States of the union

Centre-state relations need to improve

Prime Minister (PM) Narendra Modi can be expected to devote a good part of this Independence Day speech to Jammu and Kashmir (J&K). One unintended consequence of this government's biggest political initiative to date has been a significant alteration in the dynamics of Centre-state relations. Though the issue is unlikely to find mention at Red Fort, managing his government's relations with the states will be a major challenge for the PM in the days ahead. It would not have escaped the attention of many state administrations that the tectonic changes in J&K's status occurred when the state had been under governor's rule since December 2018. Some states, especially those in the Northeast, are likely to harbour misgivings as well. Most Northeastern states have constitutional guarantees for autonomy broadly similar to those that applied to the state of J&K (including land purchases by non-residents).

Many mainland states — among them Maharashtra, Gujarat, Andhra Pradesh, Karnataka — enjoy some constitutional guarantees of special treatment under Article 371, though some of these have become moot under successive Finance Commission recommendations. The government has already stated that these provisions would not be read down. But statements do not represent watertight pledges. For instance, having abrogated Article 370 on grounds that J&K's political exceptionalism was incompatible with the broader idea of the Indian Union, the government sought a special dispensation from the 15th Finance Commission for the Union Territory to get funding from the divisible pool of central taxes, whereas all other Union territories are financed by central grants. Delhi, for example, is treated as a state by the Goods and Services Tax (GST) Council, but as a Union Territory by the Finance Commission.

The timing for this frisson of insecurity in Centre-state relations is not propitious. Decelerating economic growth and near-stagnant employment urgently demand fundamental reforms in land acquisition and labour laws, two major hurdles to investment by domestic and foreign businesses. Both are on the concurrent list, which means that changes set out in central laws require states to be on board. The co-operative nature of the GST Council, in which the Centre and the states meet to determine the outlines of the GST, has shown that there is considerable scope for such institutions that give substance to the prime minister's promise of "co-operative federalism". It is time therefore to revive institutions such as the now defunct National Development Council, which could serve to arrive at a consensus on contentious issues such as simultaneous elections to the Centre and the states, which has been a pet subject of this government. Some chief ministers have spoken of how centrally sponsored scheme drain state resources unduly without giving state leaders even leeway. This could be another issue that can be taken up by an all-India body that reflects the federal character of the Union.

If Mr Modi were to signal some conciliatory moves, it also behoves the states to modulate their relations with the Centre. There is no logic, for instance, for Andhra Pradesh and Bihar to demand special category status, which entails special grants of the kind that is extended to hilly and backward areas. In any case, many of these demands were met when the 14th Finance Commission significantly raised the states' share in taxes from 32 to 42 per cent. Persisting with extractive demands achieves little beyond vitiating a fraught relationship with a Centre that finds itself with fewer and fewer resources at its command.