Opinion
Don’t over-centralize: Pragmatic federalism is an economic imperative
Summary
- Saturday’s Supreme Court judgement in Tamil Nadu’s case has come as a win for federalism in the context of legislative autonomy. Over-centralization of power doesn’t serve the Indian economy’s interests either.
The latent centralizing tendencies of central governments keep flexing their sinews, much to the detriment of India’s organic economic growth impulses. India’s Supreme Court recently ruled that 10 bills passed by the Tamil Nadu assembly, which Governor R.N. Ravi had denied assent to and kept on hold for prolonged periods, must be deemed to have been passed. The apex court also found the governor’s reservation of those bills for the President’s consideration, even after the state legislature had reaffirmed its support for them, to be “illegal, erroneous in law" and thus “liable to be set aside."
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In a more telling commentary, the bench observed: “…the Governor must be conscious to not create roadblocks or chokehold the State Legislature in order to thwart and trade the will of the people for a political edge." The court’s judgement, which the bench directed be despatched to all high courts and principal secretaries of governors in all states, is now likely to be used as a legal precedent.
Central governments have often used the governor’s office to settle political scores in opposition-ruled states. The protracted head-butting between the governors of Tamil Nadu, West Bengal and Kerala and the elected assemblies of these states has been quite unseemly. Broadly speaking, such a disposition flies in the face of the Constitution’s federal structure. As another example, take the central government’s recent levy of a special additional excise duty on petro-products. To be paid by oil companies, it is in a category of indirect taxes that do not have to be shared with states.
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New Delhi’s propensity to centralize is most noticeable in the area of fiscal federalism. Under all political dispensations, central governments have contrived to raise additional revenue without having to share it with states. The cess-and-surcharge regime has been roundly criticized by successive Finance Commissions, but has survived and thrived under all governments.
The country’s current ruling Bharatiya Janata Party had promised ‘cooperative federalism’ and raised hopes when it assumed power in 2014; more than a decade later, this seems like a distant dream. Unfortunately, the slow-burn erosion of fiscal federalism has a direct adverse impact on the growth potential of the Indian economy.
Also Read: Second shot: Could cooperative federalism revive Indian farm reforms?
Uneven gross domestic product (GDP) expansion, evident in weak job creation and shrunken real wages, has apparently forced both the Centre and states to resort to massive cash transfers, subsidies and loan write-offs.
The general elections of 2024, followed by a spate of state elections, resulted in states holding off their budgeted capital expenditure, which has a considerable multiplier effect on GDP growth.
Second, the Reserve Bank of India’s latest annual study of state finances notes that an overload of central schemes has reduced state flexibility, cramping budgetary space for state-specific spending by states.
Third, the nation’s changed fiscal architecture has left Indian states with very little discretion in raising revenue or planning expenditure, forcing them to over-extend themselves.
The ill effects of all this end up punishing ordinary citizens. The 15th Finance Commission, instead of fixing aberrations, erred on the side of overt centralization. Hopefully, the 16th will forsake political fidelity in favour of pragmatic federalism. The Indian economy deserves as much.
