Photo: Hindustan Times
Photo: Hindustan Times

Unpacking cooperative federalism and social policy

Budget 2015 leaves many questions on the future of the cooperative federalism agenda still unanswered

Decentralization to states and co-operative federalism has been the dominant narrative this budget season. In keeping with the recommendations of the 14th Finance Commission (FFC), the government has devolved a 42% share of the divisible pool of taxes to states. This was expected. But the big question for the future of social policy was on the implications of this shift on the central assistance to states (CAS) or plan transfers—the primary source of money for key social sector programmes over the last decade. What would be the total cut in CAS? What would be the implications of these cuts on the legally backed schemes (education, MGNREGA, etc.) that the NDA and FFC had indicated the centre would continue to finance? What is the future of Centrally Sponsored Schemes (CSS)? What would the new institutional arrangements for fiscal transfers between the centre and states look like? And above all what are the implications of all these transitions on the much-promised flexibility to states?

It was my great hope that the road map for this re-structuring would be laid down in the budget speech but on this score the finance minister’s speech was a real disappointment. However, ploughing through the budget documents one can get some clues on what the changed scenario looks like. And this leads us to more questions than answers. Here’s a quick glance at some of the numbers my colleagues at Accountability Initiative have put together:

Expectedly, CAS has dropped significantly. If we compare budget estimates (BE) 2014-15 with BE 2015-16, the drop is 39%. There is one caveat. In 2014-15, there was a difference of 60,241 crore between BE and revised estimates (RE) numbers. Thus it is useful to compare the 2015-16 numbers with RE 2014-15. On this comparison the drop in CAS is 26%.

So what has been cut? And what are the implications? In keeping with the suggestions of FFC, the budget documents present three different categories of central assistance—schemes that are to be discontinued; schemes that are to be fully supported by the Union government and schemes that are to be implemented with a changed sharing pattern.

As expected, eight CSS amounting to a total of 67,773 crore (BE 2014-15) have been discontinued. Prominent amongst these are the two schemes of the ministry of panchayati raj (MoPR—the Backward Regions Grant Fund (BRGF) and the Rajiv Gandhi Panchayat Sashaktikaran Abhiyan. This slash has left the MoPR with a paltry allocation of 95 crore, down from 3,401 crore (RE) in 2014-15.

This substantial drop in allocation can in fact, as we have argued in our pre-budget series, be turned into an opportunity to re-imagine MoPR’s role from that of being a poor implementer of yet another CSS to an active watchdog and platform for building political consensus around the nature and form of devolution to local governments. For the moment, with the exception of the economic survey, the government has been silent on its vision for local governments in the fiscal landscape. We can only hope that rather than relegate the MoPR to irrelevance, the NDA will seize the opportunity to reinvent its approach.

In the second category identifies 24 schemes that will be financed through a changed centre-state sharing pattern. The total central share in these schemes has dropped by a significant 44% (BE) or 24% RE. Prominent amongst these are the National Health Mission (NRHM) and the Sarva Shiksha Abhiyan. The expectation is that the centre-state sharing pattern will be redesigned to enhance state contribution so that the overall expenditure does not see a significant reduction going forward.

The implications of this re-design will only be clear when the sharing pattern is revealed. And here is where the nuts and bolts of the institutional transition will seriously matter. Will states use their increased fiscal powers over these programmes to re-write rules and re-structure these programmes? What will the role of the centre be? Will it offer guidelines and incentives to states? And re-model itself as a knowledge provider and evaluator? Or will the centre continue to dictate policy and withhold releases if states don’t comply? We will have to wait for the line ministries to offer details of the restructured CSS to be able to answer these questions—but the absence of any vision on this in the budget is disappointing.

Finally, the centre has committed 11.85 trillion (a 12% increase from BE 2014-15 ) to the third category of fully funded schemes. These include the MGNREGA which has got a budget allocation of 34,699 crore. A marginal increase from the 34,000 crore that were budgeted in 2014-15. On the MGNREGA, the finance minister has played a neat political game. On the one hand, he has desisted from increasing the budget, even though the scheme is running huge liabilities on wage payments and really needs more money. But rather than open the government up to the obvious criticism he has cleverly committed an additional 5,000 crore, conditional on a tax surplus. Depending on which lens you apply, this is either clever politics or a real, pragmatic commitment. Only time will tell what the government’s actual plans are. But for the moment, MGNREGA is going to continue to run large liabilities—which many argue is the death knell of the scheme. Will states cough up money from their resources? We have to wait and watch.

There are some other interesting highlights— including an explicit mention on the need to focus on learning outcomes and the beginnings of an approach to universal social insurance which offers some clues on what the welfare agenda of the NDA is.

In sum, budget 2015 leaves many questions on the future of the cooperative federalism agenda still unanswered. The shift to states has created a great opportunity for the centre to reorient its role from driving line-item negotiations to facilitating and incentivizing states to innovate and improve social policy outcomes.

But whether the centre will grab this moment will only be known once the nuts and bolts of the new institutional arrangements are laid down. Shifting funds to states’ budget is an important first step. Now, we have to wait and watch.

Yamini Aiyar is senior research fellow, Centre for Policy Research, and director of the Accountability Initiative.

Avani Kapur, a senior researcher with Accountability Initiative, and Vikram Srinivas, a researcher with Accountability Initiative, contributed to this article.

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