Dr. Bimal Jalan - Governor, Reserve Bank of India     


Article for Lok Sabha Secretariat on 70th Anniversary of India's Independence

On 15 August 1947, when India became independent, in a celebrated and oft-quoted passage in his address to the nation, Jawaharlal Nehru said, 'Long years ago we made a tryst with destiny and now the time comes when we shall redeem our pledge, not wholly or in full measure, but very substantially. At the stroke of midnight hour, when the world sleeps, India will awake to life and freedom.' On the 70th Anniversary of our Independence on 15th August 2017, as we look back, there is certainly much to rejoice in what India has been able to achieve in the past seventy years. In view of India's poverty and diversity, at the time of our Independence in 1947, not many political observers believed that Indian democracy would survive for long. It is gratifying to note that India's democratic system has not only survived but is universally regarded as a role model for peaceful transfer of power from one government to another after periodic elections.

Today, India is one of the few developing countries in the world, where so many people-most of them poor-cast their votes regularly in free and fair elections to elect their representatives. The birth of India's democracy after independence was also unique. Unlike many other established democracies of the time, India's democracy came into being peacefully and without a revolution or rising by the people. It was put in place by its nationalist leaders; what was particularly remarkable was that all citizens were given the right to vote irrespective of gender, caste, creed, religion, income, occupation or level of literacy.

The Indian economy, which for quite some time-in the fifties, sixties and the seventies-was in doldrums, has also recovered and shown rapid and steady growth since the beginning of the 1980s. The economy's potential for even faster growth is believed to be strong by experts all over the world. A view is gaining ground that India will become one of the dominant economies of the world by mid-twenty-first century. With a faster rise in per capita incomes, the curse of widespread poverty is also expected to disappear.

There is no doubt that India's economy is currently on a new growth path. Part of the reason for the resurgence of confidence in India's future is the process of economic reforms initiated in 1991. However, there is another important reason why there has been such a dramatic shift in India's economic outlook. The basic reason, which is sometimes overlooked, is that the sources of comparative advantage of nations are vastly different today than they were fifty or even twenty years ago. There are very few developing countries that are as well placed as India to take advantage of the phenomenal changes that have occurred in production technologies, international trade, capital movement and the deployment of skilled manpower. As a result, India today has the knowledge and skills to produce and process a wide variety of products and services at competitive costs.

Periodic elections to seek the people's mandate for the government to continue in office (or otherwise) are truly the hour of triumph for India's democratic traditions. In the latest national elections, held in May 2014, as many as 834 million people were entitled to vote. More than 550 million persons exercised their franchise. This was the largest democratic election ever held in the history of the world. What is also remarkable about Indian elections is that a preponderant proportion of the voters is from poor rural areas. In urban areas also, there is evidence that the poor tend to vote much more than the middle and upper classes. For all Indians, and for others interested in democratic elections, it is exhilarating to see all candidates, including powerful ministers and party leaders, campaigning from time to time for the people's vote with the utmost humility and respect.

In India, one of the most remarkable political developments since independence was the passage of the 73rd Amendment to the Indian Constitution in 1993. As is well known, this Amendment created a new tier of local government which, within a relatively short time, by the year 2003, led to the constitution of as many as 2,35,000 new village governing institutions, i.e. gram panchayats, staffed by over two million elected representatives. This is probably the largest number of persons elected to serve as people's representatives in any democracy in the world. Further, as a remarkable experiment in affirmative action, the 73rd Amendment mandated that close to half of the elected positions be reserved for traditionally disadvantaged population groups (lower caste groups and women).

As we look ahead, over the long term, India now has tremendous opportunities to alleviate poverty completely, and to become one of the strongest democratic global powers. To achieve this goal, and to meet the challenges that lie ahead, we also need to initiate some political reforms which may take some time to implement after discussion and adoption of necessary legislative measures by Parliament and state assemblies. Today, we are fortunate to have a government in power, which after 25 years of relatively short-term governments or non-performing coalitions of multiple parties since 1989, has a majority of its own. We now have the ability to initiate reforms in the political and administrative system which can deliver public services to the people with least diversion, delay or multi-tier corruption in allocation of public resources.

In the past three years, the present government has initiated several key reforms, some of which have been introduced through new laws, which also had the support of parties in opposition in Parliament. New laws included those relating to the auctions of coal and mineral mines, the Aadhaar Act, Insolvency and Bankruptcy Act and various Goods and Services (GST) acts. The government has also liberalized the Foreign Direct Investment (FDI) policies and raised the FDI cap on insurance to 49 per cent and 100 per cent in respect of marketing of food products. Recently, in order to reduce the large percentage of NPAs in the banking sector, an 'Ordinance' was also issued to help bank resolve some of the bad loans, especially in cases where co-ordination among multiple lenders was required to curb credits to defaulting large corporate borrowers. In addition to positive changes in law, some measures have also been taken to expand policies for rural development, housing for the poor, accelerate direct delivery of various services, including subsidies through the use of technology, such as Direct Benefit Transfers (DBT). To simplify the administrative process for delivery of public services, the number of central social sector schemes have also been pruned from 1500 to 300, and centrally sponsored schemes have been reduced from 66 to 28.

On the 70th Anniversary of our Independence, it is now feasible for present government to introduce some long-term political reforms which can further improve the functioning of India's much acclaimed democratic parliamentary system. I have no illusion that several desirable changes to make the present system more effective would be easy to accept or implement because of the inherent conflict of interest among different sections of the political spectrum. However, I believe that a couple of urgent reforms mentioned below are now essential, and may receive the support of most political parties in power at the Centre and states.

The first is the need to review the present scheme of division of powers between the Union and the states. Articles 245 to 255 of the Constitution deal with distribution of powers between Union and the states. These Articles also include a Concurrent List under which both the Union and the states can make laws. In the light of political developments in the past two decades, with emergence of multi-party coalitions of different types and durations, it is now desirable to review the present division of powers between the Centre and states. In view of external terrorist linkages and other factors, there is urgent need to consider transfer of powers for the maintenance of internal security to the Centre from the states. In the economic area, it is desirable to consider a reverse transfer, i.e. powers and responsibility for financing development programmes should be transferred from the Centre to the states. At present states formulate their investment priorities, but the responsibility for the approval and provision of sufficient resource for implementing them rests with the Centre.

Now that India has the good fortune of having a majority government in power and highly distinguished leaders at the helm, immediate action needs to be taken to transfer more financial powers and increased responsibility for the implementation of development programmes to the states. This is not because all states are likely to be more scrupulous or consistent in the exercise of their powers, but because greater transparency and competition among states would at least ensure that the better governed states have easier access to financial resources and the opportunity to implement their programmes. Just as the Finance Commission is Constitutionally empowered to decide on the division of tax resources between the Centre and states, a similar federal commission should be statutorily set up to decide on the devolution of all other forms of Central assistance.

The second important reform measure which may also be launched on the occasion of the 70th Anniversary relates to 'State Funding of Elections'. One argument which is frequently advanced against state funding is that it would favour large parties and would, therefore, be unfair to small or new parties. Another argument is that the fiscal cost of such funding will be high and unbearable for many states as well as the Centre. While there is indeed some merit in both arguments, these are by no means persuasive and compelling.

To take the second argument first, the size of the Budget expenditure by the Central government for the year 2017-18 is estimated to be more than Rs. 20 lakh crore for financing Lok Sabha elections and providing some support to state governments for state elections. Even if such elections are held twice every five-years (because of greater political instability), this amount should be sufficient to provide adequate funds for legitimate electoral expenses in each Lok Sabha constituency. In terms of the Central budget, the amount to be earmarked for elections could vary from 0.2 to 0.4 percent of total expenditure annually (depending on the frequency of elections). By no means, this can be regarded as an unbearable fiscal burden for a cause as vital as election funding.

It is also feasible to introduce a practical scheme for the equitable distribution of electoral funds among large and small political parties. A feasible distribution formula, given below, is by no means perfect but it should broadly meet the legitimate concerns of small parties.

  • Funds for elections to recognised political parties should be provided under two broad heads: (a) to reimburse certain categories of identified election expenditure; and (b) to meet a relatively small amount of residual expenditure on staff and maintenance of party election offices.
  • A predetermined category of actual expenditure, which should be eligible for reimbursement, could cover newspaper and television advertising for a specified period, say, two or three weeks prior to elections and reasonable transport costs by air and train for election campaigns. Rules for reimbursement of actual expenses under these (and any other admissible heads) may be laid down by the Election Commission.
  • The division between 'large' and 'small' parties for the purposes of allocation of funds may be made according to a benchmark, approved by Parliament after appropriate consultations with the Election Commission.
  • Reimbursement of actual expenditure under the prescribed heads may be the same for all 'large' parties (as defined by Parliament for this purpose), and proportionately less for smaller parties (depending on the actual number of seats held by them in the Lok Sabha or state legislatures).

The implementation of the above reforms on the 70th Anniversary of India's independence, in addition to several other measures (such as introduction of GST), which have already been announced by government, would certainly enable India to cope with challenges that lie ahead to sustain high growth and alleviate poverty over the next decade or so. The above measures are also likely to increase political stability in future, reduce the powers of multi-party coalitions, and help in reducing economic disparities in the long run.


Thank you.


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