fiscal decentralization is associated with the concept of transferring

more economic power to the next level of government. In Indian case, the next level is

the power of the states slowly trickling down to municipalities and districts. Arguments

for and against the concept, especially for a developing country like India is abundant,

but over the years economists have proven that for sustainable interest in any project,

people need to own it—and ownership can only come with the power of decision

making.

While fiscal federalism is being largely viewed as the way forward for economic growth

and inclusive development, the question doing round is the implantation capabilities of

these bodies. Effective public governance is critical to the success of any policy change.

With fiscal decentralization, governance will also become a deliverable for the

municipalities, district magistrates and the panchayats. It is imperative that these

governing nodes actually get trained in governance and understand the expectation

before the power is transferred, if we want to avoid any mayhem at the later stage,

While doubts exist, there is very little debate on the fact that efficacy of public sector

reforms and fiscal federalism triggering progress at the grassroots is the key to India’s

socio-economic development. Participatory governance and programs that develop the

communities’ potential to address inefficiency and exclusion is the only way forward for

fuelling pro-active governance and competitive institution building.

A reform in governance outlook through constitutional amendment is easily advocated

than implemented. It is undisputed that economic growth is essentially driven by private

sector investment, innovation, business establishments, entrepreneurship, and

increasing purchasing power but only under the umbrella of transparent laws, equitable

governance and sound policy structure under a responsible government.

In this paper, we have tried to discuss the current governance landscape of the country

and possibility of bringing in changes through the much discussed participatory

governance. Will it bring in more mayhem or will it teach people to become more

responsible?

Sound national policies and governance can induce confidence in the huge manpower

that drives the country leading to a multiplier effect of growth, which should see India

emerging as an international superpower in fields of economy, sports, trade and

intellectual capacity in near future.

Participatory budgeting is an effective tool for empowering citizens and bolstering the

pillars of good governance. It has the potential for improving efficiency, fostering

transparency and accountability in governance systems. The process would enable

citizens to make more informed choices and undertake public sector evaluation, combat

corruption and ensure performance accountability. However, the process must be

carefully designed to ensure that marginalized and excluded groups are provided the

opportunity to have their voices heard.

In the current scenario, despite of government mandate of formulating Area Sabhas,

wide spectrum of institutional obstacles and lack of awareness and support from local

leaders has stymied action at the grassroots. Policy discussion identifying and defining

role of other stakeholders, including private sector enterprises is important to establish

and ensure that development is citizen centric and contributes to inclusive development.

To prompt equitable growth, it is critical that the government creates conducive

environment and encourages private players to include underprivileged in their formal

value chains, thereby contributing to poverty reduction and sustainable livelihoods. The

paper delves into the possible economic policies that foster business friendly

environment and harness private sector expertise towards triggering measurable

outcomes in terms of sustained and inclusive economic growth.

In t rodu c t ion – D ee p e ning D e mo c r a c y

India is at the juncture of rapid economic development, with the potential to become the

third largest economy by 20281 (CEBR, 2013). Economic growth is contingent on good

governance and progressive economic policies. Fiscal federalism and participatory

governance are critical for ensuring inclusive development.

Failure to deliver services has been linked to poor governance and lack of transparency

and accountability, and low level of citizen participation. Participatory governance helps

in engaging with citizens to foster participatory budgeting, thereby enhancing social

accountability.

Private sector investment, business establishments and entrepreneurship, can propel

growth of the economy making it imperative to involve the segment in grassroots

discussions. Policies encouraging partnerships through transparent and sound

framework can ensure equitable government.

Key focus areas that would significantly improve with participatory governance:

Infrastructure: Urbanization is vital to India’s development. Infrastructure gap is

holding back India’s development agenda. World Economic Forum's Global

Competitiveness rankings place India 84 out of 148 nations analyzed on infrastructure2.

The report’s findings point to the fact that business community considers infrastructure

gap as the single biggest hindrance in doing business. Participatory budgeting and

fiscal decentralization would significantly improve the investor sentiment by ensuring

grassroot implementation of development projects.

Trust in Politicians: Poor trust in politicians places India 106th out of 144 countries

analyzed3. With a shift from coalition politics, the political environment is expected to

change and must inculcate principles of transparency and accountability to boost

1 World Economic League Table (WELT) report, 20132,3 Global Competitiveness Report 2012-13

confidence. Management of public finances is critical to ensuring trust in business

The Paper is presented by Public and Social Policies Management (PSPM) Group, YES BANK Ltd and represents the authors’ viewand not necessarily reflect the views of the organization that they proudly represent. Contact email: T u s ha r . p a nd e y @ y e s ban k. i n / s ha s h w a t i . g h o s h @ y e s ban k. i n Phone no: 011-66569020/ 9871598889

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environment.

Inclusive Development: Participatory governance and programs that develop the

communities’ potential to address inefficiency and exclusion, is the only way forward for

fuelling pro-active governance and competitive institution building.

Participatory budgeting is an effective tool for engaging and empowering wide spectrum

of people and bolstering the pillars of good governance. It has the potential for

improving efficiency, fostering transparency and accountability in governance systems.

The process would enable citizens to make more informed choices and undertake public sector evaluation, combat corruption and ensure performance accountability. However, the process must be carefully designed to ensure that

marginalized and excluded groups are provided the opportunity to have their voices

heard.

Key Challenges

1. Building demand

Top-down decision making process does not take into account local needs

raising questions about efficacy and effectiveness. The complete process from

policy formulation to implementation is essentially a political process, making it

imperative to bridge bottom-up initiatives and top-down governance.

Building citizen demand is essential to integrate accountability into public life.

Bottom up approach is an answer to prescriptive top-down process which

ensures people’s participation, development at the grassroots, better ownership

and sustainability.

In the current scenario, despite of government mandate of formulating Area

Sabhas, wide spectrum of institutional obstacles, lack of awareness and support

from local leaders has stymied action at the grassroots. Policy discussion


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identifying and defining role of other stakeholders, including private sector

enterprises is important to establish and ensure that development is citizen

centric and contributes to inclusive development.

2. Responsible Leadership

Effective political leadership to undertake initiatives aimed at fiscal

decentralization and implementation is the need of the hour. Participation and

local governance assessment can be politically sensitive as local authorities are

under intensive scrutiny. Government needs to focus on building partnership and

training to address resistance from local authorities as assessment can have a

significant bearing on public opinion and leadership.

An important initiative by the government was to institutionalize the 74th

Constitutional Amendment which aims at empowering local governance. Poor

implementation due inadequate devolution of power and poor financial status of

municipalities has undermined the very aim of empowering local governance in

India.

It is therefore important to reorient and establish participatory systems that are

compatible with systems of service delivery. Identifying existing gaps, designing

pilots and scaling up the effort through awareness and training would help local

institutions adopt participatory governance.

Once commitment and involvement of the local government is facilitated,

ensuring participation of citizens, civil society organizations (CSO), business and

marginalized groups in decision making is essential to steer the development

agenda.


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3. Capacity Building

The third tier of governance is vital as it involves interaction with the citizens.

Measures focused on developing institutional, financial and human resource capital are essential to implement policies and programmes while genuinely

ensuring participation of local communities.

Mobilizing Resources for training programs remains a challenge.

Building Blocks for Participatory Governance

Participatory Governance will bolster pillars of efficient public administration by encouraging decentralization, and incorporating reforms

fostering transparency and accountability.

Rationale for public participation and community decision-making as an inherent

component of sustainable development abound in theories related to community

and social development, local development, good governance, vibrant citizenship

and effective resource management (Mukherjee: 2009)

Respond to people’s needs by:

./ Capacity Building : Facilitating Development through Participation of CivilSociety and the Private Sector

Mobilizing citizens in a participatory framework for urban development would

ensure better resource management. Capacity building is not only required for

local authorities but for citizens as well to empowerment and addressal of urban

challenges through proper knowledge of rights and facilities. Cited below is a

community participation initiative for solving local issue.


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Z e ro G a rb a g e Ini t i a t i v e , K a t r a j , P un e , M a h a r as h t ra

The project showcases innovative solution engaging local community for sustainable management of solid waste was designed and implemented by Janwani-MCCIA.

Stakeholders: Janwani-MCCIA, Pune Municipal Corporation, SWaCH waste- pickers cooperative, Maharashtra Plastic Manufacturers Association (MPMA) and corporate sponsors.

Scale: Katraj Gaon is the largest ward in Pune with 12,000 establishments and blend of high and low income – residential and commercial units, consisting of high income apartment complexes, individual bungalows, housing societies, industries, factories, shops, slums as well as a rural area making a good case for a pilot project.

Process:

./ Waste generators (households/businesses) segregate their waste in wet(organic) and dry (inorganic) waste bins or bags.

./ Waste-pickers collect segregated waste from the generators and further segregate dry waste and sell material to scrap buyers.

./ Waste-pickers deliver non-saleable items and wet waste to feeder point.

./ Wet waste is disposed of through composting, biogas and other technologies.

./ Any remaining waste is sent for processing to the plant/landfill

Inputs: Citizen Awareness through puppet shows etc., ‘Clean Society Competition’ to encourage residents to segregate wastes and support the campaign.

Outcomes:

./ Increased cleanliness in the area

./ Increased income of waste-pickers

./ Reduced transportation and landfill costs


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Another initiative could be creating a pool of experts who can guide/advice on

implementation of policies/projects can expedite ground level work. An example below

shows how local NGOs can help in helping citizens,

Ja n aa g r a ha , B a ng a l ore

Janaagraha, an NGO based in Bangalore works towards enabling citizen participation in public governance. The organization works on the principles of REED: Regional perspective to urban issues, Empowered citizens and local governments, Enabled citizens and local governments, Direct accountability of the government to the people

One of the initiatives undertaken by Janaagraha is Bangalore City Connect Foundation (BCCF) which brings together urban stakeholders corporate institutions, civic groups, community organisations and volunteers to collectively engage with the government on urban issues. BCCF adds value at three levels, viz., strategic inputs, project inputs and implementation inputs,while working with government agencies responsible for urban infrastructure.

./ Ensuring Compatible Institutional Framework

Establish a clear framework that is agreed upon by all stakeholders – local

government and communities and then is institutionalized. The consultation and

development framework must be established within stipulated time frames to

ensure that implementation is in pace with demand.

Policy framework having tangible objectives to develop infrastructure in pace with

the country’s economic growth would improve India’s ‘ease of doing business’

and livability rankings, encouraging investments and creating more employment

opportunities thereby triggering multiplier effect on the economy.

Preparatory Phase: Prepare national framework of good local governance

based on comparative research through both international examples as well as

successful models within the country.

s p esen ed by Pub c and Soc a Po c es Managemen PSPM G oup YES BANK L d and ep esen s he au ho s v ew cessa y e ec he v ews o he o gan za on ha hey p oud y ep esena Tusha pandey@yesbank n/ shashwa ghosh@yesbank n

011 66569020/ 987159888910

Consultation and Implementation: In consultation with various experts and

stakeholders design a methodology for successful implementation and evaluation

of local governments

Audit: Initiate audit of government schemes to review performance and digitize

government records to facilitate assessment.

Go v e rn a n c e A sses s m e nt

It is essential to establish an assessment system to analyse multi-sectoral aspects of performance.

./ Urban Governance Index (UN Habitat)

The index would help to improve local governance, respond to local needs and facilitate regional and global comparison of cities based on performance of the ULBs.

Key features:

./ Focus on policy effectiveness

./ Monitor capacity building and a

./ Platform for civil society and private sector engagement

./ Direction for setting objective achievement of local government

The Paper i r t li i l li i t ( ) r , t r r t t t r ’ i and not ne ril r fl t t i f t r i ti t t t r l r r t.

Contact em il: r. .i ti. .iPhone no: -

Source: UN Habitat


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Other indicators for assessing the performance of local government:

./ Good Governance Index (GGI)

./ Local Governance Barometer (LGB)

./ Self Assessment, Bangladesh

./ Household survey, Bosnia, Herzegovina

./ Benchmarking infrastructure, India

./ Local Democracy assessment, International IDEA

Incentives: Incentives and punitive measures can be powerful tools for

improving the performance of local governments. For instance in Uganda, 24

indicators based on eight performance themes are used to allocate central grants

to local governments. Local governments are eligible for 20% reduction, top-up

or basic allocation based on their performance. The process of auditing and

providing incentives would more make governments competitive, more

responsive towards the need of citizens while improving overall efficiency. It

would also help to identify government which requires assistance in capacity

building and knowledge transfer from better performing urban local bodies. Fiscal

competition may force governments to deliver services at the minimum feasible

cost and improve efficiency.

./ e-governance – a Tool for Participatory Governance

It is imperative to adopt information technology (IT) in governance as a tool to

meet the emerging challenges of the country in ensuring effective implementation of policies, enabling participatory governance and providing

easy access to services for its growing population. Critical dimension to

inculcate IT in governance includes broader transformation at organizational level

– laterally integrating a culture of accountability and flexible operating systems.


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Comprehensive research to initiate new lines of thinking and developing

applications that use speech or graphics instead of text can be instrumental in

making e-services more citizens centric and ensure success of government

initiatives.

Replicating and scaling-up successful models and integration of State Wide Area

Network (SWAN) across various tiers of governance can help establish

comprehensive e-gov network.

Examining readiness and identifying bottlenecks at various levels - infra,

managerial, legal, human resource, financial and political, evolving roadmap

strategizing investments to streamline and identifying projects that have clear outcomes in terms of increasing transparency or reducing cost should be

prioritized. Benchmarks to evaluate the same must also be formulated.

E-governance is indispensible for reducing time-lag in delivery of services and

its potential impact on economic development is vast. Seamless operations and enhanced interface forging links between citizens, business and

government will not only enhance the nation’s image but also improve business and investments.

./ Budgeting

Participatory Budgeting (PB) is a mechanism which directly involves local people

in the decision making process on spending priorities for a defined public budget.

PB empowers people and provides them information on fiscal policy and public

expenditure management. PB can improve service delivery by linking needs to

tangible outcomes.


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Pa r t i c i p a t o r y B u dg e t ing, P or t o A l e gr e , Br a zil

Participatory budgeting was pioneered at the municipal level in Porto Alegre, Brazil in 1989

Process

1. Budget preparation2. The city is divided into sixteen regions, and topics for discussion into

five themes: i) transportation, ii) education, leisure and culture, iii) health and social welfare, iv) economic development and taxation, v) city organization and urban development

3. Communities select regional delegates4. Meeting between citizens and executives to review investment plans

and proposals, which are aggregated and ranked by executives. Also people are elected for further deliberations.

5. Forum of Delegates prioritize thematic needs to develop investment and services plan

6. State Draft Budget Plan is reviewed and adopted, and budget plan is submitted go the State Parliament.


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Figure 1- Participatory Budgeting Cycle

Source: Porto Alegre, Brazil, World Bank

Impact

./ Thrust on framing and establishing participatory budgeting would expedite urban

development projects and ensuring timely implementation leading to asset

creation.

./ Ensure fiscal discipline at levels since government at the third tier is directly

accountable to citizens and draws its resources from state and center.

./ Multiplier effect on the economy as citizens make informed decisions to bridge

infrastructure gap and improve service delivery, thereby improving the living

condition and ease of doing business.


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./ The process can help enhance government’s credibility and citizens’ trust.

./ Ensure inclusive development as the process can help establish spending

priorities targeting poorer citizens and neighborhoods.

Conclusion

Participatory governance and fiscal federalism triggering progress at the

grassroots is the key to India’s socio-economic development. People’s

engagement is mutually beneficial to both the policy makers and the citizens

(OECD: 2007) in the following ways:

- It improves transparency/accountability

- It improves responsiveness

- It improves effectiveness

Participatory governance is indispensible for reducing time-lag in delivery of

services and its potential impact on economic development is vast. Seamless

operations and enhanced interface forging links between citizens, business and

government will not only enhance the nation’s image but also improve business

and commerce.

• Capacity building

Reform municipal structure and providing training if the key to

ensuring success of participatory governance.

• Accountability

Regular audits and maintenance of financial records is essential to

ensure transparency.

• Time-bound framework for participatory budgeting and annual

review to check status of services & infra projects and improve


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efficiency. Leverage the potential of e-governance for ensuring

successful implementation of PB.

• Awareness - link short term objectives with long term goals

To prompt equitable growth, it is critical that the government creates conducive

environment and encourages private players to include poor in their formal value

chains, thereby contributing to poverty reduction and sustainable livelihoods.

There is no perfect participatory governance model; it is only through new

experiments and out-of-the box thinking that an appropriate model can be

established. Efforts should focus on evolving mechanism that fit the local context

and address local as well as nation priorities.

India looks forward to a model that can offer a better quality of life for the average

citizen. While one of the way towards achieving this is participatory governance,

the broad and critical reforms in the delivery channel of affordable basic services

is the key to empowerment of people, who are to take part in this governance

process. According to studies, between 2005 to 2012, the head count of people

below the Empowerment Line fell by 183 million, as India’s economy grew at a

rapid pace of 8.5 percent per year4. Rising personal incomes associated with

economic growth produced three quarters of the drop in the Empowerment Gap.

The remaining one-fourth was driven by an expansion of public spending on

basic services. Self governance or participatory governance is critical but can

only be implemented if people are not fighting for basic survival issues.

4 From poverty to empowerment: India’s imperative for jobs, growth, and effective basic services byMcKinsey Global Institute; February 2014

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