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Revive and strengthen the role of centre-state engagement mechanism

Story Highlights
  • 1. Press the paddle on structural reforms. GDP growth slowdown could act as an opportunity to push forward structural reforms pending for years.
  • 2. Push public and private investments. Investments are the key driver of growth.
  • 3. Enhance rural wages. It will help boost consumption and demands. Anticipation of demand is what the companies use for investments.
  • 4. Rationalisation of corporate tax is critical. The loss incurring due to the cut in corporate tax would be made up by the resulting increase in personal income tax.

The history of fiscal federalism in the past has demonstrated that three lists—Union List, State List and the Concurrent List—have somewhat proved malleable and to some extent impractical right from the beginning. There have been many subjects, which were in the domain of states, but were used up by Planning Commission before its abolition, under Article 282 of the Constitution, to create a plethora of Centrally Sponsored Schemes (CSS). These cover subjects which should be in the domain of states. This sin was started originally in the First Five Year Plan itself and with passing time it only got more and more accentuated. 

There have been three other connected phenomena: the Parliament has, over a period of time enacted entitlement driven legislation which are standalone legislations, which gives the legislation, the backing for areas over and above. Right to Food, Right to Employment and Right to Work are few examples and these are standalone legislations. These subjects are purely in the domain of states.

N K Singh,
Chairman, 15th Finance Commission

“We need to see how each of these institutions become robust and impart greater dynamism in a consultative manner between the Centre and the states.”

“If one looks at the outcomes, the drawing board looks extremely cluttered. There have been 115 standalone CSS notwithstanding many rationalisation attempts that were made, the last one by a committee headed by Shivraj Singh Chouhan. Every year the Union Government spends Rs 3.53 lakh crore on CSS and an equivalent amount by the states. Approximately about Rs 6.50 lakh crore is being spent annually on CSS between the Union and the State Governments. We need to revisit this drawing board in a holistic manner,” said N K Singh, Chairman, 15th Finance Commission.

“Long before I said this, a report submitted in 1971 by a Committee called Rajamannar Committee formally known as the Centre–State relations Inquiry Committee, said that it is desirable to constitute a High Powered Commission consisting of eminent lawyers and jurists and elderly statesmen with administrative experience to examine the entries of List I and List III in the 7th Schedule of the Constitution and suggest redistribution of entries,” he continued.

Technology, migration and pressures that have taken place have wiped out the need for classification of subjects in List I, List II and List III and sooner we come to realities the better would it be and more realistic would be the fiscal architecture for the growth of the country.

Further, successive attempts to rationalise the CSS have met with little success. We need to revisit core CSS along the eight or nine national priorities. We need to have patterns of funding, which are predictable and certain. “Many states have come to me complaining that many CSS have been initiated with 75 per cent by the central government and 25 per cent sharing by states but over a period of time this gets dramatically altered,” added Singh.

 There is a need to have a consultative mechanism between the states and the Centre. Their is the National Development Council (NDC), Council on Centre State Relations, Niti Aayog and every five years, the Finance Commission. “We need to see how each of these institutions become robust and impart greater dynamism in a consultative manner between the centre and the states,” said Singh.

The fiscal architecture in India has withstood the test of time and has got strengthened over period. Can we re-think the design and structure of a genuine fiscal partnership, which is not merely a race to garner more resources but a creative attempt to move towards a vibrant Indian Value Added Chain, which can catapult our growth rate closer to the quest for double digit growth. Times of economic slowdown must be viewed anecdotally, concluded Singh.

N K Singh

Dr N K Singh is a renowned politician, economist and former top bureaucrat. He was appointed the Chairman of the Fifteenth Finance Commission in 2017, prior to which he was a member of the Rajya Sabha from the state of Bihar. He served on the Parliamentary Standing Committee on External Affairs and the Committee on Local Area Development Scheme, the Public Accounts Committee, the Consultative Committee on Finance, the Committee on Rules, the Housing Committee and the Parliamentary Forum on Global Warming and Climate Change. He was also on the Standing Committee on Human Resource Development and the Committee on Public Undertakings. He is presently Member of the Bharatiya Janata Party.
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