EDITORIALS & ARTICLES
Fiscal federalism undermined
Many states are raising complaints about the union government's anti federal moves amid the pandemic.
Even prior to pandemic the union government undermined principles of federalism especially fiscal federalism which manifested in increasing monetary share of states in centrally sponsored schemes, terms of reference of the fifteenth finance commission, imposition of demonetization, institutionalization of GST, outsourcing the statutory functions under the smart cities mission, delay in transfer of GST compensation, one nation one ration etc
Evolution of fiscal federalism
- Fiscal federalism refers to the financial relations between the countries central government and other units of the government
- It essentially represents how expenditure and revenue are located across different layers of government administration
- It helps the government to realise cost efficiency by economies of scale in providing public services which correspond most closely to the preference of people
- Evolution of fiscal federalism can be traced back to 18 century federalist papers of Alexander Hamilton
- The fiscal federalism in India has its roots from 1858 when British government is given direct sovereignty of Indian territory
- Substantial efforts the freedom struggle led to British government declaration in 1917 of gradual introduction of responsible government in India which was followed by Montagu Chelmsford reforms in 1919
- The act of 1919 and act of 1935 have established the basic structure of fiscal federalism in India where the act of 1935 allowed for sharing of center's revenue and for provisions of grants in aid to provinces
Constitutional principles
- The constituent assembly had held significant debates on federal nature of Indian constitution and does the federalism became and essence of the constitution
- Dr BR Ambedkar explained that the draught constitution is a federal constitution in as much as it establishes what may be called a dual polity
- The Indian constitution adopted in 1950 defines India as secular, federal, socialist union of states
- Both centre and states have separate legislative, executive and judicial arms
- The seventh schedule of the constitution the market the powers and functions of union and states in union list, state list and concurrent list
Central transfers to states
- The intergovernmental transfer is a common feature in many countries having federal structure and even in unitary system transfer from union to local governments is ubiquitous
- In order to correct the vertical and horizontal imbalance and for equitable and efficient development in India, the central government transfer funds to state governments as general purpose transfers and specific purpose transfers
- The general purpose transfers are are untied funds devolved to state governments by the finance commission
- The finance commission that constitutes substantial share of total central transfer is appointed every five years since 1951 under article 275-278 of the constitution with the purpose of addressing the horizontal and vertical imbalance
- It will commence the criteria for evaluation of central taxes to states and the principles for distribution of grants in aid
- The remaining transfers in the form of specific purpose transfers which may also be called as tied transfers the transfer was tied for specific purposes mostly in social sector areas that govern a part of national development and gender and cut across state boundaries
- These transfers are made by the concerned central ministries or departments in the form of centrally sponsored schemes
Devolution to the local bodies
- Before 1990 the evolution of passed to the states without any for the decentralization at the level of sub state government bodies was very weak
- After the passage of 73rd and 74th constitutional amendment acts in 1992 the two tiered Indian federal structure evolved into the three tier structure giving constitutional status to rural and urban local bodies
- According to the amendment the state legislatures are expected to devolve responsibilities, powers and authorities to panchayats and municipalities in order to bring about greater decentralization and to increase involvement of community in implementing schemes, bringing transparency in decision making, ensuring accountability and monitoring of outcomes
- Article 243(i) and article 243(y) further necessitated the constitution of state finance commission at regular intervals of 5 years to decide the distribution of net proceeds of taxes between states and panchayats, determination of taxes, duties, tolls etc
Road ahead
Formal institution framework: as recommended by the national commission to review the working of constitution the states to demand the creation of a formal institution framework to mandate and facilitate consultation between union and states in areas of legislation under the concurrent list
Regular engagement: the chief ministers should try to create forums for regular engagement instead of reaching out to each other only during the crisis situation especially with the focus on the federalism angle
Consultation with states: federal flexibility would play a crucial role in shaping the future of democracy, the union government needs to invest resources for facilitation of effective consultation with states as a part of the law making process. It is important that the centre is tablets is a system where citizens and states are treated as partners and not subjects.
Read more - https://www.livemint.com/opinion/online-views/why-fiscal-federalism-in-india-appears-to-be-a-zero-sum-game-11616514681778.html
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