Relevance: Mains: G.S paper II: Polity: Constitution: Federalism
Context:
- The ongoing budget season is the right time to carry out a realistic assessment. After the Union budgetRe for 2020-21 was presented on 1 February, at least four state governments have released their budgets: Odisha, Tamil Nadu, Rajasthan and Uttar Pradesh.
Background:
- Despite being a functional democracy for more than seven decades, India cannot ignore the role of the parties in power while reviewing the dynamics between various pillars of governance.
• A dispassionate analysis that focuses merely on requirements and performance is unlikely to reveal the full picture.
• Union finance minister highlighted the need for greater Centre-state cooperation to implement agricultural reforms, strengthen medical education, promote tourism, and attract investments.
State budgets cover these issues:
- The Odisha government follows a practice of presenting its budget in two parts, with the first part dedicated to agriculture and allied activities.
• To promote tourism, the Rajasthan government has proposed implementing a policy on the Ease of Travelling.
• The Uttar Pradesh government is in the process of establishing 21 new medical colleges and a medical university.
• The Tamil Nadu government is likely to launch a new industrial policy shortly that will provide incentives compatible with the goods and services tax regime to attract investors.
Reduced the transfer:
- Under the Union budget, the total estimated transfers to states from the Centre for the ongoing fiscal year have been reduced by around ₹1.41 trillion.
• This is because of a decrease in the estimated transfers to states on account of their share in central taxes and centrally-sponsored schemes.
• The Congress-run Rajasthan government, in its budget, has blamed the Centre for economic mismanagement and the consequent reduction of the state’s share in central taxes by more than ₹10,000 crore.
• It argues that while the Centre has several options of raising funds, such as disinvestment and approaching the Reserve Bank of India, no such option is available to the state.
• The Tamil Nadu budget also points out that the Centre has reduced the state’s share in central taxes for the current fiscal year by around ₹8,000 crore.
• While terming this as unprecedented, it notes that the state government has been able to partially make up for the shortfall by obtaining additional grants from the Centre of around ₹5,000 crore.
• Given that Tamil Nadu is governed by the All India Anna Dravida Munnetra Kazhagam (AIADMK), a strong regional party and a partner of the BJP at the Centre, unlike Rajasthan, it might have been able to negotiate a better deal for itself with the Union government in New Delhi.
• The government of Odisha, in its budget, has also noted that its share in central taxes for the current fiscal year has been reduced by ₹9,000 crore. Still, it has proposed a fund of ₹500 crore to facilitate timely payment of wages under the rural employment guarantee scheme, pending receipt of central assistance.
• Similarly, it has allocated ₹400 crore for railways, though that is a central subject.
• The most interesting story emerges from Uttar Pradesh. The state has been forced to revise its estimated receipts on account of its share in central taxes downwards by a massive ₹17,000 crore.
Way ahead:
- Unlike other states, this substantial reduction did not find mention in its budget speech, and was quietly slipped into one of the budget documents.
• Despite the transfers to states during the current fiscal year being revised to ₹11.87 trillion under the Union budget, such transfers are estimated to increase by more than ₹2 trillion to ₹13.90 trillion in the next fiscal year, which is perhaps unrealistic.
• Unfortunately, states have accordingly projected a substantial increase in funds to be received from the Centre and have planned their expenditure on that basis. These may need to be trimmed in the future.
Conclusion:
- Politics has trumped economics and the greater good thus far in India’s story of cooperative federalism. This needs to be fixed before it is too late.
• Greater transparency and stakeholder participation in the budget-making process of the Centre as well as states could go a long way in this regard, as also institutionalized mechanisms for better Centre-state coordination.
• Above all, political parties need to rise above their electoral mindsets and act in favour of the country’s greater good for India to realize the true potential of cooperative federalism.
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