Decentralisation can be defined as the dispersion of decision making governance or distribution of functions and powers from a central authority to regional and local authorities.
There are various forms of decentralisation. Privatisation is a type of decentralisation. Privatisation and deregulation means shifting responsibility for functions from the public to the private sector. Privatisation can range from public-private partnerships to allowing private enterprises to perform functions that had previously been monopolised by the government. Usually, though not always, privatisation and deregulation are accompanied by economic liberalisation and market development policies.
India’s fiscal deficit during 1990s, spectacular growth by economies of Korea, Taiwan, Malaysia due to the indulgence of private sector; integration of world trade, changes in China and dissatisfaction with the performance of public sector—all factors collectively contributed to the initiation of privatisation in India.
To begin with, in 1992, India opened up cellular and basic services to private players and then the Telecom Regulatory Authority of India (TRAI) was constituted in 1997 as an independent regulator in this sector. Till 1986, telecommunication was a public utility owned by the Government of India.
Mahanagar Telephone Nigam Limited (MTNL) was created in 1986 as a Public Sector Enterprise (PSE) to facilitate telecommunication services in the cities of Delhi and Mumbai. In all other places, Bharat Sanchar Nigam Limited (BSNL) was formed as a PSE on 1st October, 2000 as a telecom service provider.
These state-owned incumbents with a large existing subscriber base dominate the fixed line service. However, with the entry of private players, today the Indian telecommunication industry is the world’s fastest growing industry with 826.93 million mobile phone subscribers, as of April, 2011, as liberalisation led to the entry of private players such as Bharti Airtel, Reliance Communications, Tata Teleservices, Idea Cellular and Aircel.
Privatisation of banks began in 1994 when the Reserve Bank of India issued a policy of liberalisation to license limited number of private banks, which came to be known as New Generation tech-savvy banks. Prior to this, SBI was in existence since 1955, apart from the Reserve Bank of India (RBI) established in 1935, which controlled the central banking responsibilities.
Thus, Global Trust Bank was the first private bank after liberalisation, which was later amalgamated into Oriental Bank of Commerce (OBC) and Housing Development Finance Corporation Limited (HDFC) was the first bank to receive an ‘in principle’ approval from the RBI to set-up a bank in the private sector. At present, there are many private banks in India including leading banks like ICICI Banks, ING Vysya Bank, Jammu and Kashmir Bank, Karnataka Bank, Kotak Mahindra Bank, SBI Commercial, Dhanalakshmi Bank, Federal Bank, HDFC Bank, Karur Vysya Bank, UTI Bank and YES Bank.
Privatisation of insurance sector in India happened around the year 2000 when the government allowed private players to enter the Indian market. Although in the year 1993, a road map for privatisation of the life insurance sector was laid, but it took another six years before the enabling legislation to pass the Insurance Regulatory and Development Authority Act in the year 2000.
Resultantly, the newly appointed insurance regulator—Insurance Regulatory and Development Authority (IRDA)— started issuing licenses to private life insurers. At present leading private sector life insurers are SBI Life Insurance, Metlife India, ICICI Prudential, Bajaj Allianz, Max New York Life Insurance, Sahara Life Insurance, Tata AIG, HDFC Standard Life, Birla Sun Life, Kotak Life Insurance, Aviva Life Insurance, Reliance Life Insurance, ING Vysya, Shriram Life Insurance, Bharti AXA, Future Generali, IDBI Fortis Life Insurance, AEGON Religare and Star Union Dai-ichi Life Insurance Co. Ltd.
In the electricity sector, the new wave of policy reforms designed to promote private participation has been driven by the need to expand the capacity and increase the reliability of systems, public sector budget constraints and the positive results of the private participation in other countries. Although in India electricity sector is still largely under the domain of public sector, but the inclusion of private sectors for capacity additions has also begun.
Major PSUs involved in the generation of electricity include National Thermal Power Corporation (NTPC), Damodar Valley Corporation (DVC), National Hydroelectric Power Corporation (NHPC) and Nuclear Power Corporation of India (NPCI). Besides PSUs, several state level corporations are also involved in the generation and intrastate distribution of electricity. In the private sector, major capacity additions are planned in Reliance Energy, Tata Power and RPG Group-CESC. Decentralisation is an answer to the problems of the centralised sector.
Decentralisation in the government sector helps to solve problems of economic decline, lack of funds, performance issues and reservation for minorities. In the area of politics, its objective is to vest more power with citizens or elected representatives. Economic decentralisation brings about privatisation of public institutions, through deregulation, abolition of restrictions on business competing with government services, such as postal services, school etc. Decentralisation has also been executed in various technologies like water purification, waste disposal, agricultural technology and energy technology.
Internet is a good example of a successful decentralised network. Wikipedia, the online Encyclopaedia, storing information on a plethora of topics, is also decentralised as it allows users to add, modify or delete content via the internet. Social networking sites are also decentralised systems that have greatly changed our lives. Information technology used to facilitate interactions of the government with the citizens, is referred to as e-Government.
It is indeed a good initiative to boost democratisation. Education, health care and petroleum are some of the other sectors that have been decentralised and are among the fastest growing sectors of the economy today. Thus, decentralisation of public sector enterprises that began with the economic reforms of the 1990s has yielded tangible benefits to the country.
However, dangers of decentralisation loom large. For example, if the technical capacity or functioning of a system is weak, it will definitely result in poor quality products and services. Coordination for national policies can become complex and resource distribution can become uneven. A few local elites can grab power and hindrances in proper decision-making can surface. In the absence of a higher competent authority, monopoly and anarchy can give way to chaos and suppression of public interests.
Thus, decentralisation is both a boon and a bane to the economy. It is to be used as an ‘instrument of change and empowerment of the masses’ and not to earn quick money by few individuals pursuing their selfish interests.