Relaxing the fiscal constraint at the spending level is not really a resources problem, but a restructuring and devolution problem. For state and local bodies to spend along desirable lines — rather than digging and filling up ditches or spending mechanically on Central schemes — best practices have to be replicated in resource-raising and/or free resources being made available as in the Gadgil-Mukherjee formula. Newer financial structures and institutions at state and local levels need organisational and financial market reform at higher levels — the creation of markets for local securities, community collateral and so on. These are reforms that are urgent, relatively straightforward, and have a national and global edge.

The writer, a former Union minister, is chairman, Institute of Rural Management, Anand

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