A new economic deal

Chief ministers from different states will converge in New Delhi twice, first on April 16 and then on May 5, to thrash out contentious issues with the Union government. The second meeting will be devoted entirely to the controversial National Counter Terrorism Centre. But that should not distract us from the larger picture. In the 1980s and 90s, the debates about Centre-state relations had invariably covered political issues as well as Article 356. Today, we are not seeing a renewal of that old argument as much as the beginning of a new one. We are increasingly discussing econo-mic and financial distribution, rather than political questions.One framework to study the shift in the debate is the Union Budget. The budget was devised as a tabulation of the government's accounts. However, in a developing country, where the state has a large and expansive role, the budget was always going to be more than just a balance sheet. For 60 years in India, it has been an economic policy document as well as an attempt to redress social and economic inequities with the help of specific announcements and provisions.That template too is now undergoing a change. What is the role of the Union Budget in an age of coalition governments and transfer of power to states? Are raising taxes, announcing grand schemes and allocating funds for individual programmes the sole prerogative of the Union government?This is not to suggest that the Union Budget should be drawn up by committees or that the finance minister must share his documents with alliance partners. The sanctity and dignity of the budget process — and the constraints within which the finance minister is enjoined to function — must be respected. Yet, a greater sensitivity to the states' concerns should be central to the budget ethic. There is a reason for this. When the central government raises taxes or imposes new or new types of taxes, it changes the rules of the game for state governments. When New Delhi announces a new mission such as the Right to Education legislation, it essentially ends up taking expenditure decisions on behalf of the states. But the actual implementation of these programmes, and the job of finding hundreds of millions of rupees to bring them to fruition, is in the hands of the states. Do they have the capacity? Are they structurally, rather than peremptorily, consulted? This practice is leading to a situation in which the finance ministry and agencies of the Union government are more willing to facilitate debt restructuring of underperforming business corporations than of the states. For many states, this means having a skewed relationship with the Centre and approaching the national capital with a begging bowl. Unable to cope with natural calamities like massive floods or droughts on their own — and that too not because of their own fault — state governments are often reduced to pleading with the Centre for assistance. Even here, South Block can play favourites. In 2011, an earthquake occurred in the northeastern region. Sikkim, which suffered the bulk of the damage, was given Rs 1,000 crore by the Centre for relief and rehabilitation operations. Darjeeling too suffered — though admittedly not half as much as Sikkim — where over 60 people had died. But how much did Darjeeling get for rebuilding and repairing the damage? Zero. Orissa says it got far less central assistance for the Mahanadi floods a few years ago than the assistance West Bengal received after Cyclone Aila. On what basis does the Centre take such discretionary calls? The state governments surely have the right to ask this pertinent question.Take other examples. The proposed goods and services tax (GST) is a hot button issue. The Centre says GST is needed to establish India as a single market and that the states are blocking this important policy. Why do states have misgivings about the GST? While in the long run GST is a good idea, in the short run it will severely distort states' finances as well as relations between producer states (losers) and consumer states (gainers). When it comes to the nitty-gritty of compensation packages, the Union government has remained delightfully vague.There is a history behind the states' misgivings. In 2007, the Union Budget began to reduce the central sales tax (CST) from 4% to zero. Since part of this revenue went to states, the tax reduction left them short of money. The Centre then unilaterally decided to partially compensate states for the losses incurred during 2007-11, but not for 2011-12. This whimsical approach has cost West Bengal and Haryana Rs 1,200 crore and Rs 1,100 crore respectively.The fact is that states are being forced to live beyond their means. They have to fulfil their obligations to citizens with the constricting sources of earnings that the Centre has left them with. Every child born in West Bengal comes with Rs 21,000 in public debt against her name. Per capita debt in Uttar Pradesh, a state with a population of over 20 crore, is a staggering Rs 14,000.A state is considered debt stressed if the ratio of its consolidated debt and liabilities to total revenue receipts exceeds 300%. Punjab, Kerala and West Bengal fall in this category. What does this amount to? In New Delhi, we hear elegant phrases about cooperative federalism. In the rest of India, we experience the harsh realities of operative federalism, or federalism as it is put into operation. Can India afford this gap?The writer is a Rajya Sabha MP of the Trinamool Congress.