Don't reduce devolution

Increasing grants and tied funds not enough

In recent decades, the responsibilities associated with running a state government have increased considerably. A greater political emphasis on the services that state governments can and must provide has become the norm. This has naturally been associated with the increased devolution of the tax pool to the governments that are the primary interface of the citizen and the Indian state. The Fifteenth Finance Commission is reportedly set to reverse this trend. It is likely, according to a report in this newspaper, that the existing share of the divisible pool of taxes that is set aside for state government spending — 42 per cent — may be reduced. This does not take into account any changes to the divisible pool itself. That too might be reduced following a late addition to the terms guiding the Finance Commission, which was asked to consider the needs of defence and national security as having a separate claim on national resources.

Given that defence is the Union government’s responsibility, the Commission would naturally reduce the divisible pool. Put together with a reduction in the untied transfers to states, this would amount to a considerable reduction in the freedom to manoeuvre for state governments and their abilities to provide services.

This is not the direction in which India should be moving. While the Commission may seek to claim that increasing the “tied” funds — resources associated with specific Union government programmes and initiatives — might serve as compensation, it does not in fact amount to the same thing. State governments are directly accountable to the people for the services that they provide and should be able to make decisions on their governance with required resources in hand. Politicians at state levels are expected by their electorates to be the providers of essential services, and they justifiably expect, in turn, that this democratic momentum be reflected in the resources made available to state governments.

The Union government will no doubt argue that it has seen a crunch in its own resources, after the introduction of goods and services tax (GST). But it cannot blame anyone but itself. It has the primary responsibility for growing the size of the economy, and economic growth stalling is one essential reason for the reduced tax collection. The states themselves can also complain about GST, pointing out that they have signed away their powers to raise some indirect taxes, and that a reduction in the pool of divisible taxes is not a good way to reward them.

It is also important to consider the political circumstances in the country in general. Multiple stresses have emerged on the federal structure of the country in recent years. The widespread unwillingness on the part of state governments to implement the Citizenship Amendment Act is only one such stress. Others include differing demographic pressures and the consequent changes in relative political power across geographies of the country. It would be unwise from the standpoint of national interest to alter the decades-long momentum towards greater financial resources for states.