The missing factor in centre-state ties

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.