The missing factor in centre-state ties

Business Standard     2nd October 2020     Save    
QEP Pocket Notes

Context: The Centre’s inability to compensate the states for the loss of goods and services tax (GST) revenue, as mutually agreed, has raised questions about a trust deficit between the two levels of government.

Prime reasons for the widening trust deficit 

  • Ruling party with clear majority at the centre: With coalition governments, the situation would be  a bit better. Because it required political investment in trust building so that the central coalition was not jeopardised.
  • No grass root political base:  The highest offices being held by people without a grassroots political base without any connect with the states
  • Gigantic Prime Minister’s Office (PMO)
  • Subordination of other branches of the State to the will of the Centre

 Major events which contributed to widening trust deficit

  • Centre found out ways to decrease share of state taxes from divisible pool: 
  • Share to states according to 14th Finance Commission was 42%
  • The share was just 34.7 per cent in first year and 30.3 per cent in the final year of the award
  • This is because the Centre resorted to the imposition of a series of cesses and surcharges on taxes which are not shareable with the states.
  • Abolition of Planning Commission and setting up of NITI Aayog:
  • The political element that was embedded in the planning and plan of financial process was lost and all relationships between the Centre and states became purely administrative.
  • NITI Aayog  is viewed purely as an instrument of the central government. 
  • Terms of reference provided to the 15th Finance Commission by the central government: 
  • It introduced a series of superfluous considerations to judge the vertical and horizontal devolutions to the states. 
  • This includes achievements and implementations of flagship schemes of Government of India, promoting digital economy etc.. which are not inter-governmental fiscal considerations but normative judgements imposed on a neutral Constitutional body on how states should behave.
  • National lockdown: 
  • By invoking the National Disaster Management Act, which gave the central government sweeping powers
  • Using the powers, centre sent teams to monitor and chastise what they perceived to be errors in state’s behaviour
  • Centre lectured the states on what to do and how to do it.
  • But no major measures were taken to  bolster the state-level capacity
  • GST compensation controversy
  • Recent non consultative initiative to introduce agriculture reform Bills .

 Options that would have avoided enlarging the trust deficits

  • NITI Aayog: It could have been set up with more inputs from state governments
  • 15th Finance Commission: Terms of reference of the 15th Finance Commission could have been marked by strong political input and avoided central bureaucratic arrogance.
  • Consultative Lockdown: as was done in many other federations by involving less coercive arms of government in its administration and rollout.
  • GST compensation: Could have explored options that did not involve increasing the states’ borrowing liabilities

Conclusion

  • The roots of the trust deficit lie in the unwillingness of the political authorities to invest in cooperative federalism
  • India’s diversity and plurality cannot be managed on the economic front through hierarchical fiat.
QEP Pocket Notes