2nd ARC Report – Urban and Local Governance

“Local democracy is sometimes treated as synonymous with ‘decentralization’, but the two are, in fact, quite distinct.” Discuss.

• Decentralization does not necessarily align with or promote local democracy, especially in situations of sharp local inequalities. In some cases, decentralization may exacerbate power concentration, discouraging rather than fostering participation among the underprivileged. For instance, in tribal areas where upper-caste landlords and traders dominate village affairs, the devolution of power associated with the Panchayati Raj amendments has often consolidated their hold, reinforcing existing biases in the local power structure. Although our Constitution mandates democratic decentralization through the Directive Principles of State Policy and the 73rd and 74th Amendments, creating an institutional framework for grassroots democracy, the growth of self-governing local bodies as the third tier of governance has been uneven, halting, and slow.

“The central idea of subsidiarity is that citizens as sovereigns and stakeholders in a democracy are the final decision-makers.” Discuss.

• Subsidiarity, as defined by the Oxford Dictionary, is the principle that a central authority should have a subsidiary function, performing only tasks that cannot be executed at a more local level. The core notion of subsidiarity asserts that citizens, as sovereigns and stakeholders in a democracy, should be the ultimate decision-makers. Citizens, who also act as consumers of state-provided services, should exercise as much authority as practicable. They delegate upward tasks that require economies of scale, technological and managerial capacity, or collective amenities. The principle dictates that functions should be carried out at the smallest unit of governance possible, delegating upward only when the local unit cannot perform the task. In this scheme, the citizen and the community stand at the center of governance, emphasizing decentralized decision-making from the local government to the Union level.
• In restructuring governance away from traditional hierarchies, the application of the subsidiarity principle entails expanding concentric circles of government, with delegation outward based on necessity. The subsidiarity principle offers three significant practical advantages. Firstly, local decision-making enhances efficiency, fosters self-reliance, encourages competition and nurtures innovation. Successful best practices serve as demonstrations, rapidly spreading good innovations, and fostering greater ownership of programs and practices by local communities. Secondly, democracy relies on the equality of citizens, their ultimate sovereignty, and their capacity to decide their best interests. Subsidiarity serves as the concrete expression of these democratic foundations. Thirdly, linking decision-making and consequences at the local level promotes awareness of the need for hard choices, fostering greater responsibility, enlightened citizenship, and the maturing of democracy.

“While subsidiarity should be the overarching principle in restructuring governance, in practical constitutional terms, it can be applied only through effective decentralization.” Discuss.

• Effective democratic decentralization from states to local governments should be the cardinal principle of administrative reforms. This decentralization should adhere to four guiding norms. Firstly, there should be a clear link in citizens’ minds between their votes and the consequences for the public good, ensuring a robust democracy with regular elections and peaceful power transfers. Secondly, decentralization promotes fiscal responsibility when there is a clear link between resource generation and outcomes in the form of better services. 
• Fiscal prudence, resource mobilization, and greater value for public money are integral to democratic governance when local governments are perceived as fully responsible for services. Thirdly, addressing the asymmetry of power in society, especially within the workforce and hierarchical traditions, is crucial for making governance an effective tool for achieving national objectives. Lastly, citizen participation and ownership are enhanced in decentralized structures, bringing government processes closer to citizens and fostering a greater understanding of the issues.
• Therefore, for democracy to be genuine and enable direct participation, power should be located as close to the citizens as possible in order to analyze all governance structures about fulfilling citizens’ aspirations and needs. Regardless of the governance structure, citizens’ aspirations and needs should be the focal point, with two significant challenges in the coming decades: the fulfillment of human potential, prevention of avoidable suffering, and ensuring human dignity. This entails granting access to speedy justice and opportunities through rapid economic growth, realizing the nation’s potential, and enabling India to play a rightful role globally. The state’s role needs a sharp focus, fashioning instruments of governance as effective tools to achieve national goals.
• Decentralization is a powerful tool to counter the asymmetry in the locus of power and the imbalance in its exercise. Effective and empowered local governments can reinforce positive power for the public good and curb negative impulses to abuse authority. Ordinary citizens can hold public servants accountable when directly affected by their actions, and empowered to exercise oversight functions.

“Devolution to be meaningful demands that local governments should be effectively empowered to frame regulations, take decisions, and enforce their will within their legitimate sphere of action.” Analyze.

• Subsidiarity and democratic decentralization require more than the creation of elaborate structures and periodic elections. Legislated empowerment remains illusory unless public servants under local governments are fully and permanently under local government control, subject to protecting their service conditions. Only then is local government responsibility commensurate with authority. Fiscal devolution to local governments must meet two standards: effective fulfillment of obligations and sufficient flexibility through untied resources for establishing priorities, devising new schemes, and allocating funds. There must be opportunities and incentives to mobilize local resources through taxes, cess, and user fees, following financial propriety and accountability norms.
• Devolving funds to local governments must consider regional equity, both inter-state and intra-state, ensuring citizens’ minimum entitlements under the Constitution. The devolution package should surpass per capita norms, considering benchmarks for quality of life and services. Building local government capacity is crucial, involving organizational and management strengthening, constant training, and human resource development, transforming state agencies into expert entities.
• The challenges in enhancing the capabilities of local governments involve creating manpower pools to provide on-demand guidance and support, fostering strong federations, pooling resources, talent, and management practices, and attracting expertise from outside the government to meet the increasing demand for high-quality human resources in public management. Overcoming resistance from state executives and governments, due to the complexities of real politics, is essential for real empowerment. 

Discuss the major issues related to the 11th and 12th schedules of the Indian Constitution.

• The 73rd and 74th Amendments of the Constitution, implemented in 1993, aimed for a fundamental shift in governance. However, a decade of experience shows that merely creating elected local government structures and holding regular elections doesn’t guarantee effective empowerment. While Panchayats, Nagarpalikas, and Municipalities exist, real decentralization often lags. The Constitution leaves the degree of empowerment and devolution to State Legislatures.
• There is a need to empower local governments, and there’s political consensus on this issue. However, when it comes to action, many states lean toward minimal local empowerment. A strong constitutional provision mandating effective local government empowerment seems desirable but faces difficulties. Respecting state autonomy, varying situations, and the need for functional delineation in the Eleventh and Twelfth Schedules complicate matters. Most states lack Legislative Councils, and creating one for local governments is suggested. Delimitation delays, and a commission, similar to the central delimitation commission, or assigning the task to the State Election Commission (SEC), is proposed. SECs should handle constituency reservations, and rotation in single-member constituencies can occur after at least two terms to promote leadership longevity and constituency nurturing. Alternatively, elections to multi-member constituencies can be considered.
• In a territorial constituency, multiple seats can be combined in a manner that remains consistent for each election cycle. The List System can then be utilized to hold elections, ensuring proportional representation for political parties in each constituency. Votes obtained can be used to allocate seats accordingly. Alternatively, members may be elected individually. Regardless, the law should clearly specify the required number of members to be elected from each reserved category.
• The Governor, with the advice of a collegium comprising the Chief Minister, the Speaker of the State Legislative Assembly, and the Leader of the Opposition in the Legislative Assembly, should appoint the State Election Commissioner. An institutional mechanism must be established to facilitate coordination, learning, and resource-sharing between the Election Commission of India and the State Election Commission.
• A continuous review of relevant Union and State laws is imperative, and suitable amendments should be made promptly. This ongoing process should coincide with the development of locally relevant socio-economic programs, organizational restructuring, and the formulation of subject matter laws.

General Issues of Accountability of Public Institutions:

• Accountability of public institutions has traditionally focused on preventing activities not specifically authorized by law or any subordinate legislation and maintaining financial propriety. These aspects are crucial, but accountability of local bodies should also encompass responsiveness, ensuring that activities meet the felt needs of the people.
• Performance measurement is another vital component, evaluating whether public resources are maximally utilized. Efficiency, comparing output to cost, and effectiveness, aligning services with expected outcomes, are fundamental parameters of performance measurement. Fair play, adhering strictly to the rule of law, is essential for local bodies in their regulatory and developmental responsibilities.
• In designing the components of accountability for local bodies, it is imperative to focus on these aspects.
• Institutional mechanisms to ensure propriety encompass maintaining integrity in resource utilization, objective and effective implementation of laws and regulations, eradication of rent-seeking tendencies among public officials/representatives, and fair play in administrative exercises. The evaluation of local bodies should be result-oriented, measuring performance in terms of efficiency, effectiveness, and other indicators.
• To establish accountability and address concerns regarding elected functionaries and officials, an institutionalized grievance redressal mechanism is essential. This mechanism would provide citizens with a platform to voice their complaints, exposing deficiencies in the system for suitable remedial action.
• Improving the responsiveness of local bodies to citizens is crucial for efficient service delivery and accessibility. 

This can be achieved through various means:

• Delegation of functions
• In-house mechanisms for grievance redressal
• Social audit
• Transparency
• State Governments should establish audit committees at the district level to oversee the integrity of financial information, adequacy of internal controls, compliance with applicable laws, and ethical conduct of individuals involved in local bodies. These committees must have independence, access to information, communication abilities with technical experts, and accountability to the public.

Discussion on Gram Panchayat Delimitation:

• Under Article 243-B of the Constitution, a Gram Sabha is defined as a body consisting of individuals registered in the electoral rolls relating to a village within the Panchayat’s area at the village level. The Gram Sabha plays a pivotal role in local governance, offering individuals the chance to partake in local decision-making processes.
• The size of Gram Panchayats is crucial for effective functioning. While clustering small villages may lead to gains, it could result in larger Gram Sabhas. The participation of people is often inversely proportional to the size of the Gram Sabha. In hilly regions, smaller Gram Panchayats may be justified due to low population density, difficult terrain, and weak communication links. However, in populous plains, Gram Panchayats are generally small, based on a historical idealization of having one Panchayat for each village. Many Gram Panchayats are too small to function effectively as autonomous local government institutions. For economic viability and the ability to handle multiple responsibilities, Gram Panchayats should ideally have a minimum population size.
• While the two-level formation works well for small Gram Panchayats, larger ones in states like Kerala, West Bengal, Bihar, and Assam may necessitate a re-examination of Gram Panchayat delimitation for greater efficiency in service delivery.
• The concept of subsidiarity becomes diluted as the size increases, leading to a weakened relationship between distant entities and a strengthening role of Gram Panchayats. Often, the issues of smaller habitats are overshadowed, and the apparent solution lies in reducing the critical limit, despite its limitations in capacity and administrative viability. To enhance the efficiency of Panchayats as self-governing units, optimal financial support and resources are crucial. The creation of intermediate bodies, such as Ward Sabhas, can facilitate financial resources while ensuring administrative viability through greater citizen participation.
• Analyzing the decentralization of rural governance proposed in the 73rd Amendment, the spirit is reflected in Article 243G and the Eleventh Schedule of the Constitution. Panchayats are envisioned as self-governing institutions responsible for economic development and social justice plans. However, only minor civic functions are exclusively assigned to them, with other development functions retained by state departments. Resources and staff remain under state control, hindering effective devolution. To make devolution functional, activities in the Eleventh Schedule should be broken down, allowing the state to retain macro-level functions, and ensuring Panchayats operate as self-governing bodies.
• The key objective of Article 243G is to transform Panchayats into self-governing institutions through devolution of functions, funds, and functionaries. While most states have assigned important subjects to Panchayats, practical transfers still need to be completed due to a lack of rational thinking and detailed planning.
• The determination of which disaggregated activities should be devolved is based on considerations such as economies of scale, efficiency, capacity, enforceability, and proximity. However, this has resulted in overlapping jurisdiction among different tiers of government, undermining accountability. Additionally, while states assign responsibilities to local governments, they often entrust the performance of key activities for delivering devolved services to state-line agencies.
• The devolution exercise should adhere to certain key principles, including establishing exclusive functional jurisdiction for each level of the Panchayat. The state government should refrain from exercising control over this sphere, except for providing general guidance. If any state department presently performs activities within this sphere, it should cease after devolution. There may be spheres of activity where the state government and Panchayats work as equal partners or where Panchayat Institutions act as agencies for implementing government schemes. The partnership mode allows more independence in discharging responsibilities compared to the agency mode, emphasizing the absence of hierarchical relationships between Panchayat levels.

The World Bank document on “India- Inclusive Growth and Service Delivery” proposes three important conclusions for rural service delivery:

1. The same tier of government should not handle both operation and monitoring and evaluation.
2. Higher tiers of government should enhance their capability and commitment to set standards, monitor performance, and evaluate the impact of alternatives through decentralization.
3. There is substantial potential for increasing local control of asset creation and operation.

• Discussing urban governance as a complex issue in today’s public management in India, metropolitan areas suffer from poor urban planning, inadequate infrastructure, and ineffective governance, leading to chaotic daily living. In smaller towns at the intersection of rural and urban India, the situation is often worse, with inadequate facilities, a lack of urban identity, and limited resources for basic urban services. Urbanization and economic development show a positive correlation, but some of the largest urban agglomerations are in poorer countries due to increasing population density and the incapacity of rural economies to prevent rural-to-urban migration. Urban areas provide economic advantages with concentrations of industries, commerce, services, labor, and infrastructure, contributing to India’s progress.
• In the pursuit of becoming a developed state, the proportion of industry and services contributing to the Gross Domestic Product (GDP) is expected to increase, while agriculture’s share is on the decline. While acknowledging the essential need to support agriculture and rural development, Indian policymakers should also prioritize attention on urban growth, planning, and provisioning.
• Although the largest metros have attained significant sizes, second-tier cities, including many state capitals, have developed to a comparable stage. The establishment of new urban areas near existing towns, fueled by an influx from rural areas and urban sprawl, results in continuous and contiguous urban areas that create complex agglomerations difficult to define. The visible disparity between private wealth and inadequate infrastructure is a paradox in urban India, where consumerism is booming, the economy is growing, and land values are rising. However, local and state governments struggle to leverage urban strengths to build infrastructure at a pace matching the rising population and aspirations, turning the urban dream into a nightmare.

“Several factors need to be considered in deciding whether the Mayor should be directly or indirectly elected.” Analyzing the pros and cons of direct or indirect election of the Mayor is crucial.

• Article 243R(2)(b) allows the state legislature to determine the election process for the Chairperson of a municipality. While the role and functions of the Chairperson are not clearly defined, it should be deemed to include the Mayor. In most states, the Chairperson/Mayor holds a primarily ceremonial status, with the Commissioner appointed by the State Government having executive powers. This dilution of the Mayor’s role goes against the spirit of self-governance and local empowerment. The Chairperson/Mayor typically chairs council meetings and has a peripheral role in urban governance. However, exceptions exist, such as in Kolkata, where the Chairperson and Mayor are distinct functionaries.
• The election and term of office of the Mayor/Chairperson vary between states, with most major states having Councilors indirectly electing the Chairperson. Stability is a potential advantage of an indirectly elected Mayor, but this system is susceptible to “horse-trading,” weakening the Mayor’s authority. In contrast, a popularly elected Mayor has a fixed tenure and cannot be easily removed from office, ensuring a more stable administration.
• Councilors: Given the rapid urbanization and the intricate challenges faced by cities, fostering good governance requires a long-term vision and stable leadership.
• Accountability: Concerns about potential abuse of authority by a directly elected Mayor/Chairperson with a fixed tenure can be addressed through two mechanisms. First, the Council holds powers to approve budgets, frame regulations, and shape major policies, providing a crucial oversight role. In a well-designed city government, the Council and Mayor possess significant authority, acting as checks against each other. Second, institutional checks, strong public opinion, and a free press in a city government serve as effective safeguards against transgressions, ensuring fairness and efficacy.
• Cohesion: An indirectly elected Mayor remains in office as long as they enjoy majority support in the Council, minimizing logjams. However, with a directly elected Mayor and potentially divergent party affiliations between the Mayor and Council members, there may be challenges in cohesion, leading to delays or even paralysis. Direct election of the Mayor with a clean separation of powers promotes harmony through simultaneous elections, clearly defined roles, and efforts by the Mayor to lead a Council that may be of an opposing party.
• Representation: Indirectly elected Mayors, often chosen from ward-elected Councilors, may struggle to adopt a broader perspective for the entire city. Leadership in a growing and complex city necessitates a holistic vision. Directly elected Mayors, with a popular mandate, represent the entire city, fostering a broader vision instead of focusing solely on segmented, sub-local issues.
• Reservation with Empowerment: In local governments where a significant percentage of offices are reserved for specific categories like Scheduled Castes, Scheduled Tribes, and women, indirect election of a Mayor may pose challenges. Indirectly elected Mayor positions reserved for certain categories may result in the majority party lacking a suitable candidate. Directly electing the Mayor ensures that the party nominates its best candidate from the reserved category, promoting genuine political empowerment for disadvantaged sections through real representation.
• Leadership Development: In the pre-independence era, esteemed freedom fighters played pivotal roles in leading local governments. Chitta Ranjan Das, affectionately known as ‘Deshbandhu,’ served as the first Mayor of the Calcutta Municipal Corporation, while “Netaji” Subhas Chandra Bose assumed the mayoral position in 1930. Internationally, influential leaders like Rudolph Giuliani, former Mayor of New York City, have used city leadership as a stepping stone to national prominence. Mayors in major cities worldwide, such as Paris, Buenos Aires, Rio de Janeiro, and London, often hold national offices. In China, the Mayor of Shanghai wields significant influence in the national ruling elite. In India, numerous national freedom struggle leaders gained experience and prominence through local government leadership. Therefore, the direct election of Mayors, promoting strong and visible leadership in cities, is a crucial avenue for recruiting talent into public life and fostering leadership development.

“There is a mismatch between functional responsibilities and the resource generation capability of local governments, and such a mismatch is generally the result of inadequate delegation of taxation powers.” Analyzing the recommendations of the 2nd Administrative Reforms Commission (ARC), explore the steps local governments can take to broaden their tax base.

• It is estimated that only 60%-70% of properties in urban areas are assessed due to various reasons. Municipal boundaries often fail to keep pace with urban sprawl, leaving a significant number of properties outside the legal jurisdiction of municipal bodies. City Development Authorities in larger cities delay assessing areas under their jurisdiction until technically ‘handed over’ to municipal bodies. State laws provide exemptions for various categories of buildings, including those belonging to religious or charitable institutions, hindering tax coverage. Unauthorized constructions, common in many Indian cities, are not taxed to avoid fueling demands for regularization. Properties belonging to the Union and State Governments, even though serviced by local governments, are not taxed due to Article 285 provisions. Local governments should be empowered to collect ‘service charges’ for providing services to such properties. Additionally, properties leased by municipal governments are often untaxed, despite being in possession of occupants for an extended period. Inefficient record-keeping of property titles and collusion between assessing authorities and property owners contribute to poor tax collection efficiency. The Commission recommends that the Union Government work with states to ensure a timely switch to either the ‘unit area’ or ‘capital value’ method.
• It is essential to reconsider and minimize the categories of properties exempted from property tax. State laws should explicitly state that imposing tax on any property does not confer ownership rights if the property has been constructed in violation of any law, preventing unauthorized constructions from evading taxation. Property tax information for all properties must be made publicly available to prevent collusion between the assessing authority and property owners. State laws should also incorporate provisions for taxing properties leased by municipal authorities and impose service charges on properties owned by the Union and State Governments.

The administration of all taxes should adhere to the following principles:

• The determination of tax should be transparent and objective.
• Whenever possible, levies should be based on self-declaration by the taxpayer, accompanied by strict penalties for fraud or suppression of facts.
• The costs of tax collection and compliance should be minimized.
• An independent unit under the Chief Executive should monitor the collection of all taxes.
• Appeals against assessing officers’ orders should be directed to an independent quasi-judicial authority.
• Article 276(2) of the Constitution may be amended to periodically review and enhance the upper ceiling on Profession Tax.

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