It markets itself as the ‘Incredible India’ perhaps because of the huge diversity of its 1.25 billion people and the vast, beautiful landmass that sits between three oceans.
Nearly 30 per cent of its people, some 270 million people, live below the poverty line, majority in extreme poverty. Although its huge $2.1 trillion largely agrarian economy grew at 7.4 per cent last year, the large population lowers it’s per capita income to slightly above Kenya’s, at $1,500.
India incredibly has the world’s largest deposits of gold — some 22,000 tonnes — held by individuals, families and trusts; valued at nearly $1 trillion!
The government plans to monetise these assets and grow the economy exponentially. Fifty one per cent of its farmers have no access to either formal or informal sources of credit; and the usual problems in agriculture of debt, low yield, delayed inputs, intermediaries, poor policies, etc, abound. Yet, this country is self-sufficient in food!
But there is much we can learn from this great nation, as we share a lot in common, culturally and historically. Thousands of our students are in universities in this country. Nearly 5,000 Kenyans travel to India annually seeking superior and affordable medical attention.
Bilateral trade with that country is over $2.5 billion annually, although largely imports by Kenya. It is the world’s largest democracy with age-old devolved system of governance, and its maverick PM says democracy is in their DNA!
How did India share its national revenue, estimated at $145 billion last year, both vertically between the central government and the states and horizontally among the 29 states? After decades of devolution, there isn’t any quarrel about transfer of functions, or conflicting roles, which are outlined in their constitution. And for clarity, their Constitution also spells out taxes that can be collected at both levels of government. As in our case, all key taxes are collected by the central government except that some VAT is also charged by the states.
Like Kenya, the country struggles to address the vertical imbalance of resources occasioned by taxation powers and expenditure responsibilities of New Delhi and the States. Their revenue allocation commission recommends a formula every five years, and is traditionally binding on the government. Unlike India, our CRA’s recommendation of revenue sharing formula was rejected last year by the Senate, and is not deemed to be binding.
India’s central government allocated 42 per cent of its national revenue to the States this year, based on the recommendations of the revenue commission. The central government sheds a further 20 per cent in conditional transfers and grants to the urban and rural local authorities through the States, bringing total transfers to 62 per cent. But that’s hardly enough for the counties. Indeed, for most States, the local revenue far exceeds the transfers from Delhi. There is no squabbling between the governments or the legislature in this regard; they have learnt to live with the recommendations of independent institutions.
Horizontal allocation between the States uses similar parameters as ours, albeit more specific and realistic. Population factor has a weight of 27.5 per cent only, over concerns that a higher weight would disincentivise States that have succeeded in population control.
The single most important parameter in India is fiscal capacity, accounting for 50 per cent but on which we place regrettably little premium. Ours is invariably about population which accounts for 45 per cent not fiscal discipline, or fiscal capacity, and hence the wanton lootery by those entrusted to use it for the people.
We have indeed a lot to learn from India.
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