Small countries have all the advantages of being price-takers in trade; yet, in times of crisis, size matters. Rural and agricultural sectors are still largely undisturbed by the global crisis. Placement at IRMA was fine. Vijay Mahajan is still bullish on insurance policies for the rural poor and other NGOs building financial structures for rural areas are still doing well. It would be foolhardy to think that we can ride out the downturn on rural growth but the sector is holding out. Most of our big programmes for revival are rooted at the local level — airports and big construction projects only carry you so far.

The notion that local-level bodies, municipalities and panchayats cannot be economic agents and do not raise resources is incorrect. Their performance varies widely. While it is quite clear that more needs to be done, resource-raising local bodies are more than just “best-practice cases”. We must learn to measure success in resource-raising efforts, so that lessons can be learnt from the successful. This would enable those who do it to access non-sovereign guaranteed borrowing for their enormous investment needs — as an old committee under Rakesh Mohan had worked out. Once all this is taken seriously, look at efficiency in expenditure. Policy-making is not just trying to get non-existent FDI, but helping those who help themselves by structuring financial institutions and federal finance. This reform has to be at the centre of policies to fight the global recession.

That local bodies differ in performance and our policies towards them are random and unrelated became clear to me in the early ’90s, when I saw that in the backward district of Parbhani in western Maharashtra, we were spending only four hundred rupees per person, but in richer districts in western Maharashtra more than double that figure. Some districts could raise around a tenth of their total expenses from their own resources, which covered all their running expenses and left surpluses for investment; while others depended entirely on the state. Many were financing more than half their investment from borrowing. The pattern continues: in one prominent state a little more than a quarter of local body expenses came from their own resources towards the end of the last decade. The average income was around a lakh, but around a quarter of gram panchayats had income between one to two and a half lakhs, and a substantial number of so-called “large villages”, over a crore. Average expenditure was above three lakh, and around a quarter of the village panchayats had resources between one to two and a half lakh.

... contd.