Foreign Direct Investment, Infrastructure and Decentralized Governance: Linking for the Future India
Foreign Direct Investment,
Infrastructure and Decentralized Governance: Linking for the Future India
Abstract
There is a close link between governance, infrastructure and
foreign direct investments. Infrastructure is the determinant of attracting
FDIs. Structure of Governance is the catalyst for quality infrastructure
development. If a governance system that is capable of creating infrastructure
by following economy, efficiency and effectiveness, that itself is a panacea
for economic growth. The Kerala Model of
Decentralised governance created a base through the rural connectivity and
improved local resources. The funds, functions, functionaries and freedom to
LSGIs through the 73rd CAA and subsequent Conformity Act by the
Kerala state strengthened the Decentralised governance system and there by base
infrastructure. Now it is the role of state and central government to
concentrate more on high quality infrastructure and strengthening the other
states also in the way cleared by Kerala
1.
Back Drop
Infrastructure is an
important determinant of the overall rate of growth of an economy. It support, directly or
indirectly, the productive activities and lack of infrastructure can be a serious
constraint on economic growth. Inadequacy or poor quality of infrastructure discourages
investment and lowers its productivity. The investment
requirements for various types of infrastructure like transport, ,communication,
power, roads, education and health care are enormous and risks involved is large. In addition to
India’s poor performance in terms of competitiveness, quality of infrastructure
and skill and productivity of labour, several other factors like fast
developing internal market and continued reforms to create an environment conducive
to Private investment and economic growth still attract FDIs (Nirupam Bajpai
2000)[i]. For this reason, the role of government in
this field has been leading and
predominant. The key to global
competitiveness of the Indian economy lies in building world class infrastructure and service
delivery at competitive rates. The realization of investment targets for infrastructure
during the Eleventh Plan gives hope that the financing
of an even more ambitious Twelfth Plan target may be possible. Private-sector participation in financing of infrastructure
has also generated optimism that public funding
need not necessarily be the exclusive route for infrastructure investment. A conducive
environment for private sector participation with a transparent and credible regulatory mechanism, therefore, could
reduce the pressure on public- sector funding. Sectoral analysis of
private-sector participation in infrastructure during the Eleventh Plan also indicates that sectors such
as irrigation, railways, water supply and sanitation,
ports, and power distribution have not generated the desired enthusiasm and attracted the desired level of private
investment.
2.
Growth Of Infrastructure
Most infrastructure
services in India have until recently been provided by public monopolies and quasi-monopolies and have been beset
by server problem like lack of accountability, low productivity, poor financial performance and
over-employment. In order to meet the challenges of rapid economic growth and international competitiveness, there
is an urgent need to achieve greater efficiency and accountability in this sector. As government ability to
undertake investment in infrastructure is severely constrained, it is necessary to include much more private
sartor investment and participation in the provision of social overheads.
Power:
Eclectic power, which is one form of energy, is an essential ingredient of economic development and, it is required for commercial and non commercial uses. Commercial uses of power refer to the use of electric power in industry, agriculture and transport. Non commercial uses include electric power required for domestic lighting, cooking, and use of domestic mechanical gadgets like the refrigerators air conditioners etc. with rapid growth of population in India and with increase in the use of modern gadgets is daily life it is quite natural that the demand for electricity for domestic use should growth a fast rate. Electricity generation by power utilities during 2011-12 was targeted to increase by 5.4 per cent to reach 855 billion units. Growth in power generation during April-December 2011 was 9.2 per cent as compared to 4.6 per cent during April-December 2010. Nuclear, hydro, and thermal generation registered a growth of 33.2 per cent, 19.2 per cent, and 6.7 per cent respectively[ii].
Oil and Gas Production:
During the current
financial year (2011-12), production of crude oil is estimated at 38.19 million metric tones, which is about 1.33 per
cent higher the 37.70 MMT produced during 2010-11.Domestic crude oil production during
APRIL-December 20122-12 was 28.70 MMT showing a growth of 1.9 per cent over the same period of the previous
year. Natural gas production
during April-December 2011-12 was 36.19 billion cubic metre (CBM) during the same period of the previous
year. The projected production for natural gas including coal bed for 2011-12 is 51.67 (BCM), which is 1.05
per cent lower than the actual production of 52.22 BCM in 2010- 11.The gas
production has reportedly decreased due to drop in pressure in the wells and
increased water ingress leading
to lower output of gas per well (Montek S Ahluwalia 2011)[iii].
3.
Responsibilities of
Local Governments
The introduction of 73rd
and 74th Constitution Amendment Act (CAA) in India paved the way for
the creation of a three-tier system of government holding responsibilities on
civic duties. The XIth and
XIIth schedules of Indian Constitution state
the subjects that need to be devolved to the Local Self Government
Institutions (LSGIs) by the states through conformity Acts (Dr. Balan PP 2006)[iv]. Among the 29 subjects stated by the aforesaid
schedules almost all subjects are devolved to the LSGIs by the Government of
Kerala (GoK). The schedules 3 to 5 of
Kerala Panchayat Raj Act, 1994 list the functional domain of three-tier
Panchayats; most of them are the civic functions required for the society. Majority of the services required for the
citizens are performed by the LSGIs at the cutting edge level – i.e. Grama
Panchayats. Accordingly, the LSGIs at
the cutting edge level are entrusted with the functions which fall into three
categories viz. mandatory functions (27 functions), general functions (14
functions) and sectorial functions (19 sectors, comprising a total of 76
functions) (Ratna Raj M 2008)[v].
Above all the hallmark of
decentralization in Kerala is the transfer of well-defined developmental
responsibilities to Local Governments. Specifically the extent of
decentralization and its nature can be understood from the following facts.
(1) In
the case of infrastructure, barring Highways and Major District Roads
connectivity has become an exclusive local government responsibility. In the
case of power in addition to the traditional function of street light
maintenance, extension of electricity lines to unserved areas is now by and
large carried out by Local Governments. They also play the major role in
promotion of non-conventional energy.
(2) Sanitation
including solid and liquid waste management is now totally under Local
Governments. Rural Water supply is substantially under the PRIs with the Kerala
Water Authority concentrating on larger schemes. In urban areas through JNNURM
cities and towns are coming back in a big way in providing drinking water. In
such areas they have entered into a formal MoU with the Kerala Water Authority
under which the decision making power is with the elected councils and KWA
functions as a technical support and managing agent.
(3) Promotion
of tiny cottage and small industries is now a shared responsibility with the
Industries Department.
(5) In
the education sector Local Governments have responsibilities upto the Higher
Secondary level.
(6) All
welfare pensions are administered by Local Governments – including selection of
beneficiaries and disbursement of pensions. With the important role given to
Local Governments in the proposed universal health insurance scheme for the
poor, they have a critical role to play in social security also.
Thus most of the responsibilities
relating to human and social development are now in the hands of Local
Governments. In this juncture the role of LSGIs are to create a base for
infrastructure for heavy industries and national infrastructure development.
For ensuring this the LSGIs need funds functionaries and freedom. In view of
that the state government provided fiscal decentralization, many department
officials and formed a committee system of structure for role performance.
4.
Fiscal
Decentralisation
Fiscal transfers to Local
Governments from Government were also done in a systematic manner. The Basic
Tax (Land Revenue) and Surcharge on Stamp Duty were fully devolved to Local
Governments. In addition 20% of the net collection of Motor Vehicle Tax was
also passed down to Local Governments based on road length.Further, there were
seventeen specific purpose grants relating to items like water supply, street
lighting, establishment, level crossing etc. The sources of funds available to
the LSGIs are divided into seven categories (Government of Kerala 2006)[vi],
which is worth enough to perform the fore said responsibilities. They are –
A
category funds – Development Fund
From the state government for decentralized
planning. Development Fund is provided in three categories viz; General Sector,
Special Component Plan and Tribal Sub Plan.
B
Category Funds – State Sponsored scheme
Fund
From the state government for state
sponsored projects. This also includes non plan funds for social welfare
schemes including unemployment allowances and various pensions like pension for
agricultural laboures and others.
C Category Funds- Maintenance Fund
Maintenance Fund for
maintaining the assets of local governments including those transferred as part
of decentralization and Development Fund for development functions. Maintenance
Fund is devolved in two categories; - one for the maintenance of roads and the
other for maintenance of other assets;
D Category funds- General Purpose
General Purpose
Fund are for meeting the expenditure on traditional functions and establishment
expenses.
E
Category Funds- Centrally Government sponsored
Schemes
This category includes SGRY, SGSY, Total
sanitation, drought relief, IAY, MGNREG and the like.
F
Category Funds- own funds
Property Tax, Profession Tax and
Entertainment Tax have been traditionally assessed and collected by Village
Panchayats
G Category Funds- Loans
Local Governments can avail loans
from financial institutions as per the Kerala State Local Authorities Loan Act
(1963). There used to be a Rural Development Board for financing projects taken
up by Village Panchayats and Kerala Urban Development Finance Corporation
(KUDFC) for Urban Local Governments. The Rural Development Board has been wound
up and the existing KUDFC has been restructured into the Kerala Urban and Rural
Development Finance Corporation (KURDFC) to provide loans to all local
governments. Local Government in India can float Municipal Bonds (Vijayanand S
M 2009)[vii].
5.
Functionaries
for strengthening Infrastructure Development
in LSGIs
|
#
|
Category
|
|
1
|
Superintending
Engineer
|
|
2
|
Executive
Engineer
|
|
3
|
Assistant
Executive Engineer
|
|
4
|
Assistant Engineer
|
|
5
|
First
Grade Overseer
|
|
6
|
Second
Grade Overseer
|
|
7
|
Third
Grade Overseer
|
Source: Vijayanand S M (2009)
In
order to Strengthening the engineering department of LSGIs the GoK transferred
1865 functionaries and it is also
expects that 463 engineering staffs will be transferred to the LSGIs in
Kerala.( ibid ).
6.
The
Ray of Hope for sustainable infrastructure Development
i.
Decentralised
Planning
A
highly participatory planning methodology has been developed. It has been
refined over the years and it has succeeded in bringing on outstanding models
in different sectors of development, like housing, water supply, sanitation,
poverty reduction, destitute rehabilitation providing care services, empowering
women, improving public education, enhancing public health and so on. These
models have now to be up-scaled and universalized.
ii.
Rule
based
Rigid adherence to rule based
devolution of funds has ensured that resources have flowed smoothly to every
corner of the State and more to the backward pockets. This has brought about a
kind of diffused stimulus for local level development increasing public
satisfaction levels.
iii.
Economy
There has been considerable
increase in pro-poor expenditure. Local Governments have done fairly well in
provision of minimum needs infrastructure especially housing, water supply,
household sanitation, and power and road connectivity.
iv.
Efficiency
There has been significant improvement
in public service delivery infrastructure especially in schools, hospitals and
anganwadis.
v.
Transparency
Participation has improved
transparency. There is a widespread awareness about the developmental
activities undertaken by Local Governments.
vi.
Effectiveness
Decentralization seems to have
reduced costs thereby increasing efficiency of expenditure. This is
particularly true of public works and water supply and irrigation schemes in
which the cost of construction through Local Governments is lower by 20-25%
compared with Departments (Vijayanand S M 2009). Decentralization has improved
targeting of benefits mainly due to the open and normative process in place for
selection of beneficiaries.
vii.
Participation
through contribution
There has been considerable contribution
from the public mostly in kind, particularly as free surrender of costly land
for creation of common infrastructure for irrigation, connectivity, etc. Through
an implicit social contract, there has been active willingness on the part of
beneficiaries to manage assets like water supply schemes and irrigation
systems.
7.
To do for the future
In India systems, procedures and
processes of governance have a “deep structure” designed for centralized
governance with upward accountability. Also it has features meant for
bureaucratic control and not for democratic control. The big challenge is to
restructure governance system to make it appropriate for decentralized,
participatory, democratic governance without losing features related to
transparency, consistency, accessibility, accountability and so on. Right at
the beginning of decentralization, Kerala took a deliberate decision that the
opportunity for fundamental reform of the governance system should not be lost.
Therefore, if other states also do the same and involve in the development of
infrastructure the picture will be different. Once administrative systems are
brought in it is very difficult to change them frequently. Therefore any new
system has to be designed in such a way as to withstand the demands of the
future. After delegating administrative and fiscal power, the state and central
governments can involve in highly advanced and gigantic projects like rail way,
air transport, ports, power, oil field development and the like and entrust the
basic local infrastructure for the LSGIs.
8.
Conclusion
It
has to be noted that the Kerala model of decentralization is a home-grown
process organically emerging from the administrative, developmental and socio
political context of the State and the country. After a period of intense
experimentation followed by correction and stabilization, the decentralization
initiatives have reached the institutionalization stage. The experience of
nearly a decade and a half in trying to bring about a Local Government system in
accordance with the spirit of the Constitution is an object lesson in “doing
decentralization”. Across four changes of Government and in spite of terrible
fiscal stress, the State showed unwavering commitment in strengthening the
foundation for democratic decentralization. The State can now claim that it has
developed a viable and replicable model which other States in the country can
adapt - in administrative decentralization, fiscal decentralization,
participatory planning, setting up supporting institutions for local
governance, linking Local Governments with experts, professionals, activists
and community based organizations and so on. What has been achieved is far
beyond a successful project or even a best practice. It has been a massive
effort in bringing about a new tier of governance and making it fully
functional, transforming the basic structure of Government at a huge cost in
terms of resources and human effort.
With this state of affair the
decentralized governance system in Kerala is capable enough to create a strong
base of local infrastructure and proved this through the last three plan
periods by creating a good connectivity in all villages in Kerala. So to
conclude our LSGIs are capable of improving the infrastructure to attract more Foreign
Direct Investment and more employment opportunities for supporting the thirst
for India’s growth.
Reference
[i] Bajpai Nirupam and Jeffrey D
Sachs, 2000: Foreign Direct Investment in India: issues and problems, Harvard
Institute for International Development, Harvard University.
[iii] Ahluwalia, Montek S,
2011: Infrastructure Development in India's Reforms http://planningcommission.nic.in/aboutus/speech/spemsa/new/msa29. accessed on
21/05/2013
[iv] Dr. Balan PP 2006:
Capacity Building for Strengthening Local Governance: Kerala experience, KILA
[v] Dr. Retna Raj M, 2008: Decentralised
governance and Poverty Reduction: Lessons from Kerala, KILA
[vi] The Government of
Kerala,2006: GO (P)177/2006 Fin Dated
12/04/2006.
[vii] Vijayananda S M,
2009: Kerala – A case study of Classical Democratic Decentralisation, KILA,
Trissur
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