What Asia can learn from MODIfied India

Large countries like China, India and Indonesia share the common problems of large population and dispersed geography, with different parts of the country at different stages of development and with diverse cultures, languages/dialects and historical outlook.  Hence, centralisation may add to national cohesion, but it may also slow down the ability of different regions and cities to experiment and innovate to become new growth poles and agents of change.

China versus India
All three countries have histories of strong central governments, but the Chinese experience has shown that competition between provinces and cities has helped the growth process – though it has also created new problems. Since independence in 1949 and 1947 respectively, both China and India have had strong planning regimes, yet one of Prime Minister Modi’s first acts was to dismantle the Indian Planning Commission (established in 1950). In its place, he set up the National Institution for Transforming India, which will include chief ministers from various states, to reflect the shifting power balance between the centre and the states.
China coordinates national progress through a powerful National Development and Reform Commission, which ensures that the local plans and annual budgets, from county to province, are consistent with its national five-year plans. Both China and India are currently on their 12th five-year plan (2011-2015 and 2012-2017 respectively). China’s 13th five-year plan (2016-2020) will cement in place much of President Xi’s “China Dream”.
Although India’s GDP and per capita income, at US$1.9 trillion and $1,499 respectively, are roughly one quarter that of China, the speed of Indian GDP growth has been rising, whereas that of China is slowing. With much more favourable demographics and benefiting from abundant cheap labour and opening up, some analysts think that India’s growth rate will exceed China’s sometime before 2020.
Modi clearly has a vision and mission for India to catch up with China in almost every aspect of economic development. 
Much will depend on his leadership in pushing through reforms previously stalled for various reasons, one being the formidable Indian bureaucracy, or so-called Licence Raj. India’s bureaucracy is so famous for licensing everything that cynics suggest its IT industry would never have succeeded had civil servants understood what it was all about.  
At the heart of the centralisation-decentralisation debate is the extent to which local governments have revenues and powers to decide for themselves how to deploy resources to best “fit” their own development targets.

‘Secret’ finance weapon
India inherited its civil service structure from the British after 89 years of colonial rule. However it has since made some interesting institutional innovations, which offer models for other developing countries facing similar problems of fiscal management. One such institutional innovation is the Finance Commission, an independent panel of experts to advise government (including provincial governments) on how to raise and share revenue.
It may be serendipity, but clearly the stars are aligned for Indian development, because the 14th Finance Commission (2011-2014) was chaired by Venu Reddy, former governor of the Reserve Bank of India, who not only boasts a reputation for helping India avoid the global financial crisis of 2007-2009, but also vast experience as top civil servant at the Finance Ministry and also at the provincial level.   
His report coincided with Modi’s vision of developing India from the bottom-up. Because of low tax revenues owing to low tax rates, India’s ability to spend on development and infrastructure is currently less than one third that of China.
The 14th Finance Commission recommended new ways to raise state and local government revenue, either through municipal bonds, increasing tax rates (on professions, property and mining), and/or imposing tax on new sectors (vacant land, betterment and entertainment).
The new Indian budget for 2015-2016 adopted many of the commission’s recommendations, aiming to increase government revenue and infrastructure expenditure. For example, like Singapore, India will also impose an additional 2 per cent surcharge on the ultra rich. Furthermore, more taxes will be imposed on the mining sector and public utilities. China’s mining tax on iron ore was 80 per cent (2012), while India’s was a mere 10 per cent (2009).
In a sweeping move to improve the efficiency of public utilities, it was proposed to meter 100 per cent of water and electricity usage, to cut down subsidies and recover full costs of public utilities.
Furthermore, in a break with its predecessors’ inclination to favour central government control of revenue, the 14th commission recommended that states’ share of central government tax should be hiked from 32 per cent to 42 per cent.

A model for Asia
As an institutional innovation, the Finance Commission model has four clear advantages for the management of large government bureaucracies.
l First, it is professional and meritocratic. Even though political views of the members cannot be avoided, by and large the commission is made up of professionals renowned for their expertise and independent approach. 
l Second, the workings of the commission are transparent. By consulting different levels of government, academics, think-tanks, civil society and even students, all of whose views are on record, the commission is able to improve the social debate on complicated and controversial issues without the discussion becoming politicised. Such transparency improves the quality of public and academic discourse, because the university and professional communities are able to access more information about how the government works and provide good feedback on the complex issues involved. 
l Third, the commission’s work process improves accountability and the rule of law. The government (and politicians) know that they will get the best professional and scientific advice possible on the different options available, including valuable domestic and international experience. It helps the rule of law, because when future tax or policies are implemented and disputed, the courts have public records of the policy debate and the thinking behind such tax rules or regulations. 
l Fourth, the government does not have to accept all the recommendations of the commission. It has the option of choosing what it feels is politically acceptable and implementable. All it has to do is to explain why it made a particular choice of policy direction.   
A relatively closed-door debate over the various issues means that if the policies turn out to be faulty, the government cannot deny that it alone made the decision. Whereas if the policy is a recommendation from a commission of independent experts, the government can say that it was done with the best available advice and information. 
There is no doubt that the competition for growth and development between China, India and Indonesia will drive innovation and new avenues of change to Asia. Countries in our region have much to learn from each other’s strengths, experience and also mistakes. Innovations in Asia’s public institutions, many of which were borrowed from elsewhere, have helped innovation and growth across the board, to the benefit of all.