Cooperative not coercive federalism

A meeting of the Niti Aayog’s Governing Council may be called to revisit the stimulus package from States’ perspective

By Author Dr Ranjith Reddy   |   Published: 23rd May 2020   12:05 am Updated: 22nd May 2020   10:28 pm

Prime Minister Narendra Modi, when he was the Chief Minister of Gujarat, on January 26, 2012, said: “It is high time the Centre realises that giving to the States what rightfully belongs to them will not weaken the Centre. The States must co-ordinate with the Union government and not remain subservient to it. Co-operative and not coercive federalism must be the norm in our country”. This clearly demonstrated that Modi wanted to be remembered in the annals of history as the champion of cooperative federalism.

The federal structure in India is distinct from other federal countries since we are a Union of States that make a Sovereign, Socialist, Secular, Democratic, Republic. We are different because of our pluralistic character and that is precisely why our Constitution-makers carved certain integral federal characters in the Constitution, be it governments – at the Centre or State level – bicameralism, supremacy of the Constitution, independent judiciary and most important of all, division of powers between Union and States.

So, the inherent spirit and concept of Indian federal structure is that the Union to develop, grow and become a successful leader in the world must take federal constituents, ie, States with it. This is exactly the underlying philosophy of the Prime Minister’s above observation. Is he now missing out on those opportunities?

Authoritarian Attitude

We have been observing how the Union government is showing its big brotherly and authoritarian attitude towards the States. Under the pretext of ‘national importance’, it is usurping the powers of the States one by one. This has become ‘rampant’ during the last few years. There are umpteen examples in the seven decades of our Independence, but let me touch only upon those in the last 6-7 years.

The Land Acquisition, Rehabilitation and Resettlement Act passed by Parliament in 2013 is the first one. Land acquisition is in the Concurrent List. Here, the issue of uniformity and flexibility across States come in. There is no doubt that it provides uniformity in compensation, etc, across the country. However, it reduces the flexibility for the States to tailor law to meet their local needs. So, one-size-fits-all or one template for the entire country may not work.

The Modi government started bulldozing legislations on the subjects, which fall within the Concurrent List, right from Dam Safety Bill to NIA, RTI in 2019 to the latest contentious Electricity Bill, 2020. If the Union tweaks the constitutional arrangement and spirit through coercive means, it will definitely fall within the definition of ‘tyranny’ and bring fissures in the democratic setup of the country.

Big Misnomer

Let us see how much States will lose due to Covid-19, because the combined loss of all States, in a way, is the loss of India. According to one estimate, India would lose about Rs 10.5 lakh crore, ie, 5% of the GDP, due to this pandemic. The Government of India (GoI) has to realise that it is the States which bear the brunt of the pandemic and the Centre has to come to their rescue as they have sacrificed everything for life and livelihood of their people. They were expecting that the Prime Minister, who has been trumpeting cooperative federalism, would help them financially and otherwise to bring their derailed economies on rails. But the Rs 20-lakh-crore package shattered their expectations and expectations of the people.

Modi’s slogan of cooperative federalism is a big misnomer. Let me substantiate my argument. First, of the total Rs 20-lakh-crore, the fiscal stimulus is only 1% of the GDP. One can calculate how much relief this would offer in these troubled times.

coercive federalism

Throwing Crumbs?

Secondly, the Ways and Means advances to the States were increased by only 60%, but, at the same time, for the GoI it was enhanced from Rs 75,000 crore to Rs 2 lakh crore, over two-fold. While the States are torchbearers in handling the pandemic, it is but natural to assume that their funding requirements stand in priority. The GoI has diligently eased the liquidity through Monetary Policy by ensuring banks park the same in the reverse repo and, thereafter, finalised the Centre’s borrowing programme of Rs 6 lakh crore for the first half of 2020-21.

Look at the States borrowings under the Fiscal Responsibility and Budget Management (FRBM). The Centre enhanced the FRBM limit from the existing 3% to 3.5% in the first phase. It meant around Rs 80,000 crore for all the States put together, which is meagre at this juncture having foregone all the revenues since two months. While these borrowings and repayments have to be borne by the States, the interest on borrowings needs to be borne by the Centre as a special case. To borrow the balance 1.5% (from 3.5 – 5%, the latest rise), the GoI has put various riders, which is inappropriate at these times of distress.

Is the GoI helping the States or throwing crumbs at them? The conditions appear to be feudal, to say the least. The States should be permitted to borrow money up to 5% under FRBM without any conditions, which will help them borrow Rs 4.28 lakh crore. When the GoI permitted itself to raise the borrowing from Rs 7.8 lakh crore to Rs 12 lakh crore from the market and through other sources without any conditions, why is it imposing conditions on the States through FRBM? Is this cooperative federalism?

Neglecting Demand

Thirdly, the thrust should have been on the demand side of the economy. So, to create demand, the GoI can continue to transfer Rs 1,000 per month for three more months to all the Jan Dhan accounts and poor till they migrate back to their employers to kickstart the economy. Fourthly, it can tap the various Cess Accounts as a one-time measure and utilise the funds, which will indirectly help in containing the fiscal deficit as well.

In sum, the States must be allowed to borrow money for 3-6 months without any conditions, because they are the implementing agencies of every policy, programme, and are the ones to take care of the poor and the marginalised rather than the Union government.

No doubt the relief package has many structural reforms, right from defining MSMEs to discoms, portability of ration card, KCC to all farmers, amending Essential Commodities Act to reforms in coal, minerals, Defence, Civil Aviation, Space. But the focus has to be on how to bounce back at the earliest. This is possible by strengthening the States. Structural changes have long-term perspective.

In the background of these shortcomings in the stimulus, it is suggested that a meeting of the Governing Council of the Niti Aayog is called to revisit and bring in appropriate changes and initiate the era of federalism.

(The author is Member of Lok Sabha, Chevella, Telangana)


Now you can get handpicked stories from Telangana Today on Telegram everyday. Click the link to subscribe.

Click to follow Telangana Today Facebook page and Twitter .