Federalism that’s not cooperative: The Hindu Editorial

Federalism that’s not cooperative: The Hindu Editorial

Federalism that’s not cooperative: The Hindu Editorial

Indian public finance needs to be restructured to focus on local governance

A reliable system of intergovernmental fiscal transfers is the key to a viable  and stable federal polity. In India, the design of a sound intergovernmental transfer system that will balance the mismatches in resources and expenditure responsibilities of the various levels of government has been statutorily left to the Union Finance Commission (UFC). After the abolition in 2014 of the Planning Commission, which played a critical role in the Indian transfer system, the UFC has emerged as the principal agency to handle this delicate task. Article 280(3) and its first three clauses clearly spell out (clarify in detail) the core duties of the UFC: tax devolution, grants-in-aid, and augmenting (expand) the resources of panchayats and municipalities. Over the years, the open-ended sub-clause, 280(3)(d), that provides for “any other matter… in the interests of sound finance”, has been exemplified (demonstrated) in the Terms of References of recent UFCs. The Terms of Reference of the 15th FC have attracted considerable public debate. Some States even held ‘conclaves’, and six of them submitted a memorandum to the President to alter clauses which allegedly violate constitutional propriety (the condition of being right and appropriate) long-standing precedents, and the “fiscal rights” of States.

Working out terms of reference

The Terms of Reference controversy could have been averted under the dispensation (a political system prevailing at a particular time) of a truly cooperative federalism. The rationale of Article 280, which establishes the UFC, is derived from the acknowledged mismatches between the resources of the Centre and the expenditure responsibilities of the States. Although the Constitution borrowed heavily from the Government of India Act, 1935, it was not for a continuation of the past but for building a ‘holding together’ federation where joint action is avowedly (openly) the binding ethos (character). The Constitution-makers never asked pertinent (relevant) questions like who should do what and who should tax where and used the principle of subsidiarity (what can be done best at a particular level should be done at that level and not at a higher level) or other criteria in functional and revenue assignments. Given this historical reality, the Terms of Reference of a UFC should have been a joint exercise rather than a Union diktat (an order imposed by someone in power without popular consent).
In preparing the Terms of Reference for a quasi-judicial body (non judicial body which can interpret law) like the UFC, it is important not to use it as a platform to impose the Union government’s agenda on the States. The Union governments up to the 10th FC were generally circumspect (cautious). The fiscal consolidation road maps that entail (demand) expenditure compression which ultimately reduce vital public spending on health, education, food security entitlements, drinking water, and so on disturb the finer fabric of India’s cooperative federalism — especially in the context of India’s lowest share of direct taxes in total taxes in the world, disreputable tax-GDP ratio, imprudent (rash) transgression (an act that goes against a code of conduct) into States’ autonomy, alarming growth of economic inequality, and so on. The litany (recitation) of “fostering (encourage the development of something) higher inclusive growth” guided by “the principles of equity, efficiency and transparency”, which was echoed (repeated) by earlier Commissions too, has no operational significance when you go through the entire clause, particularly the requirement to “examine whether revenue deficit grants be provided at all.”
Another important issue that has been deliberately omitted in the ongoing debate, as also in the memorandum to the President, relates to transfers to local governments. That, following the 73rd and 74th Constitutional Amendments, Article 280(3) was amended to incorporate the clauses relating to panchayats and municipalities underscores (emphasises) the organic link in Indian federal public finance. It is instructive to recall that Item No.6 of the Terms of Reference of the 11th FC wanted that commission to take into account constitutional mandates such as creation of institutions of self-government, planning for economic development and social justice, and so on. Later on, such clauses were discontinued. The Terms of Reference of the 15th FC introduces “performance-based incentives” which inter-alia (among other things) want, “Provision of grants in aid to local bodies for basic services, including quality human resources, and implementation of performance grant system in improving delivery of services.” This sub-clause is not constitutionally neat because grants to local governments constitute a separate core mandate. Further, while including this among the “performance-based incentives”, the strategic efforts made by the 13th FC in this regard and the efforts to link local grants to the divisible pool via Article 275 are apparently ignored. Performance-based incentive clauses are valid only as a result-oriented accountability mechanism and also for ensuring constitutional mandates. Padding the Terms of Reference with questionable clauses under this rubric (heading/category) naturally invites resistance from sub-national entities.
The need for an integrated federal public finance that takes local governments into account in macro policy making and in formulating strategies to ensure regional equity and for evaluating the revenue potential and fiscal capacity does not seem to have occurred to the decision-makers of the country. This omission is tantamount (same as) to tearing the web of a ‘holding together’ federation which seeks “inclusiveness” as a national goal. The Terms of Reference debate and the memorandum of the State Finance Ministers are silent on this vital issue. While we have a credible budgeting and financial reporting system at the Union and State levels, it is inexplicable (unable to be explained) why the financial accounting and accountability mechanisms at the local government level are left to fend for (to look after or take care of oneself without assistance from anyone else) themselves.

The real issues

In the Terms of Reference debate, population was the overarching (comprehensive) concern. But the real issues are: (i) that there was a unilateral abrogation (abolition of a law or right) of an unwritten covenant (an agreement) or guarantee given to the States in June 1977 in Parliament (and endorsed by the National Development Council in 1979) that the 1971 Census population data will be used in computing devolution shares to the States; and (ii) in mandating the 2011 population, no alternate compensatory device has been envisaged (contemplate or conceive of as a possibility or a desirable future event). Interestingly, there was no strong protest when all the previous four commissions violated the 1971 population criterion in arriving at local government share. Actually, from a larger cooperative federalism perspective, the issue of population should refer to demographic dividend, inter-State migration, ageing population, and the like. For example, Kerala reaped its demographic dividend long back in 2001 and now accommodates nearly three million migrants from places like Odisha, West Bengal and Bihar. This takes a heavy toll on the State and local government resources. The whole issue of balanced regional development cannot be taken in a casual and illogical manner.
The drawing up of a Terms of Reference of a constitutional body is a serious exercise to be handled with sagacity (wisdom and intelligence) and skill, based on proper consultations in the true spirit of cooperative federalism.


Spell out (Phrase) – clarify in detail

Augmenting (Verb) – expand
Synonyms –  increase, make larger, make bigger, make greater, add to, supplement, top up, build up, enlarge, expand, extend, raise, multiply, elevate, swell, inflate

Exemplified (Verb) – demonstrated
Synonyms – illustrate, give an example of, give an instance of, demonstrate, instance; rareinstantiate

Propriety (Noun) – the condition of being right and appropriate
Synonyms – decorum, respectability, decency, correctness, appropriateness, good manners, courtesy, politeness, rectitude, civility, modesty

Dispensation (a political system prevailing at a particular time)

Avowedly (Adverb) – openly
Synonyms – Professed, Accepted, Acknowledged, Admitted, Affirmed

Ethos (Noun) – Ideology
Synonyms – Philosophy, Mentality, Mindset, Spirit, Attitude, Beliefs

Pertinent (Adjective) – Relevant (उचित)
Synonyms – Apposite, Appropriate, Suitable, Fit, Apt, Applicable, Material, Germane
Antonyms – Improper, Inapplicable, Inappropriate, Irrelevant, Unfitting, Unrelated

Subsidiarity (Noun) – What can be done best at a particular level should be done at that level and not at a higher level

Diktat (Noun) – An order imposed by someone in power without popular consent (फरमान)

Quasi-judicial body – Non judicial body which can interpret law

Circumspect (Adjective) – Cautious (चौकस)
Synonyms – Wary, Careful, Chary, Guarded
Antonyms – Inattentive, Incautious, Indiscreet, Negligent, Reckless, Unscrupulous, Audacious

Entail (Verb) – to demand
Synonyms – Necessitate, Require, Need
Antonyms – Exclude, Untangle, Untwist

Imprudent (Adjective) – Rash (असावधान)
Synonyms – Unwise, Injudicious, Incautious, Unwary
Antonyms – Attentive, Cautious, Prudent, Sensible

Transgression (Noun) – An act that goes against a code of conduct (
Synonyms – Misdemeanour, Felony, Vice, Indiscretion, Peccadillo, Mischief
Antonyms – Perfection, Submission, Virtue

Litany (Verb) – Recitation
Synonyms – Recital, Repetition, Enumeration, Refrain

Foster (Verb) – to encourage the development of something
Synonyms – Promote, Stimulate, Nurture, Enrich, Aid, Abet, Assist, Endorse
Antonyms – Block, Cease, Dampen, Depress, Dissuade, Halt, Hinder

Echo (Verb) – to repeat
Synonyms – Reverberate, Reiterate
Antonyms – Oppose, Differ, Reverse

Underscores (Verb) – Emphasis
Synonyms – Accentuate, Highlight, Indicate, Accent, Caption, Italicise

Inter-alia (Adverb) – among other things (परस्पर)

Rubric (Noun) – Heading of a document; Category
Synonyms – Prescript, Procedure, Regulation

Tantamount (Adjective) – same as (बराबर)
Synonyms – Equivalent to, As good as, Comparable to, Commensurate with, Along the lines of
Antonyms – Polar, Different, Opposite, Reverse

Inexplicable (Adjective) – unable to be explained
Synonyms – Unaccountable, Unexplainable, Incomprehensible, Unfathomable, Impenetrable, Insoluble, Unsolvable, Baffling, Perplexing, Mystifying, Bewildering, Abstruse, Enigmatic
Antonyms – Comprehensible, Intelligible, Explicable

To fend for (Phrase) – to look after or take care of oneself without assistance from anyone else

Overarching (Adjective) – Comprehensive (व्यापक)
Synonyms – Ambient, Encircling, Enveloping

Abrogation (Noun) – Abolition of a law or right (अभिनिषेध)
Synonyms – Repudiation, Revocation, Repeal, Rescinding, Annulment, Negation

Covenant (Noun) – An agreement
Synonyms – Contract, Compact, Treaty, Pact, Accord, Deal, Bargain, Settlement, Concordat, Protocol, Entente, Indenture
Antonyms – Disagreement, Denial, Misunderstanding, Refusal

Envisaged (Verb)  Contemplate or conceive of as a possibility or a desirable future event (परिकल्पित)
Synonyms – Foresee, Predict, Forecast, Foretell, Anticipate, Expect, Envision
Antonyms – Disregard, Ignore

Sagacity (Noun) – Wisdom and intelligence(बुद्धिमत्ता)
Synonyms –  Deep Insight, Judgement, Acuity, Astuteness, Canniness, Profundity, Perceptiveness, Penetration, Perspicuity, Discernment, Erudition
Antonyms – Ineptness, Ignorance, Inability

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