The case for greater centre-state coordination to meet long-term goals

Last week, Finance Minister Nirmala Sitharaman said that the centre and the states need to coordinate better among themselves in order to bring down local-level inflation.

At an event organised by the Indian Council for Research on International Economic Relations (ICRIER), Sitharaman said, “It cannot be that inflation is handled only by the Centre. And when states don’t take enough steps, that part of India suffers from want of relief from the stress of inflation. The exogenous factors affect both the Centre and states.”

 “If the states’ inflation is also to be attributed to the Government of India, we need to have a way in which we work together to handle inflationary matters,” Sitharaman said, adding that states that did not cut their taxes and duties on petroleum products are registering higher inflation than the national average.

Part of what the Finance Minister said is not new. Many public policy experts and policymakers have stated that more mechanisms are needed for regular centre-state coordination and interaction on various issues. Currently, there is only the NITI Aayog Governing Council, which meets once a year, and the Goods and Service Tax (GST) Council, which meets on specific GST-related issues.

Late last month, a report by the Institute for competitiveness and endorsed by the Economic Advisory Council to the Prime Minister (EAC-PM) raised this topic again. The report, titled ‘Competitive Roadmap for India@100’, said that in order for India to achieve its economic and social goals by 2047, just implementing policies won’t be enough. There is also a need to tailor these policies to different regions of the country and hence centre and states need to work more closely to achieve these goals.

“The government should review its internal coordination mechanisms, including the creation of a national competitiveness council chaired by the Prime Minister. This structure could be potentially embedded into an apex body,” the report stated.

It said that the reforms required and initiated over the last few years are more demanding in terms of implementation than the initial market-opening reforms, three decades ago. They require action and often coordination across many different levels of government, as well as across functionally specialized ministries and agencies.

The report did recognise NITI Aayog’s role in providing a platform for centre-state issues but said that it has limited legal and budgetary powers.

“Institutionally, we really don't have that level of coordination. In NITI Aayog Governing Council meetings, things get political and some opposition chief ministers have boycotted in the past. In a sense, the only institution we have right now is the GST Council,” said NR Bhanumurthy, Vice-Chancellor of Dr B.R Ambedkar School of Economics University, Bengaluru.

“There are areas where there overlap in terms of the concurrent subjects where a lot of coordination and cooperation is required between centre and states. that is where possibly an inter-state council can play a meaningful role okay,” said DK Srivastava, Chief Policy Advisor at EY India.

While the inter-state council is a permanent Constitutional body formed in 1990, it has met only 12 times and there have been no meetings since November 2017. The Modi government has given precedence to the NITI Aayog Governing Council instead.

Bhanumurthy suggested that there is a case for forming a body similar to the GST Council, with focus on welfare targets and sustainable development goals.

“We talk about SDGs and $5 trillion economy. We need to integrate all these long-term goals and see that coordination between the union and states needs to be brought in. Otherwise, only some states will continue growing faster while the others will be left behind,” he said.

There is also a view among policy experts that similar platforms can be formed for specific issues like infrastructure, rural economy and others. Srivastava stated that such proposals need to be examined with their specific mandate in mind.