It is good that we are hearing these days a lot from those in power at the Centre about ‘cooperative federalism’. The concept roughly means, ‘national, state, and local governments interacting cooperatively and collectively to solve common problems’. But, the actions are not in consonance with the goals. Therefore, the counterproductive results are imminent.
For the states to deliver goods, the wishful thinking alone does not suffice; they need funds’ support too. They cannot borrow beyond the limits set, based on their Gross Domestic Product. There are strict fiscal deficit targets set by law. Similarly, they can’t go on hiking state taxes and charges beyond a point.
The Centre feels that it is doing everything in its power to ensure sufficient funds flow to the states. Of late, it is gloating over its generosity in accepting the recommendation of the 14th Finance Commission (FFC) to raise the states’ share from the devisable pool of taxes (the devisable pool comprises all the central taxes minus cost of their collection; it does not include cesses and surcharges) from 32 to 42 per cent, at a stretch.
The states’ share, based on the FFC’s recommendation, is budgeted at Rs 5,23,958 crore for 2015-16, an additional Rs 1,86,150 crore in a single year against the total tax devolution of Rs 3,37,808 crore in 2014-15.
But this is a comparison of the budget figure of 2015-16 with the revised figure of the previous year. Instead, if the comparison were made between the budget figure of both years, 2015-16 (Rs 5,23,958 crore) and 2014-15 (Rs3,82,216 crore), the additional benefit would be Rs 1,41,742 crore , a lower accrual, by Rs 44,408 crore.
Yet, this low side guesstimate of tax devolution is also undoubtedly a big hike compared to that of the previous years. But the devil hidden in the details shows that the overall benefit which includes taxes and grants is not really substantial.
The FFC no doubt recommended a higher devolution from the Centre’s devisable pool of taxes but, that was in tandem with the curtailment of some conditional grants to the states.
As is evident from the budget document of the government, the total resource transfer to the states for 2015-16, that is to be apportioned by the states and territories as per the specified formula, will be Rs 8,42,963 crore against the preceding year’s budgeted amount of Rs 7,78,966 and revised amount of Rs 6,83,966 crore. This means a total increase for 2015-16 is only of Rs 63,997 crore over the previous year’s budget, much less than the projections made.
The detailed scrutiny of the budget unfolds the truth that whatever is given by one hand is almost taken by the other. Hitherto, the Centre has been fully supporting as many as 63 schemes. That is not going to be the case after accepting the FFC. It is going to fully support only 31 of them. The states are required to meet the revenue expenditure of 24 schemes. More intriguing, the Centre has totally withdrawn its support to as many as eight schemes.
The amount allocated in the revised budget of 2014-15 to these and other schemes now delinked from the union support adds up to Rs 56,595.03 crore. Had the Centre continued with the schemes it would have required to allocate much more than this sum in 2015-16’s budget. It can safely be assumed that increased devolution on account of FFC is less than the additional burden placed on the states’ shoulders.
Yet, there are arguments and efforts by those who support the action of the Centre to show that the overall funds flow on account of increased devolution and permissible grants is not lower than what it used to be. They have their arithmetic to show that the higher devolution from taxes more than compensates the loss on account of the withdrawn support.
They also argue that the Centre too needs its fiscal space to implement its own programmes. It is further argued that the states are to be given freedom to operate their own schemes without the imposition of the Centre, true to the spirit of the cooperative federalism.
Unfortunately, this concept is not working in reality. Already, there are indications of some states halting of the schemes to which the Centre has withdrawn its fund support.
The freedom given to the states without the funds support has the potential to prove counterproductive whereby the people’s welfare is becoming a direct casualty.
In other words, the obsession of the government with the fiscal deficit targets and the resultant curtailment of funds for the development needs are leading to further impoverishment of the people. What is really important is ensuring at least minimum needs of life.
Making food, health and education accessible to all is an ineluctable duty of the democratic government. So, the governments at all tiers, Centre, state and local, should work in unison to achieve these goals and work towards pooling and apportioning the resources to do the job, that is, to achieve the cooperative federalism in its true sense.