Context-

The results of the 2024 general election in India have surprised many, indicating a shift towards greater democratization with regional parties performing well. This shift promises to strengthen federalism, essential for a diverse nation like India, which has seen fraying Centre-State relations in recent years.

Centre-State Relations During Election Campaigns

• Contentious Issues : Centre-State relations became particularly contentious during the general election campaign. The push for ‘400 paar’ (a target of winning 400 seats), the ‘one nation one election’ concept, and the Prime Minister's threats to jail corrupt opposition leaders were perceived as threats to Opposition-ruled States.
• Stepmotherly Treatment : Opposition-ruled States have accused the Centre of stepmotherly treatment, leading to protests in Delhi and State capitals. The Supreme Court of India noted a steady stream of States approaching it against the Centre, highlighting issues like inadequate resource transfers in Kerala, drought relief in Karnataka, and funds for the Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS) in West Bengal.

Cooperative Federalism: An Unfulfilled Promise

When the Bharatiya Janata Party (BJP) came to power in 2014, it promised cooperative federalism. The introduction of the Goods and Services Tax (GST) in 2017, despite initial reservations from some States, was a notable example of this cooperation.

Growing Discord

India's States are incredibly diverse, with distinct needs and challenges. For example, Assam differs significantly from Gujarat, and Himachal Pradesh is very different from Tamil Nadu. A one-size-fits-all approach from the Centre is not conducive to the progress of such varied States. Greater autonomy is essential for States to address their unique issues effectively, which aligns with the principles of democracy and federalism. A dominant Centre imposing its will on the States exacerbates tensions and undermines the federal structure.

Revenue Collection and Resource Allocation

States face three broad categories of issues: those they can address independently (education, health, social services), those requiring inter-State cooperation (infrastructure, water sharing), and those needing a unified national approach (currency, defence). The Centre plays a crucial role in coordinating and optimizing these latter issues.

The Centre's predominant role in revenue collection, through taxes like personal income tax, corporation tax, customs duty, and excise duty, centralizes financial power. While GST is shared between the Centre and States, the Centre controls the majority of resources, which are then devolved to States to fulfill their responsibilities.

The Finance Commission's Role

The Finance Commission, appointed to determine the distribution of funds from the Centre to the States, often introduces a bias favoring the Centre, as it sets the terms of reference. This bias suggests that States are fiscally irresponsible, reflecting a presumption that States make undue demands on the Centre. States, in turn, often inflate their demands to secure a larger share of revenues, positioning the Commission as an arbiter and States as supplicants.

Inter-State and Centre-State Tensions

States cannot adopt a common position due to their varying stages of development and resource levels. Rich States, with more resources, often resent the allocation of proportionately more funds to poorer States, essential for balanced national development. Despite 15 Finance Commissions' efforts, the resource gap remains wide. Wealthier States benefit from the market provided by poorer States, which lose savings to the richer ones, accelerating their development. The misconception that Mumbai, as a financial hub, should receive more resources overlooks that taxes are paid there for accounting purposes, not production.

The Centre allocates resources through the Finance Commission and direct expenditures in States, leading to further conflict. States seek more central expenditures to boost local prosperity, and the Centre's allocation decisions often appear politically motivated, favoring certain States like Gujarat and Uttar Pradesh. Opposition-ruled States frequently allege step-motherly treatment, with the call for a "double engine ki sarkar" (same party governing at both Centre and State) underscoring the perceived disadvantage of Opposition-ruled States. This undermines State autonomy and weakens federalism.

Autonomy and Governance

State autonomy should not be misconstrued as unrestricted freedom; it must function within a national framework for the greater good. Balancing common national interests with diverse State needs is essential. The Sixteenth Finance Commission, currently at work, has the opportunity to address fraying federalism and strengthen India's federal structure. It can promote even-handed treatment of all States by the Centre and reduce friction between rich and poor States by transferring more resources to the latter, mitigating rising inequality.

Effective governance at both Centre and State levels is crucial, as it influences investment productivity and development pace. Corruption and cronyism waste resources and harm social welfare. To reduce the Centre's dominance over States, the devolution of resources could be increased from its current 41%. Limiting the Centre's role, such as in joint schemes like the Public Distribution System or MGNREGS, where the Centre demands credit and penalizes non-compliant States, would enhance federalism.

Conclusion

The undue assertiveness of the Centre undermines federalism. Funds with the Centre are public funds collected from and spent in the States. While the Centre is constitutionally created, States and local bodies are where economic activities occur and resources are generated. The States have agreed to the Centre’s constitutional position but should not be seen as supplicants for their own funds. Utilisation of the country’s resources should be jointly decided by the Centre and the States as equal partners.

The changed political situation post-2024 election makes this joint decision-making feasible. Strengthening federalism through equitable resource allocation and respecting State autonomy will ensure balanced and inclusive development across India.

Source- The Hindu