Raghuram Rajan says India is too big to be managed from the Centre
“India is too big to be managed from the Centre,” said Raghuram Rajan while speaking about the need for decentralisation while in conversation with Tamil Nadu’s Finance Minister P Thiaga Rajan on a virtual platform on Friday.
While he agreed that there was a need for a Central government, he said that more power needs to be vested with the State as he believed this will strengthen democracy, which was related to making capitalism work.
“We need the central government to have adequate powers, but we also need governance to move to where people actually experience it and feel empowered and that means moving more powers to the State and from the State to the municipalities and from municipalities to the localities so that people feel empowered. That will strengthen democracy and will also create a vibrancy that over time was missing in countries,” Raghuram Rajan said.
He said that one of the deficiencies of the democracy we see nowadays is that so much of the decision making takes place in a way that the public has no idea about.
“In India, we have centralized a lot. And we centralized it initially post independence, because we wanted to preserve the integrity of the country. Over time, there was an effort to decentralize more powers to the States, and from the States because of Panchayati Raj constitutional amendments, towards the municipalities and villages, but much of this decentralization has remained relatively stillborn. We still haven’t funded the panchayats and municipalities as much as we wanted. What we’re seeing now is an attempt to re-centralize.”
Rajan went on to explain that making capitalism work is intertwined with making democracy work, because with a functioning democracy, there are checks and balances on the government, on crony capitalism, and one can prevent all the fruits of capitalism being extracted by a select few.
“You also prevent the government from being excessively authoritarian,” he said. “The governments have to listen to the people. And that’s where democracy is not just about elections, it’s not just getting the vote from the voter, and then the voter goes to sleep for five years. It is an active process by which the government is checked and balanced constantly by an active population, which participates as much as possible in the decision making.”
Tamil Nadu’s finance minister P Thiaga Rajan said that asset managers were now sitting on huge amounts of money and that the amount of interest in a State like Tamil Nadu was immense.
“Especially when the union government doesn’t seem to be that interested or that open to relationships, the amount of interest in a place like Tamil Nadu is huge. And again, it depends on your values and your morality. It is a lot easier for me to raise the money without having to fix the system. But one of the things that I have been very clear about is that this is a once in a lifetime opportunity for us to do once in a generation reforms,” he said.
Thiaga Rajan went on to add that he is looking at reforming the State in three phases. Phase one would involve structural change, the second phase would be to raise capital and finally, he said that if these two happen, what really needs to happen is to get society to participate in the reform.
He spoke about how the State’s decision to constitute a panel of economic advisors that include Raghuram Rajan have provided valuable insights into how to better the State. He spoke about how one of the aspects that the former RBI Governor emphasised repeatedly was on the complexity of bringing children back to school.
“The data was appalling,” Thiaga Rajan said. “The increase in child labor, the increase in child marriages… We pride ourselves in Tamil Nadu not just in terms of GDP, per capita income but social development, infant mortality or health indicators. We are a much more equal state (when compared to the other states)… We were already focused on this anyway. But given what we got from our advisors we are focused tremendously on how we bring children back to school, how do we ensure that they actually go back to attending school and are not permanent dropouts.”