determined and skilful government can create fiscal space for itself through improving tax policy and administration and rejig of expenditures. Besides, good policies can also return India to 8 per cent growth, which too will help improving tax revenues.
You have often compared growth rates among Indian states to drive home the importance of best practices to push growth in the laggards. Do you think the new government should take any new approach to make this actually happen?
Yes. Decentralisation and partnerships with chief ministers are important. But we also need a somewhat more flexible and focused approach to Central assistance to states. For example, the provision of electricity to households in states such as Bihar and UP should be the highest priority. The Centre could give freer hand to the states that are run well while offering greater help to states lagging behind and poorly administered. But in the end, states have to be willing partners. Otherwise, we will only boost expenditures without achieving intended outcomes, a phenomenon we have seen aplenty lately with the Centre forcing its schemes on the states.
In recent years, expenditures under Centrally sponsored schemes have expanded rapidly. These one-size-fits-all schemes have tended to straitjacket the states. With legislative reforms that empowers states how they want to implement the schemes, will also pave the way for the closure of the Planning Commission, which has outlived its utility. Instead, the next government must consider the possibility of letting each Finance Commission stand until its successor has begun functioning.
The other reform is to let the Centre insert a clause in laws that are on Concurrent List like labour, MGNREGA, right to education and even food security that if a state amended the law, it will prevail in that state. This spares the Centre of the politically difficult task of reforming the legislation. In effect, it passes the buck to the states. We could thus unleash unlimited experimentation and competition among states.