Spirit of Cooperative Federalism during Covid-19 Crisis

Syllabus: Prelims GS Paper I :  Indian Polity and Governance – Constitution, Political System, Panchayati Raj, Public Policy, Rights Issues, etc.

Mains GS Paper II : Issues and challenges pertaining to the federal structure, devolution of powers and finances up to local levels and challenges therein.

Context

The Corona virus outbreak has brought to the fore some of the traits of Indian federalism. COVID-19 has shown us how the current Constitutional framework impedes cooperative federalism on various subjects, especially the health and the distribution of finance.

Background

The COVID-19 pandemic has unveiled and exacerbated the friction between the Centre and the States. This can be evidenced from the latest events, such as Centre sending inspection teams to States without the concurrence of their respective governments, the Centre-State debate on the identification of hotspots, and the demand made by States for receiving funds during the current stressed environment. The Centre is criticised for including the PM-CARES relief fund as an avenue of expenditure under the ambit of Corporate Social Responsibility (CSR) contributions. However, contributions to the ‘Chief Minister’s Relief Fund’ or ‘State Relief Fund for COVID-19’ do not qualify as admissible CSR expenditure.

Secondly, faced with a funds crunch characterised by reduced economic activities and delays in receiving GST dues and arrears, the State Governments of Kerala and Rajasthan have sold their 15-year bonds. Additionally, States like Gujarat and Maharashtra also reported 38% and 40% decline in their stamp duty collection which contributes significantly to their income.

Constitutional Competence Vs. Fiscal and Institutional strengths of the Centre and the States

Public health and allied subjects, such as sanitation, hospitals and dispensaries, are the exclusive responsibilities of State Governments under the Seventh Schedule of the Indian Constitution whereas the prevention of the spread of infectious or contagious diseases falls under the Concurrent List of the Constitution, making it the shared responsibility of the Centre and the States.

This demarcation has limited the Constitutional role of the Centre in the governance of public health and made States primarily responsible. Whereas in practice, due to the fiscal and institutional constraints experienced by States, the Centre has consistently played an active role in shaping public health policies. This has led to an absurd situation where the identification of who is truly responsible for the governance of public health has become difficult. India’s fiscal expenditure on public health has been caught in the current Constitutional framework.

Constituent Assembly on Public Health

The intention of the Constituent Assembly placing public health under the State List is evident from the Constituent Assembly debates, with members in favour primarily desiring decentralisation. However, during the debates, various members raised concerns of placing it exclusively under the State List citing reasons such as the limited finances of States and the difficulty for the Centre to coordinate national health programmes.

Role of Central Government regarding Public Health

The Central Government is technically better equipped to come up with the schemes related to public health because it has the assistance of multiple research bodies and departments dedicated to the management of public health. States, on the other hand, do not have the technical expertise to independently design comprehensive public health policies.

On the basis of its expenditure and expertise, the Central Government has prepared several schemes on health issues such as tuberculosis, polio and HIV-AIDS and directed State Governments to comply with their instructions in enforcing the schemes, thereby determining the last mile usage of the funds devolved. The Atma Nirbhar Bharat Abhiyan package will play a key role in the current pandemic.

Strained State finances during Covid-19 crisis

As the Centre steamrolls policies on cash-strapped States, the current pandemic has put extraordinary pressures on State finances. From imposing pan-India policies on subjects strictly within the States’ domain, prohibiting sale of alcohol, withholding of GST compensation, denial of State Disaster Funds from the benefit of CSR contributions to the suspension of MPLADS, the Central Government has ensured a consolidation of fiscal powers in its hands thus threatening fiscal federalism.

Though the borrowing limits of State Governments has been increased from 3% to 5% of Gross State Domestic Product (GSDP) for the year 2020-21, it is still not sufficient because the Centre has still not released outstanding GST compensation of about ₹30,000 crore to the States. The trend towards centralisation is also evident in the Terms of Reference (ToRs) for the 15th Finance Commission.

Expectations From 15th Finance Commission

During this pandemic, the collapse in general government revenues, and the consequent rise in the deficit levels has not only disrupted the glide path of fiscal consolidation, but has also deepened the faultlines in Centre-state fiscal relations. Against this backdrop, the 15th Finance Commission is expected to submit its report in the near future.

The centralisation trend is also evident in the Terms of Reference (ToRs) for the 15th Finance Commission, which asks the Commission to examine whether revenue deficit grants should be provided at all for the State Governments (ToR 5), and to recommend measures for controlling “populist measures by the States” [ToR 7(viii)]. Such mandates reveal how non-elected bodies are being misused to constrain the fiscal space of the States. This not only weakens the foundations of fiscal federalism but also runs against the tenets of cooperative federalism.

Let us see how India’s fiscal architecture is reshaped and how Centre-State relations are reset as the country attempts to recover from the COVID-19 shock.

A Glimmer of Hope

The Covid-19 pandemic could have been handled better if the Centre would have followed a bottom up approach and allowed States to make decisions about lockdown. This would also have brought about a sense of empowerment among State Governments.

As a glimmer of hope, things are turning better. The PM has begun holding consultations with the Chief Ministers of States, before issuing orders for extension of lockdown. In fact by the third phase of lockdown and now, with Unlock 1 and 2 in process, States got more and more say in decision making. It is now up to the State Governments to decide which area would be declared a containment zone and which would not be one.

Hopefully, the Coronavirus will teach a lesson to the Centre as well as to the States that these are times which call for a ‘cooperative fiscal consolidation’ approach.

Connecting the dots

Question for Prelims

Consider the following statements:

Corporate Social Responsibility is an initiative of the Ministry of Commerce and Industry.

Corporate Social Responsibility is voluntary to the Companies.

Which of the above statements is/ are correct ?

(a) 1 only

(b) 2 only

(c) Both 1 and 2

(d) Neither 1 nor 2

Question for Mains

‘The Covid-19 pandemic has exposed the loopholes of cooperative federalism in fiscal space which might be detrimental to the development of the country.’ Comment.