BackThe country’s federal structure has three gaping holes
The Centre’s failure to meet its obligations towards states has ruptured the Centre-state compact
PremiumIndia’s federal structure is under stress as myriad changes threaten to upend the status quo. Change is not bad, per se, but the manner of the transformation militates against the constitutional and federal promise of providing states an equal say in the process. The changes, on slow-burn so far, have now been accelerated thanks to the space afforded by the pandemic-induced economic shock.
The ruling Bharatiya Janata Party (BJP) promised “cooperative federalism" when it came to power in 2014; its manifesto for 2019 elections made the same promise: “We have set up an example of inclusive federal governance through steps such as the creation of Niti Aayog, establishment of Goods and Services Tax (GST) Council and restructuring of central schemes in line with our pledge of cooperative federalism. We will continue to pursue this course by ensuring greater involvement of the states in all aspects of policy making and governance thereby strengthening federalism."
That promise now stands broken. Three developments over the past six months clearly point to the BJP’s shifting focus on federalism.
The first sign of a ruptured compact is the breaching of foundational promises made to states during the creation of the GST Council in 2016-17. States were promised the status of adult consensual partners around the table, with the Centre no longer hectoring and unilaterally shoving down its decree. But, come trouble, the Centre has walked away by refusing to compensate states for shortfalls in their projected revenues and instead asking them to borrow to meet those gaps, in complete disregard of its fiduciary responsibilities.
The economic shock from the pandemic has affected tax revenues, especially GST collection, after the lockdown froze income, demand and consumption. In the absence of a fiscal stimulus commensurate with the magnitude of the economic shock, poor GST collections have shrunk the government’s divisible revenue pool. The gross tax revenue collections, before states get their share, till August 2020 was ₹5.042 trillion, compared with ₹6.607 trillion the previous year. Gross tax revenue was projected to grow by 12% during 2020-21, assuming a nominal gross domestic product growth rate of 10%, over the previous year. In reality, both have shrunk, and much more than most other comparable emerging economies.
Also, given the Centre’s obstinacy in pursuing a suboptimal stimulus programme, which has further stunted the economy and impacted the revenue generating capacity of states for the next 12 months, it is incumbent on the Centre to make money available to them, especially since they bear the brunt of this healthcare emergency.
The second sign is the undemocratic manner in which the agriculture and labour bills were forced through Parliament. Without going into the merits or demerits of the legislative changes, the two bill clusters should have ideally been referred to select parliamentary committees, as is the norm, for further discussion and consensus building. Given the BJP’s avowed preference for “cooperative federalism", shouldn’t the Centre have consulted and engaged with states before finalizing the bills, especially since agriculture is a state subject and labour is on the concurrent list? Both should have merited a discussion with the states before being unilaterally pushed through. Ironically, the bills were rammed through in the Rajya Sabha, which literally means “council for states", in total disregard for opposition voices or demands.
The bills on agriculture also highlight another skew: they will end states’ access to taxes from grain markets at a time when other revenue sources are shrinking and the Centre is refusing to provide a backstop.
The third sign is the strange syllabus changes for students under the Central Board of Secondary Education. The ministry of education decided to drop a bunch of subjects from Class 9-12 curricula; apart from subjects like “democracy in diversity", “gender, religion and caste" or “challenges to democracy", topics like federalism, secularism, citizenship were also axed. Education minister Ramesh Pokhriyal had rationalized the cuts at that time, blaming the extraordinary pandemic situation. He is right and he certainly deserves the benefit of doubt, but one key question lingers: Did the minister or his colleagues consult experts before taking this extraordinary step? Or, on what basis were these subjects—such as federalism—picked over others for dropping? As has become common with this government, no details are available on stakeholder consultations or the rationale of those decisions.
The renewed friction in Centre-state ties, as well as the developing fault lines, stipulate that the 15th Finance Commission play a larger role. First, it must suitably amend the original terms of reference, within constitutional limits, by adding the financing and expansion of healthcare infrastructure to the ad hoc provision for defence funding. Both have become critical for national security. Two, states should not only get a higher share of the divisible tax pool than the current 42%, but must also get a share from the sale of national commons (such as telecom spectrum or future disinvestment proceeds). Finally, the commission needs to redraw India’s red lines on fiscal deficit and debt, given the changed circumstances and their irrelevance as economic anchors for the foreseeable future.
Rajrishi Singhal is a policy consultant, journalist and author. His Twitter handle is @rajrishisinghal
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