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Panchayats in India and

Public Service Delivery

Nirvikar Singh

University of California, Santa Cruz&

Santa Cruz Center for International Economics

FDRI / Berkeley Seminar Series on Indian DemocracyLocal Governance and Empowerment

May 24-25, 2007University of California, Berkeley

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Outline1. Introduction

2. India’s Federal System

3. Decentralization

4. Public Service Delivery

5. Example: Health Care

6. Conclusions

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1. Introduction

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The Problem

• India is growing rapidly, but lags in human development indicators

• Political urgency to provide benefits of development to broader population

– Basic health and education

• Need to assess strategies for achieving this

– Spend more

– Spend more effectively

• Crucial to understand institutional mechanisms for public service delivery

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India

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Development Indicators, 2003

Low Income India China Middle Income Births attended by skilled health staff (% of total)

42.5* 96

GNI per capita, Atlas method (current US$)

438.53 530 1270 1938.11

Immunization, measles (% of children ages 12-23 months)

61.52 56 84 86.43

Life expectancy at birth, total (years)

58.62 63.42 71.05 69.73

Mortality rate, infant (per 1,000 live births)

83.88* 64** 33* 35.4

Mortality rate, under-5 (per 1,000)

127.66* 94* 41* 45.18

School enrollment, primary (% gross)

99.75 107.43 115.02 112.3

*Year 2000, ** Year 2002 Source: World Bank World Development Indicators

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2. India’s Federal System

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Expenditure and Tax Assignments

• Expenditures– Union, State, and Concurrent Lists, with residuary

powers to Center– Much ‘social spending’ assigned to States

• Taxes– Principle of separation (but overlapping bases),

residuary authority to Center– Center: main income taxes, States: sales taxes

• Transfers– Tax and expenditure assignments help create

‘vertical fiscal imbalance’– Transfer mechanisms are provided for in

Constitution

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Expenditure Assignments

Union List State List Concurrent List

National highways Agriculture Economic and social planning

Major ports and shipping Public health and sanitation

Social security and insurance

Railways Intra-state communications

Education

Air traffic and airports Relief of disabled Electricity International trade Local government Population control Inter-State commerce Land Forests Inter-State river waters Intra-State water Petroleum and major

minerals Intra-State trade

Telecommunications

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Tax Assignments

Union States

Income taxes (non-agricultural) Land revenue Capital taxes (non-agricultural) Taxes on agricultural income Inheritance taxes (non-

agricultural) Taxes on land, buildings, mineral

rights, agricultural inheritance Customs duties Excise duties on alcohol Excise duties (not alcohol) Sales taxes on goods Inter-State sales and consignment taxes on goods

State and local entry taxes, tolls

Electricity taxes Entertainment taxes Stamp duties Taxes on professions

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Center-State Transfers• Finance Commission

– Constitutional authority to ‘decide’ center-state transfers, mainly tax-sharing

• Planning Commission– Makes grants and loans for ‘development’

purposes– Lack of clear process for evaluating investment

needs and priorities• Central Ministries

– Project-based, specific purpose grants to states– Highly discretionary, lacking transparency, poor

selection and implementation, ineffective monitoring

• Loans and Guarantees

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Other Transfer Channels

• State-local transfers• Center-local transfers• Administered prices and regional policies

– Freight equalization– Central projects

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3. Decentralization

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Local Government Reform

• Constitutional amendments, in 1993, strengthened local government

• Substitute ‘voice’ for hierarchical control – this will take time to develop fully

• Move regulation and monitoring of local governments from case-by-case discretion towards rules- and outcome-based approach

• Need further strengthening of assignment of revenue authority to local governments

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Local Government Reform

• Introduced State Finance Commissions (SFCs) for State-Local transfers

• Early performance of SFCs uneven, and generally below par

• Capacity-building grants (for accounting and information systems) initially came from the center

• Further center-local transfers opposed by states

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Subnational Government Tiers

China India Type Number Type Number

Province+municipality+ autonomous region

22+4+5 State+national capital territory+union

territory

28+1+6

Prefecture 333 District+municipal corporation

540+109

County/city 2,872 Block+municipality 5,905+1,432 Township 41,636 Village+township 236,350+2,182

Sources: Wikipedia (2006), Finance Commission (2004)

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Subnational Revenues and ExpendituresChina, 2003

Governmental level Share of Revenues Share of Expenditures Central 71.0 30.1 Provincial 5.7 18.5 Subprovincial 23.3 51.4

Source: Shah and Shen (2006), Table 6.

India, 2001-02

Governmental level Share of Revenues Share of Expenditures Central 60.7 42.9 State 38.1 52.1 Local 1.2 5.0

Source: Twelfth Finance Commission Report (2004).

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4. Public Service Delivery

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Governance• India in the 47th percentile in “control of

corruption” – 2005 Governance Indicators of the World Bank:

• India is tied for 88th place with countries such as Benin, Mali, and Tanzania in Corruption Perception Index– Transparency International

• Declining quality of legislative and bureaucratic institutions

• Inefficient political competition?• Reform of budgeting procedures, accounting

and auditing methods, personnel policies

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States’ Expenditure on Social Services (percentage composition)

1990-95 1996-00 2001-05 2005-06 2006-07 Education, Sports, Art & Culture 52.2 52.1 51.1 46.9 46.7 Medical and Public Health 16.0 12.7 11.9 11.9 12.4 Family Welfare 0.0 2.4 2.0 1.8 1.8 Water Supply and Sanitation 7.2 7.4 7.6 7.8 7.4 Housing 2.9 2.9 2.8 2.5 3.0 Urban Development 2.3 2.9 4.0 4.9 6.4 Welfare of SCs, STs and OBCs 6.5 6.3 6.3 7.3 6.8 Labour and Labour Welfare 1.4 1.3 1.0 1.0 1.0 Social Security and Welfare 4.5 4.2 5.0 5.9 6.6 Nutrition 1.7 2.8 2.1 2.3 2.5 Relief for Natural Calamities 2.6 2.8 3.7 4.8 2.2 Others 2.6 2.2 2.5 2.9 3.1

2006-07: 6% of GDP, 35% of total states’ expenditure

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Expenditure

• The quality of public expenditures has deteriorated– Over-staffing

– Absenteeism

– Low effort

• Can rationalize government through– internal restructuring– privatization– subsidy reduction– better management of pay and pensions

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Impacts of Decentralization to Panchayats

• Better targeting• Some elite capture, but not glaring (varies by

nature of goods)• Local capacity matters• So does overall state-level governance

quality• Some direct evidence that decentralization

improves perceptions of quality of public services

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5. Example: Health Care

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Intrinsic Problems

• Health care is a credence good (so is education)

• Overall quality is variable and often poor, even for well-off urban consumers

• Information exchange and reputation mechanisms are weak

• These are problems at every level, and for both private and public provision

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The Planning Commission

One of the major factors responsible for poor performance in hospitals is the absence of personnel of all categories who are posted there. It is essential that there is appropriate delegation of powers to Panchayati Raj Institutions (PRIs) so that there is local accountability of the public health care providers, and problems relating to poor performance can be sorted out locally.

– Approach Paper to the Tenth Five-Year Plan (2002-2007)

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Five Years Later

The 10th Plan aimed at providing essential primary health care, particularly to the underprivileged and underserved segments of our population. It also sought to devolve responsibilities and funds for health care to PRIs. However, progress towards these objectives has been slow and the 10th Plan targets … have been missed. Rural health care in most states is marked by absenteeism of doctors/health providers, low levels of skills, shortage of medicines, inadequate supervision/monitoring, and callous attitudes. There are neither rewards for service providers nor punishments to defaulters.

– Towards Faster and More Inclusive Growth: An Approach to the 11th Five Year Plan, June 14, 2006

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The Eleventh Plan

To improve the primary health care system, the Eleventh Plan will initially lay emphasis on integrated district health plans and later on block specific health plans. Those plans will ensure involvement of all health related sectors and emphasise partnership with NGOs.

– Towards Faster and More Inclusive Growth: An Approach to the 11th Five Year Plan, June 14, 2006

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National Rural Health Mission-1

• Shift away from the vertical health & family welfare programs to a new architecture of “all inclusive” health development with resources pooled at the district level.

• Effective integration of health concerns with determinants of health like safe drinking water, sanitation and nutrition through integrated District Plans for Health.

• Flexible funds so that the States can utilize them in the areas they feel important.

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National Rural Health Mission-2

• Provides for appointment of Accredited Social Health Activist (ASHA) in each village and strengthening of public health infrastructure.

• Emphasizes involvement of the non-profit sector, especially in the under served areas.

• Flexibility at the local level by providing for untied funds.

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National Rural Health Mission-3

• Supplementary strategies– Fostering public-private partnerships– Regulating the private sector to improve

equity and reduce out of pocket expenses– Introducing effective risk pooling mechanisms

and social health insurance– Taking advantage of local health traditions

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Twelfth Finance Commission

“Our attention has been drawn to the shortfall in the release of grants recommended by the EFC to the states. This is due to (a) non-utilization/ underutilization of the amounts already released and (b) the inability of the state/local bodies to raise matching contributions. The condition regarding matching contribution was not imposed by the EFC.”

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Twelfth Finance Commission

“Finance commission grants sometimes take a long time to reach the local bodies even after the central government has released the grants to the states. Often, the state governments were found to use them for their ways and means comfort and show no sense of urgency in passing them on to the rightful recipients. This results in withholding of further releases by the centre and the local bodies suffer the consequences for no fault of theirs.”

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Twelfth Finance Commission

“The EFC allocated money for creation of a database by local bodies and for maintenance of accounts, but only 30 per cent of the allocation had been utilized after five years.”

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Finance Minister's Budget Speech, February 28, 2007

• In 2007-08, I propose to enhance the allocation for … health and family welfare by 21.9 per cent to Rs.15,291 crore [2.7 % of central government expenditure].

• In the second year of its implementation, the National Rural Health Mission (NRHM) is on schedule to meet its timelines. The institutional integration of all the health schemes at the district and lower levels has been achieved. All districts in the country will complete preparation of District Health Action Plans by March 2007.

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6. Conclusions

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Some Lessons• Increasing allocations or spending is

probably unlikely to improve outcomes quickly or dramatically– Money does not flow down effectively– Money that reaches down is not spent well

• Institutional reform is critical– Make unconditional transfers – Increase subnational revenue authorities– Increase subnational institutional capacities

• These institutional reforms can be achieved quickly, if prioritized

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Thank You