In times of crisis, the Centre must support the states: Dr Y V Reddy

Former governor of the Reserve Bank of India, an accomplished civil servant and the author of several books Dr Y V Reddy shares his views on the Indian federal structure, its design, the changing landscape and the new compulsions.

RBI Former Reserve Bank of India Governor YV Reddy (Reuters)
Former Reserve Bank of India Governor YV Reddy (Reuters/File image)

There are all the apparent accoutrements to showcase a collaborative Centre-state relationship building effort. There are the social media posts on videoconferences held between the prime minister and the chief ministers of all the states. Then, there are the photo ops with opposition leaders from a state in turmoil and now under the central rule. Yet, be it the vaccination drive to combat the pandemic or the policy contours and reform agenda in agriculture sector or just the promises made during election rallies, questions and concerns continue on that future shape and status of the Centre-state relations.

Has the realization on an ideal collaboration in a federal structure been underwhelming despite an intense air of anticipation in these pandemic-imposed uncertain times? How has India’s journey on Centre-state relations been under different Indian Prime Ministers? To reflect on these and more, there was a talk by Dr Y V Reddy, the former governor of the Reserve Bank of India on Sunday, July 25th on Manthan, a forum for public discourse on topics of national interest.

The veteran economist, chairman of the 14th Finance Commission, an accomplished civil servant and a globally recognized face from India in the banking arena has a view on a range of issues though as a bureaucrat always maintained that his job was to talk a lot but then convey very little and let the politicians and ministers dish out quotes to media. And when left with situations where a comment was necessary, he would prefer to stay rather vague and accurate than be precise and wrong.

Dr Reddy also comes with a larger global perspective. Many in the global finance world, for instance, know him for his role as the member of the UN commission of experts set up in the wake of the global financial crisis of 2008 and led by Nobel Laureate economist Joseph Stiglitz.

Journey Under Different PMs

He begins by giving a quick read of the approach to Centre-state relations under different Indian Prime Ministers. From Jawaharlal Nehru, who introduced centralization to planning, Indira Gandhi who took to nationalization of banks with implications on the federal system giving central government a direct reach to different parts of the country with access to resources, Rajiv Gandhi’s attempts at decentralization with the introduction of panchayat raj albeit first looking at the Congress-ruled states. Followed by a relatively more cordial and collaborative Centre-state engagement under P V Narasimha Rao, which continued under his successor Atal Bihari Vajpayee. Under Dr Manmohan Singh, who Dr Reddy prefers to call Professor Manmohan Singh, there was a technocrat respecting the political leadership in the states leading to a decade of some states maturing in different ways with various models of development emerging like those in Kerala and Odisha.

Prime Minister Narendra Modi however, he says, has been projecting a national agenda and the idea of different states having different models is not quite “on the table now and there are some tensions also.”

The Asymmetry

On the structural design of the division of powers between the Centre and the states, he says, “the residual powers are with the central government and in case of a conflict, the central law prevails. So, there is a strong centralization in the constitutional design.” But then, he also points to some asymmetry between the responsibilities given to the states and the financial resources available to them. “This asymmetric makes them to some extent dependent on the Centre. The constitution tried to moderate this by introducing the concept of finance commission,” he says.

The states, however, he underlines, in spite of all the strong central tendencies are important since most of the services are provided by the states. “The administrative machinery, if you remove the railways and defense then 70 per cent of the administrative machinery is with the state governments,” he says.

However, Dr Reddy points out that in parliamentary elections, the candidates, including the prime ministerial candidate, tend to promise to deliver on subjects in the state list and this could be seen as a major structural problem.

Beyond Niti Aayog

On the changes in the institutional make up, he says, the planning commission was abolished a few years back and replaced by Niti Aayog. “However, it has not quite replaced the planning commission as an interactive forum between the Centre and the states leaving a vaccum.”

He does however see yet another dimension that is affecting the emerging landscape of Centre-state relations: “In the recent past there has been activism from the governments also and this has been a global trend too. Therefore, sometimes, the state governments are feeling a bit constrained and this has to be examined in the context of Covid also. There is an impression that the Central government feels that it can do a better job in regard to various activities, even if they are in the state list.”

Dr Reddy deftly avoids making any comment in the context of Covid and confines himself to saying: “Covid is unprecedented and the relative roles are difficult to define, so it is little controversial.”

So, where are we now on the Centre-state relations and to what extent is the federalism under stress, if at all?

Re-Balancing under way

In his view, “there is a re-balancing going on between the Centre and states in India.” But in this whole process of re-balancing, he cautions, “we should not underestimate the strong sub-national sentiments” along with loyalty to the country. “We have to recognize the enhanced capacities (in terms of higher expertise) in administration” coupled with the integration of the economy and society that has occurred over time, he says.

On the orientation of the Centre to dabble into state issues as it were, he says, “we had noticed in the 14th finance commission also that when there is fiscal space given to the Centre, it is used more to perform the state function than say increase the allocation for defence.”

In the context of the recent vaccination drive and the questions around the situations when there is a serious crisis facing the country like the pandemic and whether a prime minister talking to state chief secretaries directly on the covid situation meant substituting the states? Dr Reddy says, “whenever there is serious crisis like covid for instance, the central government has to support the state governments and this is true all over the world to support the sub-national governments because they do not have adequate resources. In this particular instance of Covid, there is an impression that there is a burden-sharing that is being discussed.” He adds, if the “institutional hierarchy and the channels of communication are maintained then it is good for the system.”

Role of Technology

With increasing reliance on technology and the tendency to centralise, Dr Reddy says, “while technology has a potential for centralization the same technology can also provide the techniques for decentralization. The issue is what is appropriate for the society and the economy.”

On how things have changed from his time in service and now, he says, “the relations were far smoother earlier than in the recent past. The differences are now being aired more frankly and the discussions between the Centre and states are more frank now than it used to be earlier.”

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First published on: 25-07-2021 at 21:45 IST