Opinion | Karma of growing divide between centre and states

In little over a week from now the goods and services tax (GST) Council, which oversees the implementation of the indirect tax, will meet. From the build-up it is clear that the simmering tensions will spill over and the meeting would formally acknowledge the split within the Council; cement the transition from consensus to a partisan stance—with issues now on to be decided by a vote.

It is not the first time, and neither will it be the last time that the Centre and states have differed. It is the nature of federalism in a democracy: national goals may not align with local priorities of states. The trick is to manage these frictions without a serious fissure—like the one we are witnessing in the GST Council. And, for this, the onus is on the Centre; it is after all the anchor of the federation—the first among equals. The problem is that the widening of the divide comes at an inopportune moment. And the karma of this trust deficit can be exacting.

Already tempers are frayed dealing with the once-in-a-century pandemic; lockdowns have plunged the economy into an unprecedented slide, leading to evaporation of tax revenues—the fiscal squeeze is only further testing the states. At the same time, the Union government has embarked on the long-overdue second-generation reforms (something that has been promised and discussed to death by previous regimes but never delivered).

Over the last few weeks, it has set in motion a fundamental reset in the existing paradigm for education, harvest, sale and storage of agriculture produce, the public distribution system and the bureaucracy. All these subjects also fall under the purview of the states. Keeping them in good humour is a prudent idea; without their signing on, these much-needed reforms will be as good as dead in the water—defeating the very purpose of such structural reforms to bring about a transformation of the Indian economy.

Have said this before. In politics, it is rarely about what you are doing. Instead, it is about what you are seen to be doing. Perception matters, especially in the age of social media. Take, for instance, the Centre’s move last week to partially link additional borrowing with the roll-out of reforms. It is a well-intended idea. Yet there is a high probability that the idea will backfire, given the prevailing circumstances. Five states—Andhra Pradesh, Telangana, Karnataka, Goa and Tripura—became the first batch to be extended this facility (bit.ly/2S2JXmt); wherein a portion of the additional borrowing is linked to their committing to undertaking economic reforms, including the implementation of ‘One Nation, One Ration Card’. It is bound to cause heartburn among other states, all of whom are desperate for additional resources. Yes, these five states may be accused of breaking the collective, but the larger spin in the narrative will be about the ‘big brother’ attitude of the Union government—parallels may be drawn to the World Bank and the International Monetary Fund, who often link fiscal bailouts to unpopular conditions, binding countries to undertaking economic reforms. It will only lend more weight to the argument by critics that the Centre is pursuing ‘coercive federalism’ while espousing the cause of ‘cooperative federalism’.

At the same time, this package in question also raises some fundamental questions. There is nothing in the press note to suggest there is a monitoring mechanism in place. Nor is there a prescribed penalty on states for reneging on their commitment, if the case may arise. In short, it is just a statement of intent. Begging the obvious question that does this even warrant a try and, worse, risk an already difficult relationship with states.

It is clear then that the Centre and states are on a much-avoided collision course. It is a confrontation in which there can never be a winner. Worse, there will be one loser: India.

Anil Padmanabhan is managing editor of Mint. Comments are welcome at anil.p@livemint.com