Be Less Dependent, States

Context: Covid-19 has caused a major churn in Centre-state relations, which will be increasingly dictated by economic realities rather than by political exigencies.

Issues in Centre State relations:

• Centre being omnipresent: Centre holds all the cards with respect to financial powers but due to pandemic induced contraction, it is largely constrained by limited availability of resources.
• The Goods and Service tax has complicated the revenue structure and states argue that they have lost the autonomy to take financial decisions.

• Politicisation of Federalism: Political actors have fought to secure the political rights of the states but on the economic side, states are still largely dependent on states.
• Presence of a political impulse to resist the change and cause rollbacks.
• Absence of synergy during implementation of lockdowns and subsequent unlock as well during farm bills, showcased disconnect between centre and state.
• Deteriorating State’s Economic Health: 

• Freebies, subsidies, doles and loan waivers have dominated the political conversation turning blind eye towards economic prudence.

• Corruption as unaccounted political expenditure also rose at the cost of structural economic reforms.

• As per RBI,  while the 14th Finance Commission, increased States’ share in central pool by 10%, most states ended up spending on populist measure and reduced capital expenditure to meet Fiscal Responsibility and Budget Management targets.
• Most of the expenditure done is on revenue side such as salaries, pension, interest payments and subsidies, rather than on capital side such as new hospitals, schools and transport.

Way Ahead:

• Good Economics is the only Politics: Focus on capital expenditure that will impact large segments of vulnerable population groups  such as daily wagers, agricultural labourers, etc ,  along with reforms may help revive economic activity.

• Implement long awaited reforms: COVID has removed cushion for populist subsidies, therefore rationalisation and reform is necessary.
• Food Corporation of India (FCI) and  minimum support price (MSP) driven procurement is not an affordable political option any longer.
• Policymakers are clear that reform will be on marketing side rather than production and growth in states will be based on access to newer markets, value-added products and build better capacities.
• Land, labour, power and the farm sector are some areas that require reorientation to meet current needs.

• COVID as an opportunity: Covid-19 is a chance for states to alter power play and instead of resisting reforms, states may work to accelerate them to reorient their economic priorities and profile. 
• Decentralise efforts at both fighting the pandemic as well as dealing with its economic consequences. This can only deepen federalism, not weaken it.
• Good Governance: States must uphold federalism through pursuing the path of good governance rather than pursuing the path of protest.
•  The current political and economic crisis requires unpopular but necessary steps to be taken, instead of distracting the popular sentiments from crisis.