Covid crisis: States must be assigned their rightful role

May 05, 2020 5:40 AM

The basic decision making on the ground must be left to the states and should involve municipal corporations and wards.

That could be a solution worth exploring, but only if there is a strategy to ensure rigorous testing, quarantining, and social distancing during travel.The Union home ministry’s circular categorises various districts in the country as red, orange, and green zones with some relaxations in the orange zones and some more in the green ones. (Representative image)

By M Govinda Rao

The Union home ministry’s notification extending the lockdown by two more weeks up to May 17 is disappointing; it keeps the economy in the ICU for an extended period. This only adds to the insecurity and misery of unorganised sector workers and small and medium industries. With livelihoods lost, future uncertain, and little reserves to fall back on, millions of migrant workers are understandably impoverished and impatient and, even though they are well aware of the bleak fortunes back home, are keen to go back to roots. Besides, there is the logistical nightmare of transporting them while observing social distancing; this may very well start another wave of coronavirus spread, in areas that haven’t been seen an outbreak so far.

The Union home ministry’s circular categorises various districts in the country as red, orange, and green zones with some relaxations in the orange zones and some more in the green ones. The circular also details the activities permitted and not permitted in each of the zones. There are 130 red zones, 284 orange zones and 319 green zones.
However, an Axis Bank study estimated, in terms of the economic importance, the red zones account for 40% of the population, contribute more than 50% to GDP and have over 70% bank deposits and 83% bank credit.

In contrast, the 319 districts in the green zones, where the relaxations for economic activity is the maximum have only a quarter of the population, generate 19% of GDP and account for less than 10% of deposits and 6% of the credit. It takes 21 days for the red to turn orange, in case no new cases are reported, and another 21 for the orange to turn green. Not to have a single case for 42 days to turn from red to green and then to resume economic activity would take a long time.

Naturally, in this uncertain environment, the migrant labourers concentrated in these metropolitan districts face a profound sense of insecurity as they do not see the resumption of economic activities anytime soon. A strategic approach requires dividing these large metropolitan districts into small zones and allowing the resumption of activities in safer ones.

This brings us to the issue of the role of the Union and states in calibrating relaxations. The Seventh Schedule of the Constitution places public health and order in the state list. However, Entry 29 of the Concurrent List gives a legitimate role to the Union government in the prevention and inter-state spread of “…infectious or contagious diseases or pests affecting men, animals or plants”.

The Union government, by invoking the Disaster Management Act, 2005, has completely centralised the decision-making power on the grounds of the need for “consistency in the application and implementation of various measures across the country”. Thus, we are given “one-size-fits-all” solutions. The states are made to act as agencies.
The Covid-19 war has to be fought by governments closer to the people. While the Centre can continue to give broad guidelines, it should trust the states to take the decisions on relaxations by classifying the areas within the districts into safer zones to start economic activities. Should the Union government decide which shops and activities will be opened up and where?

Whether barbers’ shops, beauty parlours or alcohol shops should be opened or not or how many people should travel in a car, taxi or a two-wheeler? Undoubtedly, the states which are supposed to implement these decisions can also decide. Even the states ruled by the same party in power seem to feel helpless. In Karnataka, for example, large parts of Bengaluru are free from coronavirus, but economic activities cannot start as all of Bengaluru has been declared as a red zone. In other words, the Centre should trust the states and allow them to take decisions instead of taking all decisions and asking them to implement. Resuming economic revival requires the states to play a strategic role. Otherwise, with looming uncertainties and the migrant labour leaving the city, the process of recovery will be prolonged. This is the time to play the cooperative federalism game.

There is nothing to show that the Centre has all the wisdom and capacity and that the role played by it in containing the virus is blemishless. It beats anyone’s imagination how the Union home ministry could have been completely oblivious of a religious congregation attended by thousands of Indian and foreign delegates when the virus was raging right under the nose of the police in the capital of the country.

Over a third of the problem faced by the states is squarely due to this oversight. Interestingly, Maharashtra government, it is reported, had refused permission to hold such a congregation in Mumbai and yet, has to face the unfortunate consequences of the Centre’s oversight!

The strategy must not be to hand down decisions but to encourage the states to take the initiative. Indeed, there could be broad guidelines as the virus knows no boundaries and has to be contained. The basic decision making on the ground, however, must be left to the states and involve municipal corporations and wards in calibrated relaxation. This would also require empowering them fiscally. They have been scraping the barrel to meet increasing expenditures.

Now, they have to loosen the purse to save livelihoods and help SMEs to start their operations. In the lockdown period, there is virtually no economic activity, and they are not able to generate any revenue from state excise duty, stamp duties and registration fees, motor vehicles tax or sales tax on high-speed diesel and motor spirit. Even the GST compensation has been delayed, and there is considerable uncertainty whether the Union government will honour the commitment to compensate them for the loss of revenue at all. The position regarding tax devolution is equally precarious.

Besides the differences between the Finance Commission and budget estimates of tax revenue, there could be a shortfall in the budgeted tax revenue by more than Rs 6 lakh crore and tax devolution to the states could be lower by almost Rs 2.4 lakh crore. The additional ways and means limit provided by the RBI is just about Rs 26,000 crore; may help some states to plan the timing of borrowing. The Punjab chief minister has written to the prime minister requesting a “Covid-19” grant. This is the time to empower the states not only to work out a grant for the loss of tax devolution due to crisis but also enable them by granting ‘an additional percent of GDP’ borrowing space.

The writer is former member, Fourteenth Finance Commission and former director, NIPFP. Views are personal. 

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