Federal Faultlines Widen: States Unify Against Centre's Unilateral Policy Mandates

Delhi, 10 October 2024: A deepening chasm in India's federal structure is sending ripples of political unease across state capitals, as a robust and increasingly unified front of state governments and regional stakeholders pushes back vigorously against what they term the Union government's "unilateral and centralising" policy mandates.

This unprecedented chorus of dissent, spanning diverse ideological spectrums, signals a significant recalibration of Centre-state dynamics, threatening to intensify political battles and reshape the country's governance landscape.

Key points

* A growing coalition of non-NDA state governments is actively resisting the Union government's perceived overreach, particularly in fiscal policy, administrative control, and social welfare schemes.

* Concerns span the non-extension of Goods and Services Tax (GST) compensation, conditional funding for central schemes impacting state autonomy, and alleged misuse of central investigative agencies.

* The pushback highlights a deepening ideological and administrative chasm, potentially impacting the effective implementation of national development initiatives and fostering greater regional identity assertion.

* Regional parties are strategising joint parliamentary action, interstate conclaves, and legal challenges to amplify their collective voice and safeguard federal principles.

* Economic disparities and resource allocation remain central to the states' grievances, with allegations of selective funding and a diminishing fiscal space for independent state-led development.

The current flashpoint stems from a series of policy pronouncements and administrative decisions by the Union government that states argue infringe upon their constitutional jurisdiction and financial autonomy.

Chief among these is the contentious issue of GST compensation.

While the mechanism guaranteed states compensation for revenue shortfalls post-GST implementation for five years, its cessation in June 2022 has left several states grappling with significant deficits.

"The spirit of cooperative federalism is under severe strain, replaced by an increasingly prescriptive approach from Delhi," remarked Mamata Banerjee, Chief Minister of West Bengal, at a recent conclave of opposition-ruled states in Kolkata. "Our fiscal space is being systematically eroded.

How can states innovate and develop when their revenue streams are curtailed and their expenditure priorities dictated by the Centre?"

Adding to the fiscal crunch are conditionalities attached to various centrally sponsored schemes.

States report that these conditions often require them to adopt specific implementation models or contribute a higher share of funding than initially projected, despite the subjects falling under the State List or Concurrent List of the Constitution.

For instance, in the education sector, states have voiced reservations about central directives on curriculum standardisation and teacher recruitment policies, arguing these undermine local pedagogical needs and administrative control.

"There is a clear pattern of the Centre converting state subjects into centrally driven initiatives through financial leverage," explained Dr.

R.

Prakash, former Chief Secretary, Government of Karnataka, now a distinguished fellow at the Institute for Public Policy Analysis. "While coordination is essential, dictation is not.

The states, being closer to the ground realities, are best equipped to tailor solutions for their populace."

Official data from the Reserve Bank of India (RBI) and the Comptroller and Auditor General (CAG) reports consistently indicate a widening gap between states' own tax revenues and their growing expenditure commitments, particularly for social sector schemes and infrastructure.

The 15th Finance Commission's recommendations, while increasing states' share in the divisible pool of central taxes, have not entirely assuaged concerns regarding the quantum and specific allocation of grants, especially for states with inherent revenue deficits or significant development challenges.

A recent report by a state finance commission highlighted that the reliance on central transfers has grown from an average of 35% of states' revenue receipts in the pre-GST era to nearly 42% currently, making them more susceptible to central directives.

Beyond fiscal matters, the use of central investigative agencies has become another major point of contention.

Several Chief Ministers and regional party leaders have accused agencies like the Enforcement Directorate (ED) and the Central Bureau of Investigation (CBI) of being selectively deployed to target political opponents, creating an atmosphere of fear and undermining democratic processes.

"This isn't just about politics; it's about safeguarding the constitutional framework and the fundamental principles of federalism," stated P.

Muralidharan, National Spokesperson for the Dravida Munnetra Kazhagam (DMK), from Chennai. "When agencies meant to uphold law are seen as instruments of political vendetta, it erodes trust in institutions and threatens the very fabric of our republic."

Background

India's federal structure, while unitary in spirit, is constitutionally designed to be a Union of States.

The Constitution delineates powers between the Centre and states across three lists: Union, State, and Concurrent.

Over the decades, the balance of power has shifted, influenced by political majorities, economic policies, and judicial interpretations.

The post-liberalisation era saw states gaining some autonomy as competitive federalism gained traction, but this trend has arguably reversed with a strong central government advocating a 'one nation, one policy' approach.

Historically, Centre-state tensions have surfaced during periods of single-party dominance at the Centre and fragmented opposition at the state level, or vice-versa.

The Emergency period (1975-77) stands as a stark example of central overreach.

In more recent times, debates around land acquisition, specific central laws impacting agriculture (now repealed), and the implementation of national security acts have highlighted these persistent fissures.

The current friction is unique in its breadth and the relatively unified stance taken by a diverse set of states, indicating a deeper systemic challenge rather than isolated policy disagreements.

The increasing centralisation of revenue collection through cesses and surcharges, which do not form part of the divisible pool shared with states, has further exacerbated financial grievances.

What it means

This escalating Centre-state friction carries profound implications for India's governance, economic trajectory, and political stability.

On the governance front, a lack of harmonious Centre-state relations can lead to delays in policy implementation, especially for schemes requiring significant state involvement.

Essential services like healthcare, education, and rural development, primarily state subjects, could suffer if coordination and trust deteriorate.

Economically, the states' financial distress, amplified by these policies, could impede their ability to invest in critical infrastructure and welfare programs, potentially slowing down overall national economic growth.

Divergent policy approaches, while reflecting local needs, could also create regulatory inconsistencies, impacting ease of doing business across state borders if not managed carefully.

Politically, this pushback could strengthen regional parties and foster greater opposition unity against the ruling dispensation at the Centre.

It might also lead to a more pronounced assertion of regional identities and aspirations, potentially influencing electoral outcomes in upcoming state and general elections.

The narrative of federalism under threat resonates deeply in many states, becoming a potent electoral issue.

It also poses a challenge to the Centre's agenda of uniformity and integrated national development, forcing it to either adopt a more conciliatory approach or face entrenched resistance.

Reactions

The Union government has largely maintained that its policies are designed for national integration and the welfare of all citizens, asserting that consultations are robust and comprehensive.

A spokesperson for the Union Finance Ministry, requesting anonymity due to the sensitivity of the matter, stated, "The Centre is fully committed to cooperative federalism.

All policy decisions, including fiscal allocations, are guided by expert recommendations and aim for equitable development across all states.

The concerns raised are often politically motivated and do not reflect the comprehensive support provided to states."

Within BJP-ruled states, there is generally an alignment with the Centre's stance, though even some of these states privately express concerns over fiscal pressures and administrative autonomy.

A senior minister from a BJP-governed state, who preferred not to be named, conceded, "While we support the national vision, local realities are paramount.

There are ongoing dialogues to address specific financial concerns within the party framework."

Civil society organisations and constitutional experts have weighed in, largely advocating for greater dialogue and adherence to constitutional principles. "The Inter-State Council, a constitutional body meant for Centre-state coordination, must be revitalised and actively used to resolve these differences," urged Prof.

S.

Karthikeyan, a constitutional law expert at National Law School of India University, Bengaluru.

Public opinion appears divided, with some citizens appreciating the idea of national uniformity and others expressing solidarity with their state governments' demands for greater autonomy and financial independence.

The debate is particularly fervent in southern states, which often argue they contribute more to the national exchequer but receive less in return.

What happens next

The coming months are likely to witness a continued escalation of Centre-state tensions.

State governments, particularly those led by non-NDA parties, are expected to intensify their coordination, possibly forming a united front on specific issues in Parliament and through inter-state forums.

Legal challenges to contentious central laws or administrative directives could also emerge, pushing the judiciary into a more prominent role in adjudicating federal disputes.

The Union government, while maintaining its stance, may be compelled to engage in more robust dialogue or offer concessions on certain non-critical policy aspects to ease tensions, especially with an eye on upcoming state elections and the 2029 general elections.

The upcoming Union Budget and subsequent Finance Commission recommendations will be closely watched for any shifts in fiscal policy or allocation formulas that might address state grievances.

The future of India's federal structure will depend significantly on the political will to bridge these divides through dialogue, negotiation, and respect for constitutional boundaries.

A failure to do so could lead to protracted political battles, impact investment sentiments, and slow down the pace of much-needed reforms and development initiatives across the nation.

The delicate balance of power is set to remain a defining feature of India's political landscape in the foreseeable future, testing the resilience of its democratic institutions.