Column: The states factor

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Published: December 10, 2015 12:23:05 AM

Most pending reforms concern factor markets, largely the domain of the states

Recently, I had a chat with a correspondent who covers the North East for a national newspaper. I asked him for the name of the State that has the highest literacy rate in India. He thought for a while and volunteered Kerala, adding Mizoram as an afterthought. He was somewhat surprised when I told him the answer was Tripura, those two other States having been overtaken. There is the obvious point about general ignorance and indifference towards the North East. But there is more to it than that. The chairman and editorial director of Business Standard, TN Ninan, once told me his definition of “national media” was that which was watched and read between Noida and Gurgaon. Depending on the year and depending on how the Railways are doing, 95% of national income is produced in states.

In English language media, not vernacular, how often do you find coverage of states? How often do you find coverage in English language business press (so-called pink papers), as opposed to the general media? Compared to hype and hysteria over Union budgets, how often are state budgets discussed and dissected? Broadly, most pending reforms now concern factor markets, product markets (except agriculture) having been addressed in the post-1991 flush, with financial sector liberalisation more incremental in nature. These factor markets are largely the domain of the states, featuring in Concurrent or State Lists. How often are those reported?

In fairness, there is some coverage, in instances when labour laws are changed, or there is a major investment project or summit. However, policy changes are also at the level of the relatively mundane. To me, it is big news that Rajasthan repealed around 12% of its statutes, having identified them as old and dysfunctional. Was it reported? (You may recall one particular column, but may forget that it was authored by the state’s chief minister herself.) If policy is somewhat covered, there is rarely any reportage on public expenditure. To recapitulate what has been repeated ad nauseam, the 14th Finance Commission (FC) recommended 42% of the divisible tax pool as untied devolution to states. There is no dearth of critical columns arguing that this was unwarranted. How do we know states are responsible? How do we know states won’t fritter this additional untied money away on wages and pensions, with 7th Pay Commission providing a further spanner in the works? Part, not all, of the answer lies in further fiscal and non-fiscal devolution to local bodies. That means state-level FCs. Surely, states will set up or have set up, such FCs, to adjust to recommendations of 14th FC. Don’t get me wrong. Some states have running FCs and they can factor in the new pattern of tax devolution in their recommendations. Others, without running FCs, may choose to wait till Pay Commission aftermath has been fathomed. By the way, Rajasthan is a state that set up a new FC in May 2015. As an issue, how often is this further devolution concern covered?

I try not to use the expression “Centre-state” unless I am quoting someone. The word “Centre” doesn’t figure in the Constitution. More importantly, it smacks of a centre-periphery kind of relationship and is vaguely patronising towards States. Metaphorically, “Centre-state” probably conjures up more centrifugal forces than centripetal. The right expression to use should be “Union-state”. The point I wish to make is that the kind of reportage I underlined also suffers from this Centre-state mindset. After untied devolution, after deficit reduction commitments and after addressing items of expenditure in Union List of Seventh Schedule, there is a kitty of revenue left, to be used for what can loosely be called central sector (100% Union funding) and centrally-sponsored schemes (partial Union funding, with a higher Union contribution for North Eastern and Himalayan states). In an earlier era, these public expenditure schemes would have been devised by former Planning Commission. However, in March 2015, a Sub-Group of chief ministers was set up for this, with parallel Sub-Groups for the Swachh Bharat and skills development missions.

The Report of the Sub-Group on rationalisation of centrally-sponsored schemes was submitted in October 2015 and has been reported in media. It divides schemes into a national development agenda (mandatory for all states) and an optional basket. From 2016-17, states will presumably realign their schemes, with or without Union funding. However, schemes are administered by departments and multiplicity of departments leads to multiplicity of schemes. Given prioritisation of focus, I personally don’t think any state should have more than 30 departments, though there is a state where number of departments is as high as 56. Isn’t it, therefore, news that Jharkhand has rationalised number of departments and reduced it from 43 to 31? For instance, a standard problem in states is rural development, rural works and Panchayati Raj departments working in silos. Jharkhand has combined them. Similarly, it has combined the planning and finance departments. Part of the NITI Aayog’s job is collation of such best practices and their dissemination and there are plenty of interesting examples of innovative public service delivery in states. We will certainly do that, but I wished to draw attention to inadequate coverage of states in media.

If untied funding to states has increased to 42%, surely states warrant greater coverage. Let’s stop debating how much the Union government spends on health and focus on state-level expenditure. (It is on the State List.) Let us also debate capital expenditure in states, not just Union government. Let’s recognise that the Indian polity is Union of states.

The author is member, NITI Aayog. Views are personal

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