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Local Government Reform in India: Assignments, Institutions and Incentives

Dec 1998
Stanford King Center on Global Development Working Paper
30e
India is undertaking a major reform of its rural and urban local governments. Constitutional reforms and subsequent supporting legislation change the assignment of tax and expenditure authorities to local governments, the methods of transfers from state to local governments, and the electoral and other institutional arrangements governing local governments. The ultimate goal is to achieve more effective delivery of services to constituent populations. In this paper, we review the financial situation and resources of India's local governments and analyze the political, managerial and other institutional constraints on effective local government service provision. Our main argument is that, while changes in assignments of expenditures and revenue authority are significant and necessary components of the ongoing reforms, the most crucial aspect is the reform of institutional structures to enhance efficiency, transparency and accountability with respect to revenue collection, expenditure decisions, and intergovernmental transfers. In this respect, there are parallels with India's broader, national-level economic reforms.