Enablers of Successful Fiscal Decentralisation

Fiscal decentralisation involves gra­nting greater autonomy to local governments in terms of fiscal decision-making (Woller and Phillips 1998). In India, a three-tier governance system is currently in place, and fiscal powers are devolved among the three levels. Since local self-government institutions (LSGIs) were established much later, and the onus of devolution of powers was with state governments, the extent of fiscal autonomy and the socio-economic and developmental outcomes of the same over the past two decades have been very different across states (Besley et al 2007). In 2011, there were about 2.8 million representatives elected every five years into the three levels of panchayati raj institutions (PRIs) across the country, making India the most representative democracy in the world (Alok 2011).

Kerala has been highlighted as an example to study and emulate (Verón 2001), along with Porto Alegre in Brazil (Bardhan 2002) and Wenzhou in China (Tsai 2006), among others. In the context of more states opting for decentralised fiscal regimes (Bardhan 2002), it is important to understand the enablers of this success, and their replicability elsewhere, and the outcomes of decentralised fiscal practices. The aim of this study is to assess the enablers of fiscal decentralisation by looking into the performance of three gram (village) panchayats, in terms of fiscal discipline, plan formulation and implementation. It addresses the question, “What are the factors that enable successful fiscal practices at the local government level?” This will in turn shed light on the reasons why some village panchayats perform better than others, how fiscal decisions made at the grassroots level translate into socio-economic development, and how such differences can be perceived and compared. The enablers thus identified are then used to create a framework to assess the readiness of gram panchayats to carry out decentralised fiscal practices.