Federalism in danger

Dr Ashwani Mahajan
The recently concluded meeting of the National Development Council has become a matter of severe debate. Although the media highlighted the walking out of Jayalalita, the Chief Minister of Tamil Nadu, there are more issues that came out of this meeting, which need serious attention. India has 28 states and 7 union territories. According to the Constitution of India, India follows a federal system, whereby democratically elected legislatures at the union and the state level make legislations and governments enjoying the support of majority of the legislators (members of Lok Sabha in the Parliament and Member of respective Legislative Assemblies) run their respective governents , within the broad framework of the constitution. Various countries of the world, which includes the United States of America (USA), follow federal system. One basic difference between the federal systems of USA and India is that the states of America can decide to separate themselves from the union whereas in India, the merger of states into the union is final and no state can separate itself from the union.
We are aware of the fact that all the states of the country are not equally developed. On one hand, there are highly developed states like Maharastra, Gujarat, Tamil Nadu, Karnataka and Punjab and on the other hand, there are some least developed states like Bihar, Jharkhand, Orissa, Assam and Uttar Pradesh. In 2011-12, the per capita income of Maharastra was Rs. 101314 per annum whereas the per capita income of Bihar was merely Rs. 23435 per annum based on the current prices. This means that the per capita income of Maharastra is 4.3 times more than that of Bihar. It is obvious that the people of less-developed states also aspire for development of their states. On one hand, developed states are able to collect more taxes due to higher incomes of their people, thus, their governments are able to provide better infrastructure and other civic amenities to their people. Not only this, people enjoy a better standard of living in these states and the prosperity is further enhanced due to better infrastructure, civic amenities and government subsidies. On the other hand, poor states have less income and thereby less government revenue. These states are not only less fortunate in living standards, they lack even in terms of infrastructure and civic amenities.
In this era of information technology, people living in less-developed states also wish to see development in their states. The all round development of a country is not possible unless poor states achieve a high standard of living. Due to the lack of resources, poor states do not have a good level of education and health. Though education and health facilities of a state cannot be improved merely by good incomes, yet growth in incomes is an essential condition for the same. The literacy rate of Maharashtra is 83 per cent whereas the same is less than 64 per cent in Bihar. In Maharastra, 24.5 per cent population lives below the poverty line whereas in Bihar 53.5 per cent population is reeling under poverty. As per the national aggregate, 30 per cent population lives below the poverty line.
It is to be noted that this meeting of the National Development Council was organized with regard to the Twelfth Five Year Plan. This Five Year Plan has already started on 1 April 2012, however, there are still a number of unresolved issues related to the allocation of funds to various states, the synopsis of the Plan and the expenditures on various sectors. This meeting was expected to discuss all these issues.
In 1951, India made the customary policy of planned development. Since then, 11 Five Year Plans and many other Annual Plans have been executed. The states have been demanding more funds for their respective plans for development. The same issue was the highlight of this meeting as well. Moreover, Bihar demanded a special package for itself. The Chief Minister of West Bengal clamored for the relief from the debts taken by the previous left government. It blamed the central government for indiscrimate lending to the state and sending the state neck deep into debt. West Bengal government’s argument is that due to loans taken by the previous governments, the state is not able to fulfill its aspirations of development.
Acording to the Constitution of India, the Centre gets more resources than the states. It is to be noted that taxes which fetch more resources, are levied by the Centre. These taxes include income tax, corporation tax, gift tax, central excise duty, custom duty and service tax. In 2011-12, 10,77,612 crores rupees were collected out of these taxes levied by the Centre (out of these taxes some part is devolved to states as well). State governments also levy taxes and collect money with the help of sales tax, product tax and stamp tax. In 2011-12, the states collected only 5,39,590 crore rupees from these taxes. The states have to spend a lot of money on various civil amenities and developmental works. Therefore, the requirements of the states are more than that of the Centre. For this, the Constitution has made a system of the Finance Commission. It is to be noted that the Finance Commission has decided to give 32 per cent of the taxes levied and collected by the Centre to the states for the time period between 2010 to 2015. In addition to this, the states are given grants in aid by the Centre. However, states do not find them sufficient for their developmental requirements.
In every Five Year Plan, the states are allocated funds for various sectors and projects. In this context, the meeting was highly important with regard to fulfilling the requirements of the states. It is to be noted that not only Bihar but the states like Jharkhand and Orissa are also clamoring for special packages for development. Interestingly, all these states are governed by the opposition parties. Whether, right or wrong there is a general belief amongst governments of these states that they are being discriminated and thus, they are not allocated the money as per their developmental requirements. But it is true that poor states are not able to get the amount that is needed for their development. Not only this, even Thirteenth Finance Commission could not provide sufficient resources to poor states through their shares in taxes and other transfers. Moreover, the Finance Commission adopted a formula which proved disadvantageous for poor states. According to this formula, states would get their share in taxes depending upon their fiscal discipline. It is obvious that due to their need for development, most of the poor states could not maintain fiscal discipline, and consequently, they got less share in taxes. According to a rough estimate, Jharkhand lost 10,000 crore rupees and Orissa lost 5,000 crore rupees, due to this formula. We need to fill these gaps. It is undoubtedly important for the development of poor states but more than this it is a prerequisite for a strong and healthy federalism.

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