A New Federal Bargain: This is the Moment for a New Federal Compact

Why in News?

• The resurgence of coalition politics in India is poised to bring issues of federalism and Centre-state relations back into sharp focus.
• The Bharatiya Janata Party (BJP)’s increasing dependence on regional allies and its expanded presence in southern India presents an opportunity for a federal reset.
• It is important to analyse BJP’s greater electoral stake in south India (and the Opposition’s in the north) and whether trust and balance could be restored in matters of federalism.

Centre-State Relations in the Past Decade

• Since the BJP’s ascendancy in 2014, significant changes have been introduced in Centre-state relations.
• During Modi’s first term (2014-2019), the government abolished the Planning Commission and replaced it with the Niti Aayog, aimed at enhancing cooperative federalism.
• The implementation of the Goods and Services Tax (GST) marked a pivotal reform in fiscal federalism since the Constitution's inception.
• In Modi’s second term (2019-present), the abrogation of Article 370 signalled a shift towards greater centralisation, as the government leveraged its parliamentary majority to push "one-nation" policies, often sidelining state interests.
• The proposal for One nation, one election was a continuation of this centralising agenda.

Areas of Concern for the New Coalition Government

• Delimitation and North-South Divide
  • One of the most contentious issues is the pending delimitation exercise, which aims to redraw the boundaries of parliamentary constituencies based on the latest population data.
  • This exercise has the potential to deepen the existing north-south divide.
  • Northern states, which have seen significant population growth, stand to gain more parliamentary seats, while southern states, which have implemented more effective population control measures, risk losing representation.
  • This redistribution could fundamentally alter the balance of power in the Lok Sabha, India's lower house of Parliament.
  • Southern states, which are generally more economically prosperous and opposition-dominated, fear a loss of influence and resources.
  • The resulting shift could exacerbate regional disparities and fuel resentment, destabilizing the federal equilibrium.
• Fiscal Federalism and Resource Allocation
  • The existing model involves the redistribution of taxes collected from wealthier states to poorer ones, primarily in the north.
  • This system, while aimed at achieving equitable development, has sparked discontent among southern and western states.
  • These states argue that their higher economic contributions are not adequately recognised and that the redistributive model undermines their fiscal autonomy.
  • The BJP-dominated central government’s policies are often perceived as favouring its strongholds in the north, leading to accusations of political bias in resource allocation.
• Centralisation vs. Regional Autonomy
  • Since 2014, the BJP's centralising policies have also been a source of contention.
  • The abrogation of Article 370, which granted special autonomy to Jammu and Kashmir, is a prime example.
  • This move was seen as an assertion of the Centre’s dominance over state autonomy.
  • Similarly, the push for "One nation, one election" seeks to synchronise state and national elections, potentially undermining the autonomy of states to govern according to their unique political timelines and priorities.
  • Such centralising tendencies raise concerns about the erosion of federal principles and the concentration of power in the Prime Minister's Office (PMO).
• Coalition Dynamics and Regional Party Interests
  • The dynamics of coalition politics further complicate the federal landscape.
  • Regional parties, crucial for forming national coalitions, prioritise their local interests and demands.
  • While this can lead to greater attention to regional issues, it often results in fragmented and inconsistent federal policies.
  • For instance, the demand for special status by Andhra Pradesh and Bihar reflects regional aspirations that may not align with national priorities.
• The Challenge of Building Consensus
  • Building consensus on federal matters in such a politically fragmented environment is inherently challenging.
  • The process of delimitation, fiscal redistribution, and policy formulation requires a delicate balance of competing interests and priorities.
  • The lack of a robust institutional framework for inter-governmental dialogue exacerbates this challenge.
  • Existing bodies like the Inter-State Council have not been effectively utilised to foster cooperation and resolve disputes.

The Role of Regional Parties in Coalition Government in Advancing Centre-State Relations

• Regional parties in a national coalition typically focus on advancing their interests and those of their states.
• Issues like special status for Andhra Pradesh and Bihar and calls for a caste census highlight their agenda.
• However, there is little indication of a comprehensive vision for Centre-state relations or federalism.
• If coalition politics simply translates into regional parties seeking resources for their states, it could undermine a broader federal consensus and perpetuate partisan resource distribution.
• The BJP's "one nation" vision has found some resonance among coalition partners.
• For example, the Telugu Desam Party (TDP) welcomed the abrogation of Article 370 as a move towards a unified nation, and the Janata Dal (United) [JD(U)] supported the one nation, one election concept.
• Thus, the presence of regional parties does not automatically guarantee a strengthened federalism.

Opportunities Before the Coalition Government Towards Renewed Federalism

• Institutional Reforms: Empowering the Inter-State Council
  • A critical step towards renewed federalism is the empowerment of the Inter-State Council (ISC).
  • Established based on the recommendations of the Sarkaria Commission in the late 1980s, the ISC was intended to be a forum for dialogue and cooperation between the Centre and the states.
  • However, its potential has largely remained untapped due to its placement within the Ministry of Home Affairs and the lack of independent authority.
  • To revitalise the ISC, it should be granted greater independence and statutory responsibilities.
  • This would involve repositioning the ISC as an autonomous body with its own secretariat, budget, and authority to convene regular meetings.
• Enhancing Dialogue and Consensus Building
  • A renewed federalism must prioritise dialogue and consensus-building processes.
  • The pending delimitation exercise, which has the potential to deepen regional divides, underscores the need for an inclusive approach to decision-making.
  • Instead of imposing decisions from the Centre, a process of genuine consensus-building involving all states is essential.
  • This process could draw inspiration from the consensus-building efforts that preceded the introduction of the GST.
• Fiscal Federalism: Fairness and Equity
  • Reforming the fiscal federal structure is another crucial aspect of renewed federalism.
  • The current model of fiscal redistribution, where taxes collected from wealthier states are allocated to poorer regions, has led to discontent among contributing states.
  • To address this, the redistributive model should be re-evaluated to ensure fairness and equity.
  • A more transparent and formula-based approach to resource allocation can help mitigate perceptions of bias and partisanship.

Conclusion

• Harnessing this political moment to offer a renewed vision for federalism, where the Centre and states collaborate and build trust, is in the long-term interest of all parties.
• A pan-India federal bargain would help stabilise Centre-state relations, ensuring a balanced distribution of power and resources.

As India looks to the future, a strengthened federal framework could support its diverse and dynamic polity.

Q) What role does the Finance Commission play in fiscal federalism in India?

The Finance Commission plays a crucial role in fiscal federalism in India by ensuring a fair distribution of financial resources between the central and state governments. Constituted every five years, the Finance Commission is tasked with recommending the distribution of the net proceeds of taxes between the centre and the states, and among the states themselves. It also advises on measures to augment the Consolidated Fund of a state to supplement the resources of Panchayats and Municipalities. The Commission's recommendations aim to address imbalances in revenue and expenditure and promote equity among states, fostering cooperative federalism and enhancing fiscal stability across the country.

Q) How are taxation powers divided between the central and state governments under fiscal federalism in India?

In India, the Constitution delineates the taxation powers between the central and state governments to ensure a clear division of responsibilities and revenue sources. The Union List in the Seventh Schedule of the Constitution grants the central government exclusive authority over taxes like income tax (except on agricultural income), customs duties, and excise duties on manufactured goods. The State List gives state governments the power to levy taxes on items such as agricultural income, land, buildings, and state excise on alcohol. The Concurrent List allows both central and state governments to impose taxes on items such as stamp duties and taxes on professions. This division is intended to provide financial autonomy to both levels of government while maintaining a balanced fiscal structure.

Source:The Indian Express