Refix the Centre-state federal model

The state of the economy receives continuous review. As also the working of central ministries. The state of the states, however, remains neglected. Performance of an individual state is reported, and, at the very least, examined in the Planning Commission?s annual plan discussions. There is, however, no opportunity for a collective discussion, comparing all states with their differentiating characteristics.

Thus, the annual India Today conclave remains unique. Chief ministers engage in interactive discussions, and it is preceded by an analytical ranking of states on criteria ranging from infrastructure, human resources development, governance quality and the improvement factors. This year was no different.

In a function last week, 10 chief ministers, representing a combination of big and small states as well different parties, including regional parties considered the broader issues of Centre-state relations. Awards were conferred by President Kalam, who also made a presentation on issues like the provision of urban facilities in rural areas (Pura), fiscal policies, infrastructure, and governance. They brought out key concerns, areas of convergence and the enormous implementation obligation on the states.

In the panel discussions of the chief ministers, which I moderated, several issues came up for consideration. Given the number of attempts to overhaul the basic framework of Centre?state relations, and the number of these attempts that have ended up gathering dust as governments change and time moves on, it also seems appropriate to identify an incremental path towards a more harmonious federation. What small steps can we take to move toward a process for a consensus, and for managing the diverse voices that make up this country? I had suggested five topics for discussions.

• For many decades there was considerable homogeneity in the political parties in office at the Centre and the states. This has undergone a major shift in an era of coalition politics where political parties in power in the states are different than the configuration of power at the Centre. So, how can national politics be made less sensitive to pressures from re-gional groups? The fact that small regional parties can disproportionately influence policies is not healthy for any democratic set up. While it might help protect minority bases and regional factors, it could make the national decisions a hostage to minority blackmail.

• How can we keep national political rivalries from adversely affecting Centre-state relationships? Perhaps the most important goal would be to insulate transfers from politics. This is not the case in India; the Centre can unduly influence local politics, and play unfairly.

• Looking at the devolution system, it seems possible to achieve many improvements, not only in governance and fairness of Centre-state relations, but also efficiency by integrating the myriad forms of transfers existing today. We have the Finance Commission, which has a general reputation for independence and transparent allocation of funds, but this is a part of the overall amounts transferred. Also, the Finance Commission has to adjust for the funds transferred through the Planning Commission and through the ministries? less transparent central schemes. There is no way to check the allocation of funds across states, to consider the allocations for capital and current expenditures and to look at the conditions for which funds are given. Increasing transparency and coordination would not only protect these funds from the winds of politics, but also improve efficiency.

• Are we satisfied with the present structure of consultations between the Centre and the state? The National Development Council (NDC) is largely ceremonial; it meets, at best, once a year to approve the Plan or its mid-term review. The Centre-state council has also become dysfunctional. Yet, the Centre takes important decisions like setting up the recent Pay Commission, which has long-term consequences for states. What can we do to strengthen, restructure or create a more meaningful framework?

• Competitive federalism spurs improvement in investment climate and financial management. Competitive populism however can be self-defeating. Parties in office often pursue populist policies in the belief these would get them re-elected. Electorates have, however, become smart and see through false promises. The parties in opposition generally are willing to accept sensible economic policies, though they may posture otherwise. Combining sensible economics with sensible politics is not easy.

The subsequent discussions did not have a coherent pattern. Most chief ministers agreed that decisions by the Centre affecting the states must be preceded by prior consultations. Some believe this requires constitutional amendment. Others felt it could be achieved through better administration and political management. Everyone seemed to agree that the NDC had become ceremonial and the Centre-State Council had not met the expectations of the Sarkaria Commission report. States usually feel the devolution from taxes is inadequate and, at any rate, royalties on minerals should be based on a more transparent formula.

There was overwhelming support that 50 years had created new rights and obligations. The conclave had a core consensus. States would be increasingly responsible for the next steps of liberalisation. Additional obligations needed added empowerment and an expanded resource base. The success of the XIth Plan would also depend on a more cooperative relationship among states and between the Centre and states. The sooner this is done, the better the prospect for faster growth movement. The federal model needs to be refixed.