Decentralisation in India: Failures at the State Level
Why in News?
Despite the 73rd and 74th Constitutional Amendments, intended to bring about real devolution of power and governance to Panchayati Raj Institutions (PRIs) and Urban Local Bodies (ULBs), decentralisation remains incomplete. Many State governments have retained centralised control over financial resources and decision-making, leaving local bodies financially crippled and functionally dependent. 
The release of Rajni Kothari’s 2024 edited volume, States at the Margins, and the Annual Review of Public Administration have reignited debates on the failures of decentralisation and the gap between de jure and de facto devolution.
Introduction
Decentralisation, when implemented incompletely, exposes a fundamental contradiction: the illusion of autonomy without real power. While India’s Constitution envisions empowered local self-governments, the reality on the ground often sees authority and finances centralised within state governments. This leads to governance challenges at the grassroots, inefficient service delivery, and a breakdown of democratic decentralisation.
Key Features
1. Concept of Real Decentralisation
- True decentralisation goes beyond the technical redistribution of functions.
- It requires a fundamental shift in authority, responsibility, and legitimacy.
- Real devolution creates a system where authority is not just pushed downward but rooted in autonomy.
2. The Role of the 73rd and 74th Constitutional Amendments
- These amendments created Panchayati Raj Institutions (PRIs) and Urban Local Bodies (ULBs).
- They aim to empower lower tiers of government with planning, implementation, and governance powers.
- However, the absence of fiscal independence has undermined their autonomy.
3. Institutional Provisions
- State Finance Commissions (SFCs) were established to recommend resource-sharing between the state and local bodies.
- Despite SFC recommendations, States retain disproportionate control over resources and delay fund transfers.
4. Major Gaps and Issues
- Fragmented financial autonomy with heavy dependence on state grants.
- Many Panchayats are reliant on own-source revenue (OSR), which remains extremely low (often below 10-30% of total income).
- State-imposed constraints on taxation powers, and control over important schemes like MGNREGA, NRLM, and Swachh Bharat Mission, limit local discretion.
Core Issues in Decentralisation
1. Financial Constraints
- Panchayats suffer from low revenue generation and insufficient funds.
- They lack autonomy over budgets, often depending on earmarked funds for specific schemes.
- State deductions on assigned revenues (like stamp duty, vehicle tax surcharges) further reduce available funds.
2. Restricted Powers and Overlapping Control
- Parallel state-run programs by line departments and parastatals diminish Panchayats’ role in delivering services like water, sanitation, and health.
- Lack of professional capacity and trained personnel hinders their ability to plan and manage effectively.
3. Inconsistent SFC Implementation
- Some States have failed to establish SFCs on time.
- Recommendations are often ignored or poorly implemented, undermining local government autonomy.
Case Studies Highlighting the Problem
- Rural Local Bodies (RLBs) often have no control over services like water and sanitation, which are managed by state departments.
- Urban bodies are burdened with responsibilities but lack financial resources, often leading to infrastructure degradation and service delivery failures.
The Way Forward
1. Empowerment through Financial Devolution
- Strengthening SFCs with mandatory binding recommendations.
- Enhancing own-source revenue generation by expanding taxation powers.
2. Institutional Capacity Building
- Invest in professional human resources, training, and technology at the local level.
- Encourage participatory governance to ensure accountability and transparency.
3. Policy Reforms
- Revise the functions and finances of Panchayats to give real autonomy.
- Review centrally sponsored schemes to provide flexibility at the local level.
- Ensure the principle of subsidiarity, where decisions are taken as close as possible to the citizens.
Conclusion
Decentralisation in India, while constitutionally mandated, remains functionally incomplete. States must relinquish control, allow genuine fiscal and functional autonomy, and strengthen Panchayati Raj Institutions (PRIs) and Urban Local Bodies (ULBs).
Real devolution is not just about decongesting power but about reimagining governance—creating a system where authority, legitimacy, and accountability are embedded at the local level.
Without a comprehensive overhaul of State-local relationships, the vision of the 73rd and 74th Amendments will remain unfulfilled, and grassroots democracy will continue to be a distant dream.
