People's Democracy

(Weekly Organ of the Communist Party of India (Marxist)

Vol. XXX

No. 05

January 29, 2006

Imperialism And Economic Decentralisation


Prabhat Patnaik


IMPERIALISM invariably steals concepts from the Left, gives them a totally different and indeed opposite meaning to what they originally had, and uses them for its own purposes, exploiting the intellectual legitimacy which they had enjoyed when they were part of the Left lexicon. Imperialismís use of the concept of "structural adjustment" is one example of such intellectual deviousness. "Economic decentralisation" is another, more recent example.


The CPI(M) has argued for economic decentralisation for decades. It has persistently asked for a devolution of resources and decision-making from the Centre to the states and thence to lower-level elected bodies. Its objective in doing so has not been to strengthen the states at the expense of the Centre, but to strengthen the Centre as well as the states, so that the State (in the Marxist sense) which includes both tiers of government, becomes, even within its overall class limitations, a more democratic and development-oriented State, a State more accountable to the people and sensitive to their demands. (This also provides greater scope for peopleís struggles to alter the class-character of the State and hence the State itself). In short, the Left demand for economic decentralisation, for a re-ordering of Centre-state relations has always been a democratic demand, for energising the people, allowing them larger scope for intervention, so that the State, even within its class limitations, becomes a more effective instrument of anti-imperialist national development. Not surprisingly, this demand has always been a part of the demand for decentralised planning: decentralisation has always been seen by the Left not as opposed to planning but as a more effective way of planning.


While the reason for this belief lies in the obvious fact that tiers of government closer to the people are potentially more responsive to their wishes and more open to their direct intervention, the reason for specifically raising the demand for greater decentralisation in the Indian context lies in an anomaly of the Indian Constitution. This consists in the fact that the bulk of the responsibility for ushering in economic development in the country has been entrusted by the Constitution to the state governments, but the power to raise resources lies predominantly within the domain of the Central government. Aware of this anomaly the Constitution proposes the setting up at five-year intervals of a Finance Commission which is supposed to adjudicate on the transfer of resources from the Centre to the states, and the inter se distribution of these transferred resources within the states.


This Constitutional mechanism however had become rusty for at least three reasons: first, of the total transfers from the Centre to the states, the proportion coming under the jurisdiction of the Finance Commission had dwindled over time. The total share of Plan transfers, decided upon by the Planning Commission which is an organ of the Central government, and straightforward discretionary transfers by the Centre, had registered a corresponding increase. This allowed the Centre to reduce the states to a mendicant status and also to discriminate between the states. Secondly, the Constitutional respect due to the Finance Commissionís award on the part of the Centre had also dwindled over time. And thirdly, the Finance Commissions, instead of maintaining the status of being neutral arbiters between the Centre and the states, had increasingly tended to become subservient to the wishes of the Centre, since they were effectively appointed by the Central government. It is in this context that the Left demand for a reordering of Centre-state relations had acquired particular appositeness.




With the introduction of neo-Liberal policies, and the virtual demise of even such "planning" as the country had had until then, imperialist agencies like the World Bank started taking up the slogan of "economic decentralisation", but meaning by it something that was not only different from, but actually the opposite of, what the Left had been demanding. But before we discuss this intellectual sleight-of-hand, let us briefly discuss the overall "conspiracy" (yes, it literally was a conspiracy) of which it was a part.


As a typical feature of our federal polity it was the case that Parties with divergent ideologies were leading state governments when neo-liberal policies were introduced. A crucial problem before the "liberalisers" therefore was: how to thrust neo-liberal policies down the throats of all these political formations many of which were ideologically opposed to such policies? And the solution found was to starve state governments of resources, to impose upon them fiscal crises, and then to make the adoption of neo-liberal policy packages a condition for resource devolution to them. Besides, when the states would be facing acute fiscal crises, then automatically they would have to turn to the World Bank, the ADB and other such agencies for financial assistance and, as a "conditionality" for such assistance, accept neo-liberal policy packages.


We thus had the most bizarre spectacle. In the decade of the nineties while the Tax-GDP ratio of the Centre went down, that of the states taken together did not. The states taken together in fact put in a commendable fiscal effort, but at the end of the decade most states were in dire fiscal straits. The reason for this was two-fold: first, there was a decline in the relative magnitude of Central financial transfers to the states under all heads taken together. Secondly, on all non-Finance Commission-ordered transfers, interest rates were charged which were exorbitantly high, higher even than the rate of growth of Net State Domestic Products (at current prices).


Now, it is an elementary proposition of economics that if any entity borrows at an interest rate higher than its growth rate of income, then it is heading for a debt-trap. And that is precisely what happened. It was a devious and diabolical move on the part of the Central government, under the tutelage of the imperialist agencies whose former employees occupied all the important policy-making positions in the financial bureaucracy of the country and were hell-bent on pushing "liberalisation", to trap the state governments quite deliberately in a debt-trap, so that neo-liberal policies could be thrust down their throats.


The example of West Bengal shows the degree of deviousness involved. West Bengal accounts for the bulk of small savings in the country. Small savers in West Bengal, like their counterparts elsewhere in the country, used to get an interest rate of 6-7 per cent on their savings in the late nineties from the Central government which collected these savings. But the Centre loaned these very savings of the people of West Bengal to the West Bengal government at an interest rate of 11-12 per cent which was not only much higher than what the savers got, but was even higher than the NSDP growth rate.




By reducing state governments to penury, the Centre forced them to turn to agencies like the World Bank, the ADB, and the DFID, for assistance to meet even their basic social sector expenditures, and to private, especially MNC, investments for meeting the infrastructure needs of their states. These agencies in turn demanded their pounds of flesh. The World Bank, the ADB etc. demanded changes in "governance", including, especially, privatisation of public utilities, as part of their "conditionalities"; MNCs demanded tax concessions of various kinds, and, as in the case of ENRON, even guaranteed rates of return. All these further contributed to the worsening fiscal plight of the states.


But that was not all. The Finance Commission, a Constitutionally-sanctified body, joined in the act. The Eleventh Finance Commission made it a condition, even for states to receive what was Constitutionally their due, that they undertake "reforms" to the satisfaction of the Centre, and in particular undertake "power sector reforms". The fact that this was a clear transgression of the Commissionís Constitutional mandate, that it made a mockery of the Constitution, was pointed out in a dissenting note by one of the members of the Commission itself. But all this was of no avail. And the Twelfth Finance Commission has continued with the utterly un-Constitutional practice of laying down conditions for states to receive what is their legitimate due. We have in short, a carefully worked out plan, against all norms of Centre-state relations, not the norms that the Left was demanding but even those that existed before, to coerce state governments into accepting neo-liberal policies. They were given no choice or leeway in the matter.


The same imperialist agencies under whose tutelage this was effected have now also joined in the chorus of "decentralisation". But their "decentralisation" refers not to a decentralisation of resources, since resources have been handed increasingly to the private sector and not much is left with the government anyway. Nor does their decentralisation refer to decentralised planning since planning in any meaningful sense, is, for all practical purposes, long dead and buried. Their notion of decentralisation merely refers to a decentralisation of decision-making to lower levels, so that the entities doing the negotiations with the MNCs become weaker and weaker, and the competition between them for attracting the measly amounts of MNC-investment fiercer and fiercer.


With such decentralisation the Volkswagen company can simultaneously negotiate with the governments of Tamilnadu and Andhra Pradesh, pitting one against the other to extract maximum concessions for itself. With such decentralisation the POSCO company can browbeat the Orissa government into handing over control over its rich iron ore resources without even taking the Legislative Assembly into confidence. And now these imperialist agencies have started promoting decentralisation to Local Self-Government Institutions, so that the whole job of browbeating and promoting cut-throat competition among the potential recipients of "investment" and Ďassistance" becomes even more pervasive and easier.


The Left had striven to ensure decentralisation of resources and decision-making as a means of strengthening the developmental role and the democratic content of a State that was committed to a process of planned development with relative autonomy from imperialism. The economic "decentralisation" being promoted by the imperialist agencies is the very opposite of this: their aim is to fracture the unity of the national economy so that imperialist penetration becomes that much easier. Squeezing lower-tiers of the State when it suits them, promoting devolution of decision-making to lower-tiers when it suits them, they usher in not decentralization but disintegration of the economy, not a strengthening of the State as a potential bulwark against imperialism but its progressive enfeeblement.


But precisely because imperialism appropriates concepts from the Left, there is a danger that in the name of fighting imperialism we simply abandon our concepts and with it our theoretical understanding. It is important that instead of doing so we distinguish clearly between our concepts and the imperialist imitations of our concepts, and not let our theoretical understanding be subverted by imperialism.