Cracks in cooperative federalism as Centre, states spar over key issues

While the GST Council has shown that the federal structure is a workable concept, other flashpoints between the Union and states seem to suggest otherwise

The concept of cooperative federalism is enshrined in the Constitution, in that India is a Union of States. It has time and again been spoken about by Prime Minister Narendra Modi. When it works, it works well, as in the case of the Goods and Service Tax Council. In its 34 meetings, all decisions have been taken by the representatives of the Centre and the states, after long deliberations and without the need to resort to voting. However, there have always been differences between the Centre and states regarding a number of issues at any given point of time in history. As the government settles down for a second five-year term, we look at some major flashpoints between the Centre and the states:

1) Special Category Status

This has been perhaps the biggest bone of contention, especially in the past decade, and has even led to multiple disruptions in the previous Lok Sabha. While the Constitution does not include any provision to provide Special Category Status (SCS) to states, the erstwhile Planning Commission provided Central plan assistance to states seen to be at a disadvantage compared to others. The list of these disadvantages included hilly and difficult terrain, low population density or the presence of sizeable tribal population, strategic location along international border, economic and infrastructure backwardness and non-viable nature of State finances.

Once the Planning Commission was disbanded and Niti Aayog was formed, its powers to allocate expenditure were taken away. Meanwhile, as per recommendations of the 14th Finance Commission (FFC), central plan assistance to SCS States was subsumed within the increased devolution to states.

In a written reply to the Lok Sabha earlier this week, Finance Minister Nirmala Sitharaman ruled out any SCS to states for now. “There is no proposal under consideration of the Central Government for grant of special category status,” she said and disclosed that the Union government has received requests in this regard from Odisha, Rajasthan, Bihar, Telangana, Jharkhand, Chhattisgarh and Andhra Pradesh.

2) Centrally Sponsored Scheme

Put simply, Centrally Sponsored Schemes are those in which there is financial participation by both the Centre and states. A stipulated part of the funding is provided by the States in terms of percentage contribution. The ratio of state participation could be 50:50, 60:40, 70:30, or 90:10, depending on the scheme. The Centre transfers money to the states, which are charged with implementing the scheme. This contrasts with Central Sector Schemes, which are completely funded and implemented by New Delhi.

At the latest meeting of Niti Aayog’s Governing Council earlier this month, several chief ministers, not only of states ruled by Opposition parties but also of those run by BJP's allies like Bihar’s Nitish Kumar, stressed that Centrally Sponsored Schemes were bleeding states dry. The chief ministers, asked the Centre to either turn them into Central Sector Schemes or discontinue them. They also demanded the Centre, given the rural distress caused by drought, release its backlog of MNREGA payments. The National Rural Employment Guarantee Act is a Centrally Sponsored Scheme.

Kumar said the FFC devolution has compelled states to dip into their finances to fund Central schemes. He suggested the Centre discontinue the Centrally Sponsored Schemes and implement its priority area schemes under central sector schemes, while states fund their priority schemes from their respective funds.

After the recommendations of FFC, a panel of chief ministers formed by Niti Aayog in 2016 suggested that the number of Centrally Sponsored Schemes be reduced to 30 from 66. That has been implemented. These schemes are divided into core-of-core schemes like NREGA, National Social Assistance Programme, and schemes for scheduled castes, scheduled tribes, minorities and other vulnerable groups. Then there are 23 core schemes, which include green revolution, white revolution, Pradhan Mantri Awas Yojana, Gram Sadak Yojana, Swachh Bharat, National Health Mission, and other urban, rural and social sector missions and schemes.

Expect fresh battlelines to be drawn between the Centre and states on this contentious issue when the Fifteenth Finance Commission submits its report in October.

3) Niti Aayog’s Financial Powers and revival of Inter-State Council

Niti Aayog has none of the powers to allocate expenditure sums to state, which the Planning Commission used to have. And this has caused some dissatisfaction among states, as the Finance Ministry’s Expenditure Department is all powerful when it comes to allocations.

The last meeting of the Governing Council was not attended by West Bengal Chief Minister Mamata Banerjee after she wrote to Prime Minister Modi, terming the exercise “fruitless” as the NITI Aayog does not have any financial powers. Kerala CM Pinayari Vijayan seemed to echo her views.

Vijayan had said the NITI Aayog in its “present form has not played the much expected role of a facilitator in the last four years. There is a growing realisation that it is perhaps not a substitute for the erstwhile Planning Commission.” He said the Inter-State Council should be revived. Indeed the calls for reviving ISC are growing louder. Formed in 1990, it is a non-permanent constitutional body set up to discuss or investigate policies, subjects of common interest, and disputes among states. It has not had any meetings since November 2017.

The growing sense is that ISC can mirror the GST Council when it comes to issues as varied as the proposal of simultaneous elections to the Centre and the states, counter-terror, natural disasters and funding of schemes.