At the very beginning of her maiden union budget speech, Finance Minister Nirmala Sitharaman said:
“Between 2014-19, we provided a rejuvenated Centre-State dynamic, cooperative federalism, GST Council, and a strident commitment to fiscal discipline. We had set the ball rolling for a New India, planned and assisted by the NITI Aayog, a broad based think tank.”
That would be the only time the Finance Minister uttered the phrase ‘cooperative federalism’, and it was also the only time NITI Aayog found a mention.
Scrapping the Planning Commission, And Birth Of NITI Aayog
In 2014, upon coming to power, Prime Minister Narendra Modi announced his decision to disband the Planning Commission. The stated goal at that time was to create a new institution that focused on ‘solutions’ and ‘innovations’ – thus, the NITI Aayog was born. One of the key tasks of the new body was to provide a platform for states to come together to deliberate and plan. ‘Team India’ was supposed to tackle key institutional weaknesses: ‘lack of a structured engagement between and among states’; and ‘ineffective coordination and resolution mechanisms between centre-state and across ministries’.
NITI Aayog was also supposed to address the problems of the ‘missing contemporary knowledge links’; and ‘weak implementation and feedback loops’ – presumably tools for both central and state governments to govern more effectively.
The discussions at that time also focused on rethinking planning cycles at the state-level to improve alignment with the Centre, and the formation of thematic groups of states to address shared challenges, as well as utilise shared potential. These were not particularly new ideas, but coupled with the Fourteenth Finance Commission recommendations that expanded the fiscal space for state governments, these were steps in the right direction.
Federalism – A Wasted Opportunity
In the last five years though, federalism has been a wasted opportunity. Inter-state coordination mechanisms have not yielded any significant results. A key goal of the NITI Aayog in the last five years should have been to prioritise the strengthening of state-level planning and monitoring systems, and effectively decentralising the planning process in ways that fixed accountability for performance on state governments. This too, has not come to pass.
It is now well-recognised that one of the major fault lines in our democracy in the coming years is the stark disparity between the growth and development indicators of our states.
During the debates over the ToR of the Fifteenth Finance Commission, the southern states raised objections over the weightage given to criteria such as population in allocation of resources. Their political stance has been that well-governed southern states are subsidising the northern and eastern states, and also that this creates perverse incentives for the poorer states to remain as they are. This has created a divide that will not be easy to bridge, and probably will widen as time goes by, if we do not actively adopt measures to address the issue.
Only Example Of Inter-State Coordination Mechanism – GST Council
The only example of an inter-state coordination mechanism is the Goods and Services Tax (GST) Council. Former Finance Minister Arun Jaitley had highlighted, on many occasions, the Council’s effectiveness, and how the Centre had been receptive to feedback from the states.
Even in the 2019 Budget speech, Nirmala Sitharaman has generously credited the GST Council for working together to overcome the teething troubles in the implementation of GST.
She also pointedly acknowledged that the deliberations of this Council resulted in lowering GST rates, which eventually reduced indirect tax collection.
She is right. The shortfall in GST collections in 2018-19 was of over Rs 1 lakh crore, although one could argue over where the blame lies. Is this the reason why the central government has, in the past two years (and reinforced in the 2019 budget), the practice of mopping up indirect tax revenues through cesses and surcharges? Given that these collections do not form part of the divisible pool of taxes, the central government's commitment to 'cooperative federalism' looks suspect.
Why ‘Cooperative Federalism’ Is An Important Goal For India
One of the encouraging aspects of this year’s union budget is the allocations made to the social sector. The flagship schemes have seen noteworthy increases in allocations. However, the debate over the design and execution of centrally-sponsored schemes, especially in terms of the level of input state governments are able to provide, and the level of control they retain in execution, lies unresolved.
Also problematic is the central government’s increasing reliance on District Collectors/Magistrates (mostly IAS officers), to implement these schemes under the direct supervision of the Prime Minister’s Office. The Centre will continue to argue that they have put the ball in the state governments’ courts.
Cooperative federalism is an important goal for India in these times. It is high time we demand concrete actions towards realising this goal. This year’s budget has little to offer in that direction.
In India, there is also now a clear perception that the central government is antagonistic towards the states with non-BJP governments. With the BJP now the dominant political party across states, there is a real risk that the federalism agenda will take a backseat, as all Centre-State relations will be viewed primarily through the prism of immediate electoral advantage. The need of the hour is an institutional framework that can withstand such narrow political calculations.
(Suvojit Chattopadhyay works on public policy and development, and is currently based in Dhaka. He blogs here on development and politics; and tweets from @suvojitc. This is an opinion piece and the views expressed above are the author’s own. The Quint neither endorses nor is responsible for the same.)