Modi vs federalism

Karnataka Chief Minister Siddaramaiah has taken the nation by storm with his Facebook post on Indian federalism. Fully respecting Babasaheb Dr Ambedkar’s careful and deliberate avoidance of the word “federalism” while framing the constitution, and describing the India of the Constitution as a “Union of States with federal features” (a nuanced understanding of which Modi has never displayed), the Karnataka chief minister makes the point that noone should forget that in 1947 “India was a young nation and needed to be cautious of any divisive or secessionist tendencies.” Therefore, he says, India “became a union of states with a strong centre.” Over the last seven decades, India has, he points out, learned “useful lessons” from the lived experience of linguistic states, as well as from “turmoil” in states like Tamil Nadu, Punjab, Assam, and J&K when their regional identity is challenged, and so discovered that demands for “greater federal autonomy and recognition of regional identity” are not “inconsistent with our nation.” Underlining the fact that the beautiful, haunting state anthem written by Karnataka’s Poet Laureate, Kuvempu (“Jaya Bharatha Jananiya Tanujathe”), describes Karnataka as the “daughter of Bharata, the nation,” Siddaramaiah believes “a confident Indian nation” -- confident in the contribution that states can make to “building a strong India” -- should also be confident about “the individuality of all her daughters” and thus facilitate the evolution of India from a “Union of States” to a “Federation of States.” This is in sharp contrast to the empty sloganeering of Modi’s call for “cooperative federalism” that has now morphed into “cooperative and competitive federalism.” How empty was that slogan, “the most frequent leitmotif” of the Modi campaign of 2014, amounting to no more than “dramatic gestures and rhetorical flourishes,” as stressed by Professor Balveer Arora, former JNU Rector and now chairman, Centre for Multi-level Federalism, in The Hindu, has since been established as the Modi government has done nothing to address the real challenges of how and where the states should be effectively empowered. The “vision and political will” to ensure “participative policy making” by the states on an equal footing with the centre, especially with regard to states run by parties other than the ruling party at the centre, has not been demonstrated. Instead, Modi appears intent on promoting in the name of “cooperative federalism” a kind of “patriarchal joint family model presided over by a benevolent centre.” The problem essentially is that Modi, with Jaitley in tow, mixed up cooperative federalism with centre-state revenue-sharing patterns. Well before the Modi-Jaitley tsunami hit evolving centre-state financial relations, the Fourteenth Finance Commission (FFC), under the chairmanship of Dr Y V Reddy, had recommended substantially enhancing the states’ share of the divisible pool of tax revenues from 32% to 42%.

Modi woke to the realization that he was now Big Brother, no longer one of some 28 chief ministers. So he and his finance minister got down to putting the devil into the detail

There is a well-established convention that the union government endorses Finance Commission recommendations. In June 2104, the newly-minted finance minister, Arun Jaitley, merely did what is par for the course -- accept the FFC recommendation -- but, in the usual deceitful BJP manner, claimed the credit solely for themselves and then touted it as proof of their commitment to “cooperative federalism.” Thus, Jaitley, in his maiden budget speech, grandiloquently proclaimed, “In keeping with the true spirit of cooperative federalism, we have devolved 42% of the divisible pool of taxes to states.” Indeed, he went on to further proclaim: “The total transfer to the states would be about 62% of the total tax receipts of the country.” The propaganda blast climaxed with Modi’s tweet on June 11, 2014: “India will progress when states progress. Big Brother attitude won’t work.” Having tweeted, Modi then woke to the realization that he was now Big Brother, no longer one of some 28 chief ministers. So he and his finance minister got down to putting the devil into the detail. The sordid tale of how they did this, and how it is now backfiring on them, bears the telling. Let us begin with India’s foremost public finance expert, Dr M Govinda Rao, Professor Emeritus at the National Institute of Public Finance and Policy, New Delhi. Watching the playing out of the Modi-Jaitley game, initially with enthusiasm and then with growing disenchantment, Prof Rao reviewed what had actually happened on the second anniversary of the swearing-in of the BJP-led NDA government. He concluded: “So far, cooperative federalism has remained more a slogan than a reality.” Why so?

* * *

Well, first, when the Modi dispensation abolished the Planning Commission, it also dismantled the tried and tested system of plan financing by the centre to the states.  In consequence, Rao discovered that “the higher tax devolution has been substantially offset by lower plan grants.” In other words, Jaitley’s restructured revenue-sharing model was mere eyewash. Far from increasing the states’ share by a whopping 30% as claimed by Jaitley, from 32 to 62%, “the ratio of transfers to gross tax revenues” had increased by only a derisory “2.6% between FY15 and FY16” at the stage of budget estimates, and, in reality, turned out at the revised estimates stage to be even lower at a mere 1.7%. This is jumlabaazi at its most cynical: The government claims an increase of 62% in transfers and then fiddles things to ensure that the tax revenues to devolution ratio increases only by a virtual nothingness. Indeed, argued Rao, by sharply reducing not only the number of centrally-sponsored schemes but also sharply reducing central funding under these schemes, the flow of funds from New Delhi to state capitals that had traditionally comprised two main components (divisible pool funding and plan grants), the new funding pattern of centrally-sponsored schemes had “required states to make larger contributions from their own resources” instead of easing the financial burden on states of development funding. Moreover, wrote Rao, drawing attention to another of Jaitley’s sleight-of-hand tricks, by levying cesses and surcharges instead of increasing tax rates in a straightforward way, Jaitley’s finagling had resulted in the centre gaining Rs27,666 crore in 2015-16 while the states ended with a staggering loss of Rs17,765 crore. Thus, both on the receipt side and the expenditure side, the Modi-Jaitley model constituted a body-blow to state finances. Yet Modi had the gall to tweet on July 15, 2016 that “cooperative federalism is an article of faith of our government.” No wonder state governments are refusing to be taken for a ride any more. That is the background to the Telugu Desam Party walking out of Modi’s government. Tejaswani Pagadala explains in a detailed article in Swaraya magazine: “The row surrounding the bitterness of relations between the centre and the state is an example of the centre violating the spirit of cooperative federalism.”

Tejaswani Pagadala explains: ‘The row surrounding the bitterness of relations between the centre and the state is an example of the centre violating the spirit of cooperative federalism’

Detailing all of the TDP’s complaints would take us too far from the central theme of this column -- which is Modi pulling the wool over the eyes of the “nation and its daughters,” to plagiarise Siddaramaiah -- but one little fact reveled by Pagadala should suffice: Modi’s finance minister rejected the Comptroller and Auditor General (CAG)’s certification that rump Andhra Pradesh’s revenue deficit was just under Rs16,000 crore and slashed the finance ministry’s estimate of the state’s deficit to just Rs4,000 crore, a mere fourth of the CAG certification. No wonder Chandrababu Naidu refused to be cheated of his dues any longer. Finding himself caught out on the insincerity of his pledge to “cooperative federalism,” Modi resorted to yet another spin, adding the word “competitive” to “cooperative,” more because that rhymed well than because he displayed any real understanding of promoting “competitive federalism” in a country with the very disturbing kind of regional inequalities that are the single-most difficult roadblock in economically integrating the nation into a single undifferentiated economic community. The Federal Front envisaged by Mamata Banerjee is emerging as the defining theme of the run-up to the next Lok Sabha elections, principally because of nation-wide disillusionment over Modi’s bogus “cooperative federalism.” Modi does not understand what Prof Arora calls “the multilateral government-opposition matrix, which constitutes the architecture of federal power sharing.” This, as Arora says, is not possible under Modi “for there is in his authoritarian personality an inbuilt penchant for majoritarianism. And the last thing Indian federalism needs is a majoritarian democracy.” As for the Congress, as it makes its transition to a new era, the lesson to be learned is that for its rejuvenation and continued relevance as a national party, it has to move back from centralization of the party structure to the democratic inner party federalism of its Freedom Struggle past. If it fails to do so, its downward slide will only accelerate.Mani Shankar Aiyar is former Congress MP, Lok Sabha and Rajya Sabha. This article previously appeared on NDTV.com.