The Political Basis of Decentralization

  • Aseema Sinha


A pervasive “China Envy” dominates public debates in India; India is mostly compared unfavorably to China. Most comparisons contrast China’s double-digit growth and high Foreign Direct Investment (FDI) levels with India’s slower growth rate and much lower FDI levels. This contrast is usually attributed to democracy in India, which, it is argued, has negative costs for economic performance.1 In addition, it is believed that decentralization in China has facilitated its economic success. India’s centralized system (“insufficient decentralization”) creates obstacles to economic reform. According to Percy Barnevik, a former chairman and chief executive of Asea Brown Boveri (ABB):

Maybe India would be served well by deeper decentralization. That could make things move faster … a lot of economic decisions can be handled locally. And then the Andhra Pradesh guy can talk to the Kerala guy and benchmark-why are they getting more than us? What are they doing that we are not doing? [In China] except certain strategic issues like police, foreign policy etc. the local guys are in charge. And they move. And growth is tremendous. That’s not through Beijing but in spite of Beijing.2


Foreign Direct Investment Economic Reform Linkage Mechanism Party System Fiscal Decentralization 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.


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© Edward Friedman and Bruce Gilley 2005

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  • Aseema Sinha

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