July 04, 2021

Coercive Centralisation, NOT “Cooperative Federalism”!

Venkatesh Athreya

THE Economic Times of June 23, 2021 has reported that, in a blog posting “Reforms by conviction and incentives” on a social media site, Prime Minister Narendra Modi has claimed that “an innovative approach to policy making tempered by centre-state partnership during the Covid pandemic helped the states raise an extra Rs 1.06 lakh crore in 2020-21”. He has also claimed that this is an example of reforms by conviction and incentives, with the states agreeing to carry out four reforms being pushed by the union government.

These were:  “one nation-one ration card” in which the ration card was to be seeded with Aadhar; automatic and online renewal of business-related licenses under seven Acts through mere payment of fees (facilitating so-called ‘ease of doing business’); notifying property tax, water and sewerage charges by states (enhancing urban revenues); and ‘direct benefit transfer’.

The reference to ‘direct benefit transfer’ related to power sector reforms. The union was opposing free power policies pursued by state governments and even when free power was provided by a state government, it wanted the power distribution companies to collect electricity charges, with the state government subsequently transferring the amounts paid by eligible beneficiaries into their bank accounts.

It is extraordinary that the prime minister should claim the coercion of state governments into accepting neoliberal reform steps by imposing loan conditionalities as “an innovative approach to policy making tempered by centre-state partnership”.

During the pandemic period, the state governments were fiscally devastated, in the first instance, by a country-wide, unilateral imposition of an undifferentiated lockdown throughout the country at very short notice, leading to the collapse of the economy across all states. The first case of Covid19 infection in India had been reported as early as January 30, 2020 by the government of Kerala, which immediately swung into action to limit the spread of Covid19.

The union government had, however, sat on the pandemic issue showing no hurry to deal with it until the visit of Donald Trump to Gujarat, which was sought to be used by the ruling party to showcase the Indian prime minister as a world leader on par with the then US president, was over, and a change in government in Madhya Pradesh had been managed by organising defections of MLAs in the state from the Congress. Then, all on a sudden, with hardly four hours’ notice, and without any consultation with the state governments, the prime minister announced the country-wide total lockdown, with millions of migrant workers stuck in places thousands of kilometres from their native villages, and no arrangements for food, shelter, income or transport to their villages. There was absolutely no centre-state partnership here!

Subsequently, as state governments which had to deal with the pandemic on the ground, sought financial assistance from the central government to deal with the additional expenditures entailed by pandemic-related activities, the union government showed little eagerness to help. In fact, it had already stymied state government finances by offering a whole host of tax concessions to the corporate sector and high income individuals, resulting in the reduction of state governments’ revenues from the divisible pool of tax revenue as per the award of the Finance Commission.

The utterly opaque PM CARES Fund did not help the state governments either. Worse, besides its stubborn refusal to provide financial assistance to state governments even when the union government had sufficient fiscal head room for doing so, the Modi government put many spokes in the wheel on initiatives taken by proactive state governments in dealing with the pandemic.

While the union government availed generously for itself RBI surpluses, it kept forcing state governments to borrow at high rates from financial markets. The least it could have done would have been to borrow from RBI at the much lower rate at which it received finance from RBI, and on-lent the money to the state governments. But the union government did nothing of the kind. All that it did, after much pressure from state governments, was to increase the permissible fiscal deficit limits of state governments as share of their gross state domestic products (GSDP) marginally.

Several state governments, including Bihar where the BJP was in government, had demanded that the state fiscal deficit limit under the FRBM Act should be enhanced from 3 per cent to 4-5 per cent of GSDP, given the fiscal crisis resulting from the pandemic and lockdowns. The union government raised the limit by only 0.5 per cent point unconditionally. Sensing an opportunity to impose neoliberal reforms on cash-strapped state governments, it also permitted a further rise of up to one percentage point conditional on state governments carrying out the four “reforms” specified in Modi’s blog post and referred to earlier in this article, with 0.25 percentage points for each one of the four reform steps. If a state government fully implemented three of the four reform steps, it would be permitted to borrow an additional 0.5 per cent point of GSDP. 

To celebrate the enforced undertaking of reforms by some state governments facing severe fiscal pressures as “…an innovative approach to policy making tempered by centre-state partnership” is a complete travesty of truth. In fact, even the then AIADMK government of Tamil Nadu, a BJP ally, protested the union government’s linking the raising of borrowing limits with conditionalities of implementing economic reforms dictated by it. The Print reported, in May 2020, the then Tamil Nadu chief minister Palanisamy as saying: “Aggressively pushing a reform agenda on which a consensus is yet to be developed at a time when states have approached the centre for additional borrowing out of sheer desperation is not in keeping with the spirit of cooperative federalism….Linking of the central government’s power under article 293 (3) of the Constitution to permit additional borrowing by states to conditionalities is unprecedented.”

Other state governments including Kerala had also opposed the linking of a hike in the permissible fiscal deficit as share of GSDP with neoliberal reforms dictated by the union government. In short, the Modi government sought to use the fiscal crisis of the state governments resulting from the centre’s economic policies as well as the pandemic and lockdowns related to it to coerce state governments into implementing anti-people neoliberal reforms.

That the RSS-BJP dispensation has pursued ruthless centralisation during the last seven years is well known. Such centralisation stems from the corporate-Hindutva framework that informs the union government’s policies. Indian big capital demands uniformity in all economic matters across the country to enable it to pursue its goal of profit maximisation. Increasingly influential foreign big capital, which seeks the same on a global basis, is quite happy to go along with domestic big capital on this. The RSS vision of Hindu Rashtra envisages eliminating pluralism and diversity across the country in social and cultural spheres as well.

The demonetisation disaster of 2016 (perhaps an example of the extreme limits to which centralisation can go, when a decision to withdraw from circulation 86 per cent of the country’s currency by the stroke of a pen was taken without any consultation process), the ham handed handling of GST from 2017 till now including reneging on the solemn promises of the GST Act, the New Education Policy sought to be implemented in great haste in the middle of a pandemic, treating the concurrent list practically as a union list, the generally dismissive attitude towards state governments, the hostility towards the linguistic and cultural rights of the various nationalities that comprise the union of India – the list goes on. Yet the prime minister has the audacity to talk of “centre-state partnership” and “cooperative federalism” when what we have had for seven years now is systematic, coercive centralisation. But the people of India have repeatedly demonstrated that India is a highly diverse union of states and cannot be coerced to suit the RSS vision.