On 29.07.2020, The Hindu reported that Mr Ajay Bhushan Pandey, the Finance Secretary of India has informed the Parliamentary Standing Committee on Finance that the government is not in a position to pay the GST share of States as per the current revenue sharing formula. The Central Government struggled to pay states’ share of previous FY and it was as recent as 27.07.2020 that Government paid Rs 13,806 crore to the states for March 2020, as previous year full pay-out. The background to this compensation is that under GST regime states were entitled to compensation for 5 years from the rollout of this indirect tax scheme in 2017, to make up for the loss of revenue to the state due to introduction of this new scheme.
This brings the limelight back to the debate of diminishing cooperative federalism model being followed in India.
“All of us – all of us need to be reminded that the Federal Government did not create the states; the states created the Federal Government.” These lines were spoken by the Former U.S. President Ronald Reagan in his inaugural address, emphasising upon the Federal structure of the country. When Mr Narendra Modi became the Prime Minister of India, it was expected that he would work towards a more harmonious relationship between the Centre and the States and was even compared to President Ronald Regan. The expectation emanated because he had served a long tenure as Chief Minister of an important State and always spoke in favour of Cooperative Federalism. It was anticipated that he would know- the Centre should not tread upon the State Governments autonomy and that where exactly that line falls.
The first major step towards this expectation was the formation of NITI Ayog in order to restructure the Centre-State relation. The objectives of NITI Ayog were focussed on the model of co-operative Federalism. In his own words, “This spirit of cooperative federalism will enhance India’s progress and prosperity.” However, a drastic change in the policies- Fiscal, political and administrative was seen thereafter, affecting the Federal structure in all the three spheres. This is not just a deviation from cooperative federalism but a road to coercive federalism.
The issue of finance has always been a bone of contention between the Centre and the States. Article 280 of the Indian Constitution is the genesis of Finance Commission. The main task of the Commission is to recommend the President on the allocation of taxes, Grants in aid to the state, and any other matter which the President refers. With a term of 5 years, the President orders constitution of the Commission and appoints one chairman and 4 other members.
While the 15th Finance Commission has been severely criticised for using the 2011 Census instead of 1971 census, the 14th Finance Commission has been one of the most prominent steps taken by the Government which is oppugnant to the idea of Cooperative Federalism. As per the 14th Finance Commission, the Rashtriya Suraksha Nidhi will not be from the Consolidated Fund of India but will be given by the States. This has been essentially seen as a method of passing on the burden of National Exchequer to the State Governments in the name of security and defence, an area in which the State Governments will have no say.
It was announced that the 14th Finance Commission will increase the share of States in the tax revenues from 32% to 42%. However, much to the disappointment of State Governments, the increase in tax revenues came with a phenomenal cut in the share of Centre in the Centre Sponsored Schemes thus, the effect of this increase has practically been neutralised. The 14th Finance Commission has been a major fiscal blow to the structure of Federalism.
Likewise, the decision of demonetisation was taken without considering the State Governments. There was no consultation or even information to the States and they suffered a severe setback. There were appalling effects on State revenues. The talks were also that the upcoming Uttar Pradesh elections were kept in mind and demonetization was done at that point in time to give a hitch to the election campaigning of other parties in the State.
The 101st Amendment to the Indian Constitution which introduced GST in the Indian Economy under Article 279A has been slagged on the lines of Federalism. The State Governments did not have the power to levy direct taxes. With the introduction of GST, the State Governments now cannot levy indirect tax as well. In the words of Prof. Kavita Rao, “All goods and services will be divided into certain categories. The rates will be fixed by category, and if I am a state, I cannot shift a commodity from a lower to a higher rate, or put it in the exempt category.”
The GST Council, the composition of which is dominated by the Centre, will fix the rates of GST- both at the Centre and the States. Once the tax is fixed, the State Government will have no independence to make any variations. Almost 80% of the revenue of States in India come from taxes, with a tight claw of Centre on the financial position of States the Federal structure of the country is bound to shake.
Article 153 of the Indian Constitution provides that there shall be a Governor for each State and Article 155 states that the Governor shall be appointed by the President and shall hold office during the pleasure of the President. Appointment of Governors has been the bull’s eye for Centre to control the States. With the advent of the NDA Government in 2014, Governors of nine states were changed. Starting from the imposition of a state emergency in Arunachal Pradesh and Uttrakhand to having administered the oath to Devendra Fadnavis at 7.50am making him Chief Minster for 3 days in Maharashtra, Governors have been criticised for their role as that of puppets in the hands of the Central Government.
Under Article 356, for President Rule to be imposed on any State, the role of Governor of that State is of key importance. The terms “breakdown of constitutional machinery” makes a lot of room for mischief. Although in the case of S.R. Bommai v. Union of India (1994) guidelines were given by the Supreme Court for the imposition of state emergency but the Centre Government have always been looking for ways to cast upon its heavy hand on the State under the garb of “breakdown of constitutional machinery”. The most recent instance of Political Coercive Federalism is the Maharashtra state election, where State Emergency was imposed an hour before the deadline and was then revoked an hour before the Governor installed a minority government despite having an alliance satisfying the numbers, in place.
The idea of One Nation One Election is also seen as a centralizing idea because most likely the same political party will come in power in both the Centre and in a majority of the States. It will overshadow the State issues and will gobble down the regional parties.
The Federal structure of administration in India was strained much during the tenure of Rajiv Gandhi by bringing majority programmes under centrally sponsored scheme. The powers of the State government have been cramped down in a much similar way by the present government too.
The much-publicised Swachh Bharat Abhiyan has been given a social platform, in the form of a mobile application, where complaints can be registered by the citizens. Though this initiative brings Governance closer to people, the centre has spread its bough deep in the State administration by sending these complaints registered on the app to the Swachhata Abhiyan cell which is under the Union Ministry of Housing and Urban affairs.
The manner in which Article 370 was rendered ineffective has been oppugnant to the idea of Cooperative Federalism. The special status of the State of Jammu & Kashmir was taken away without any State Government in place while it was under President’s rule. Article 3 of the Constitution of India clearly says that the Government of the State whose boundary, area or name is to be altered has to be consulted before altering the same. However, the procedure given under the Constitution was not taken into account before diminishing the stature of the State to Union Territory.
Federalism is the basic structure of our constitution as held in State of Rajasthan v UOI (1977); S.R. Bommai (1994) and most recently in Government of Delhi v. Lieutenant-Governor of Delhi (2018). The States feel that federalism is being threatened during this medical emergency and will leave various states without means to support its people and at the same time have ‘bulldozing the federal structure’ effect as said by Mamata Banerjee. Recently, Delhi Deputy Chief Minister complaint about not receiving funds from the centre. Given such a situation, it becomes pertinent for the centre to work in close cooperation with the State Governments. States are not subsidiary units which can be pushed to corner anytime rather it is a cog in the wheel without which wheel is of no use.
ABOUT THE AUTHORS
Nabeeha Naqvi is a practicing advocate at Delhi High Court. She has various publications on diverse topics like Artificial Intelligence, Criminal law etc.
Yamina Rizvi is a practicing advocate at Delhi High Court working in the field of socio-economic offences. She has few publications in her name in the field of Rights of Indigenous People, election Law, Privacy etc..