India’s fiscal federalism is still evolving… by B. Chandrasekaran
The
article titled "The poor state of India's fiscal federalism by
Kalaiyarasan. A" published in The Hindu on July 28, 2022, makes several sweeping
statements without substantial data to prove on larger policy perspective and beyond
taking the ideological position. The author’s statements cannot be taken as
academic interest because it has public policy ramifications in many respects,
mostly misleading.
At
the outset, the article paints abjectly the state of India's fiscal federalism
with allegations like the “centralisation of fiscal power”, “political
centralisation” and "cultural nationalism", etc., especially since
2014. The pitch is set out very well before any data to substantiate for
inferences to be drawn to conclude meaningfully.
One
of the greatest economists of twentieth-century India was Dr. B.R.Ambedkar who
never advocated for centralised planning or power centre except to protect the
country's sovereignty by integrating the regional administrations as one
country. Indeed, he always strived for decentralised planning for
socio-economic development, and that dream is yet to be fulfilled in
Independent India even after 75 years.
While
the basic structure of India’s tryst with destiny was always found to be
lubricated around conflict of visions with which the democracy unfolds and
still drives for bettering. Alas, across the country, the autonomy of
administrative power and devolution of financial power are yet to be
transferred from State capitals to village panchayats and local bodies which
rarely need now to make real growth centres across the country.
Interestingly,
most seem to be forgotten now conveniently that unlike before 2014, no Chief
Minister is visiting New Delhi now for approval of State’s Annual Plan
budgetary provisions finalisation, including sectoral allocations, grants, etc.
The Planning Commission structure was reformed with financial devolution power
has been decentralised more now than in the past since independence.
The
author’s statement “States lost their capacity to generate revenue by
surrendering their rights in the wake of the Goods and Services Tax (GST)
regime, their expenditure pattern too was distorted by the Union’s intrusion,
particularly through its centrally sponsored schemes” is deeply flawed
on many grounds.
A
dynamic democracy like India had debated for a decade on a comprehensive
indirect tax system and had powerfully exercised the tools of consensus
building through political dialogs to align the states on their own will with
facts and figures on the table at a common goal of the Goods and Services Tax
system which may not be the perfect one but it was a fair beginning. The
structure is still in evolving state with pros and cons to argue, but not to
deny the fact that it can be done away with it completely.
For
years, many states did not clean up their own awfully managed already fiscally
stressed financial health and wasteful expenditures especially soon after the
elections and just before the next elections on the lofty promises made to the
electorate. When the states were having provisions of their own tax revenues
even then they would not able to fulfill the promises made to the electorate
and then invariably asked the union government to provide grants or special
funds were underestimated by the author's article under review.
According
to the report, titled “Central Transfers to States in India Rewarding
Performance While Ensuring Equality” authored by economist M Govinda Rao “in
2012, there were 147 such schemes initiated by various Central ministries and
many of them were directly implemented by numerous implementing agencies
specifically created for the purpose and the grants were given to them directly
bypassing the States.”
Whereas,
at present, the union government provides funds to states through Centrally
Sponsored Schemes (CSS) which has been effectively reduced to 28 schemes from
66 schemes including flagship schemes. The CSS has been rationalised based on
the recommendations of the Sub-Group Report Submitted by the Chief Ministers in
2015. The implementation of CSS was mainly on key sectors of national
importance because the state governments were strategically not giving due
importance for the past many years.
Unlike
in the past, States have more flexibility now to implement certain schemes as
per the state-specific requirements with the check and balance systems. As many
as 45 Central Sector schemes are implemented by States for specified purposes.
The
article talks about the case of Tamil Nadu which took steps “to look at
Centre-State fiscal relations and recommend more transfers and taxation powers
for regional governments.” The point is well taken. One is tempted to ask
why Tamil Nadu’s discom has been ranked as the top worst in the country for
many years. Moreover, several state-owned public-sector enterprises continue to
make a loss but are buried under the carpet from any reform steps. The author
fails to heed some of these deeply poor governance structures.
Also,
why the decentralisation of financial and administrative power is still not accorded
to local bodies in Tamil Nadu? While its neighbours like Kerala and Karnataka
have the best decentralised process of governance in the country despite the
challenges of welfare politics and administrative misgovernance. Because the depth
of the democratisation process has stopped in Tamil Nadu with power welded at
the state capital even now by deep-rooted vested interests in anything and
everything.
The
fact that regional disparity emanates partly from the fact that the state
capital power centre still refuses to transfer the democratic power to local
bodies which are duly elected by the people for direct democracy with trusts. Moreover,
what is the status of major state's State Finance Commissions are upto? Are
they performing the requisite role of the state development and bridging the
gaps of disparity like inequalities of rural-urban divide, disparities among
intra regions, etc? It seems that not much attention is given either academically
or in public policy discourse even in states like Tamil Nadu which is being
branded as a developed state.
To
sum up, it has been several months since Tamil Nadu’s 6th State
Finance Commission report for the period of 2022-2029 was submitted to the
state government, acceptance of its recommendations and timeline for
implementations are yet to be known to the people. Strangely, the report is not
even made public. This is the Dravidian model of governance. None of the academic
or policy institutions will raise their voice against such poor governance
because they will lose funding from the state government or be humiliated for
their right to express in the interest of the public cause.
(The
author is an economist and public policy expert)
