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Panchayats in India and Public Service Delivery N irvikar Singh University of California, Santa Cruz & Santa Cruz Center for International Economics FDRI / Berkeley Seminar Series on Indian Democracy Local Governance and Empowerment May 24-25, 2007 University of California, Berkeley. Outline.

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Panchayats in India andPublic Service Delivery Nirvikar SinghUniversity of California, Santa Cruz& Santa Cruz Center for International EconomicsFDRI / Berkeley Seminar Series on Indian DemocracyLocal Governance and EmpowermentMay 24-25, 2007University of California, Berkeley


  • Introduction

  • India’s Federal System

  • Decentralization

  • Public Service Delivery

  • Example: Health Care

  • Conclusions

The problem
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

2 india s federal system

2. India’s Federal System

Expenditure and tax assignments
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

Center state transfers
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

Other transfer channels
Other Transfer Channels

  • State-local transfers

  • Center-local transfers

  • Administered prices and regional policies

    • Freight equalization

    • Central projects

Local government reform
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

Local government reform1
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

4 public service delivery

4. Public Service Delivery


  • 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

States expenditure on social services percentage composition
States’ Expenditure on Social Services(percentage composition)

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

Impacts of decentralization to panchayats
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

5 example health care

5. Example: Health Care

Intrinsic problems
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

The planning commission
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)

Five years later
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

The eleventh plan
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

National rural health mission 1
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.

National rural health mission 2
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.

National rural health mission 3
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

Twelfth finance commission
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.”

Twelfth finance commission1
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.”

Twelfth finance commission2
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.”

Finance minister s budget speech february 28 2007
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.

6 conclusions

6. Conclusions

Some lessons
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