Events & Issues

New Delhi, 11 September 2012

‘Federal’ Debate

FOCUS ON ECONOMIC DOMAIN

By Dhurjati Mukherjee

Notwithstanding the Congress and BJP slugging it out and Parliament monsoon session being a washout, Coalgate has inadvertently put the focus on Centre-State relations again. While the Centre has conveniently sought to justify its inability to ensure competitive bidding of coal blocks by arguing that Opposition State governments opposed it on grounds that it was an “assault on the federal structure”, it would do well to look beyond.  

There is no denying the fact that in recent times there has been much discussion regarding the federal structure in India with political strains having developed between non-Congress ruled States and the Centre. The movement is obviously for more equitable federal relations though its origins can be traced long back. As is well known, the setting up of the National Counter Terrorism Centre (NCTC), with wide ranging powers of arrest and seizure, provoked the States to agitate against intrusion into their domain of control.

But though ‘public order’ and ‘police’ are State subjects and State governments have full autonomy in discharging these responsibilities, law and order is a much wider concept and this is nowhere exclusively assigned to the States. Obviously, national security has to be a common concern of the Union and the States and both have unitedly to fight terrorism and other attendant threats. However, at the operational level, there is need for Central forces to work in cooperation with the State police and the amended NCTC guidelines have incorporated this after most Chief Ministers alleged usurping the State’s powers.

The movement for more equitable federal relations is nothing new though this revolved around the powers of the Governor to use Article 356 in a partisan manner to dismiss State governments. The situation somewhat changed with the report of the Sarkaria Commission and the judgment in the S. R. Bommai case which succeeded in preventing the misuse of the Centre’s discretionary powers to a large extent.  

While centralization of power with the Centre has become the order of the day, the credibility and legitimacy of the Union government has fallen to unprecedented levels. By attempting to mould development, according to an architecture drawn up by Delhi, the Centre is creating distortions and not gearing up efficiency through proper strategies. Moreover, the lack of good governance, increasing corruption and disconnect between people and politicians in power are the biggest challenges before our polity. The fulcrum of power seems to have shifted from the Centre to the States.

Apart from the political situation, it is significant to note that the Centre has largely been the beneficiary of the country’s economic prosperity. In short, while the exchequers of the States have increased as also their expenditure, their growth has not been commensurate with the phenomenal expansion in the tax revenues of the Centre. By 2010-11, the total receipts of the Centre amounted to 16 per cent of the GDP.

At the present juncture, most of the States are struggling for funds as resources are inadequate to keep pace with establishment expenses, various forms of incentives and also increasing developmental expenditure. The very idea of being at the mercy of the Centre vis-à-vis allocation of funds has triggered strong resentment. 

It may be pertinent to mention here that the Constitution had envisaged that a redistributive Centre should aid the States through a revenue sharing process determined by the respective Finance Commissions. However, more than 60 per cent of the disbursement is being done through the Planning Commission, a body that was created outside the purview of the Constitution in 1950.

While democratic decentralization has become somewhat a reality with even the panchayats having lot of powers, this has not been achieved in the economic domain. States have for long been demanding a higher share of tax revenue as most of their finances are in a critical situation. Their demand for seeking local controls over the pattern of expenditure cannot be ignored.

It is pertinent to note that India has a well functioning fiscal union on paper with the Constitution clearly demarcating powers between the Centre and the States and laying down revenue sharing criteria that are revisited by periodic Finance Commissions. These criteria favour higher awards to weaker States so as to enable the provision of uniform public services throughout the country. Incentives have also been given to States to improve their finances but the results have not been satisfactory.

States that have enacted the Fiscal Responsibility and Budget Management (FRBM) legislation have been given special debt forgiveness. In West Bengal, the erstwhile Left Front government refused to sign the FRBM – along with a few other States – and did not get much relief. Today, it happens to be one of three most indebted States.

Recall that the Trinamool Congress government had asked for three years moratorium on interest payment of its Rs 20,000 crores debt. Experts had believed that such moratorium, if given, may set a dangerous precedent. Moreover, other States would demand similar concessions. Also, they would be motivated to spend more on the assumption of rescue package following from the Centre.

Importantly, while politics should be set aside, in the coming days, the demand for primacy of the Finance Commission is likely to gain momentum and quite justifiably so. This would indicate a dilution of powers of the Planning Commission and the emergence of empowered State planning bodies. Also the distribution of financial powers between the Centre and the States will have to be renegotiated and the latter’s demand acceded to. The developmental needs and implementation strategies of the States would have to be kept in mind as also their performance and efficiency in taking decisions about the annual fund disbursal.

Importantly, economic decentralization has to become a reality in the coming years if the country is to prosper. The States cannot be allowed to languish and, as such, a judicious strategy has to be formulated about revenue sharing with the States. The onus of decision making in this domain has to be worked out so that the demands and genuine needs of the States are given due consideration. It’s time the Centre stops passing the buck, like it has in Coalgate and gets the States on board. ---INFA

(Copyright, India News and  Feature Alliance)