How does what happens internationally affect India’s

federal governance?

Bob Smith

Ackland Smith ConsultingVictoria

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Explore implications for governance in India of interaction between international and internal pressures on federal system

Aim

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Impact of global financial crisis (GFC) bigger than expected

Growth and social development programs extend beyond powers of centre

How to handle matters affecting more than one level of government a continuing puzzle

Reasons

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Amaresh Bagchi: can globalisation and federalism co-exist?◦ Will economic globalization and centralization override

accommodation of diversity?

Shalendra Sharma: ‘federal institutions lag behind the imperatives of globalisation.’

Jay Chaudhuri: do Centrally Sponsored Schemes) work?◦ ‘For all the money which [is] spent, little is known about

where the money has gone, how it has been spent, and what results it has produced .’

Differing views

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Globalisation and India ◦ Thin globalisation◦ Cautious liberalisation

Bagchi’s reflections◦ Accommodate diversity; enhance fiscal discretion of the states

Centre’s strategies for reform◦ policy and management challenges◦ Reform agendas

Intergovernmental relations Public management Budgeting and financial management Local government

Overview

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Economic globalisation and liberalisation

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Rodrik: ‘thin globalisation’◦ robust domestic growth strategies ◦ democratic policy making within nation states◦ global markets depend on governance

foundations of national governments◦ roles of markets, policies to promote competition,

and business regulation expanded

Braithwaite: ‘regulatory capitalism’

Varieties of globalisation

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As crisis continued government faced challenge of fiscal consolidation while maintaining high and inclusive growth

Even thin globalisation involved reciprocal interactions with costs as well as benefits

◦ uncomfortable choices about public sector directions and effectiveness

◦ mitigation of crisis demonstrated key role of centre

◦ crisis raised questions about institutional capabilities and future directions

GFC impacts—India

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Gradualism◦ ‘signaling the broad directions of reforms… but

leaving the detailed implementation to a more opportunistic process’ MS Ahluwalia

Diverging paths?◦ ‘India could be evolving both in a developmental and

predatory fashion at the same time…’ Rahul Mukherji

GFC◦ ‘India is more integrated into the global system than

we tend to acknowledge’ D Subbarao

Reform in India

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Federalism—managing in while also managing out

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Effective federations involve both cooperation and competition

Improvements in federal governance must include the states

Bagchi◦‘for good or ill liberalisation and reforms

driven by globalisation have not enhanced federalism but have rather curbed it’

Making federations work

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Economic reform and intergovernmental relations

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What’s in the mix?◦ Reform ideas and advocates◦ Constitutional, financial and bureaucratic powers

political interests◦ Inflection and blocking points

Change in how federation works◦ less change in structures than change through

processes

Volatile mix

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Plan objective◦ ‘a policy environment that is investor-friendly and is

supportive of inclusive growth’ MS Ahluwalia

Four challenges◦ energy supply, managing the water economy, likely

urban transformation, and protection of environment consistent with rapid growth

Challenges each involve ◦ structuring of markets; institutionalising effective

regulation; workable relations between levels of government

Intergovernmental relations and 12th plan

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‘Most of what needs to be done … rests with state governments but the central government must find ways of improving project design, prioritising resources to fund well designed interventions that work, devolving resources to lower levels and helping build capacity’. MS Ahluwalia

Take over? Impose? Monitor? Negotiate?

Extending institutional reach of central bodies far away from sites of implementation no guarantee of success◦ Incomplete contracts, asymmetric information, transaction costs

12th plan—Implementation

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Forums ◦ topic by topic meetings with chief ministers◦ meetings of central and state ministers,◦ ‘empowered’ committees of ministers ◦ task groups of officials

‘thickening of the Indian polity’s federal institutional structure’ Rob Jenkins

Example: GST

Improvements?

Negotiation?

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‘Evidence based evaluation’ to assist ‘redesign and reprioritisation’ MS Ahluwalia

Evaluation also canvassed in recent India Review symposium on accountability and outcomes

◦ But programs of review and evaluation might only deepen concern about problems already known

◦ CSS: ‘going to the operating room without a diagnostic’ Jay Chaudhuri

Review?

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Management of intergovernmental relations

Public management reform

Improvements in budgeting and financial management

Breathing more life into institutions of local government

Focus on outcomes for citizens expands reform agenda

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Conclusion

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Answer to Bagchi’s question about impact of globalisation on federalism ambiguous

But need for improvements in management of

intergovernmental relations and how public officials relate to citizens unambiguous

So far GFC shock not led to policy inflection point as in 1991

Towards a more adaptive federalism?

Handling globalisation by more reform at home?

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Contact:

Dr RFI SmithAckland Smith Consulting

rfismith@ozemail.com.au