Column: Fuelling federalism

Jun 25 2014, 02:06 IST
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SummaryThe states must be given more fiscal room and policy freedom in utilising central funds

It is open season on giving advice to the new government on how to fix the economy. The government itself has a long to-do list. The President’s address to Parliament had 50 paragraphs. Depending on how one counts, there are perhaps 40 different specific areas mentioned, which the government intends to address. That makes for a daunting collection of potential fixes. Some commentators have said that the list looks very much like that of the previous government. To the extent that these are important, but unsolved problems, that repetition is unavoidable. The concern was also with the tenor of the rhetorical stance, which seemed to some to be too much in the vein of “government should fix everything.” But perhaps that is inevitable too—strong leaders will have strong views on what should be done. The key will be balancing direction with delegation.

Indeed, the President’s speech quoted the slogan “Minimum Government, Maximum Governance.” What might that mean in practice? The continued announcement of central schemes and national missions does not bode well for making the slogan meaningful. The speech implies that the government will fix the problem that the “federal spirit has been diluted,” but the idea of “cooperative federalism” that is mentioned is a wishy-washy one in my view, and an “organic Team India” seems to require a centralised approach. On the other hand, there are a couple of references to incorporating best practices from the states in specific areas of policy, and a promise to address the concerns of the states in introducing the GST—though addressing those state concerns is unavoidable, in any case.

In practice, the fact that the BJP/NDA rules in many of the larger states, combined with the strong national mandate, means that “Team India” will be easier to achieve than in the recent past. What developing “state-specific development models” means in practice will also be a critical indicator of how things will unfold. Ultimately, the states need to be given more fiscal room and policy freedom, and the Centre needs to be comfortable in affording them that space. The current Finance Commission will hopefully take the opportunity to nudge intergovernmental transfers in the right direction of greater delegation and freedom for the states. On topic of state finances, the Centre, if it wants to create 100 new cities, has to think about the fiscal model for these, as well as for existing towns and cities,

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