Fiscal decentralization for the delivery of health and education in Indian states: An ongoing process is more desirable than a policy shift

Abstract

We examine the impact of fiscal decentralization reforms on two central components of public service delivery outcomes, viz., health and education using feasible generalized least squares on a balanced panel of 18 non-special category states of India for the period 2002–2020. Given India’s complex decentralization framework, intertwined with dynamic political and socioeconomic dimensions and weak institutional processes, our analysis is critical to examining the efficacy of decentralization as a policy instrument to augment the provision of public services. The novelty of our study stems not only from its longitudinal and multidimensional approach towards analyzing the effectiveness of decentralization reforms but also from its unique construction of an ‘institutional quality’ index that is critical for ensuring accountability in the decentralization process. Our findings underscore the positive impact of fiscal decentralization as a reformative intervention on public service delivery outcomes, highlighting the role of Indian polity and socioeconomic channels of accountability in shaping those outcomes. The study emphasizes the imperative to augment institutional quality, safeguard press freedom, enhance local government capacity, and delineate distinct functions within key policy domains for successful decentralization reforms.