A Paradigm Shift in Centre-state Fiscal Ties

Published: 29th January 2015 06:00 AM  |   Last Updated: 28th January 2015 10:25 PM   |  A+A-

The 14th Finance Commission, headed by former Reserve Bank governor Y V Reddy, has recommended a major increase in the quantum of funds that flow from the Centre to the states. It has also favoured granting the states more powers to spend money on their own without being accountable to the Centre. The states, irrespective of their party affiliation, have been demanding a greater share in central tax revenue. They have also been resisting the Centre for forcing them to use a significant chunk of their share on programmes like the national rural employment guarantee scheme, initiated by the Centre. Instead, they want more money to run their own programmes to meet their own needs.

Fortunately, prime minister Narendra Modi’s concept of “cooperative federalism” gels with the states’ demands, which have been accepted in principle by the finance commission. After all, Gujarat, then led by Modi as chief minister, was in the forefront of demanding greater autonomy in the use of central funds that accrue to the states. There is merit in the argument that a state government knows the needs of the state better than the Centre. Also, the central allocations don’t reflect the largesse of the Centre but the rights of the states. After all, decentralisation of power is not only in the larger interest of democracy but also necessary to ensure all-round growth of the nation.

Since the Modi government is unlikely to have any objection to the finance commission’s recommendations, it should not waste time in implementing them. The Union Budget, which will be presented in Parliament next month, should reflect the new thinking on the Centre-state fiscal ties. If Modi is able to fulfil his promise, it means there will be a paradigm shift in their relations. The replacement of the Planning Commission with the Niti Aayog is also a reflection of Modi’s out-of-the-box thinking. All this converges on the point that he wants to transform the government’ role in piloting development. For, the states are not the Centre’s vassals but equal partners in progress.


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