Financial Autonomy to States will promote economic growth
Dr Bharat Jhunjhunwala
The National Counter Terrorism Centre (NCTC) and Railway Protection Force Bill have been put on the backburner due to resistance put forward by the Non-Congress States which allege that the Centre is encroaching upon their authority. The Union Government, however, keeps pushing for a strong Centre on grounds of it promoting economic growth and maintaining unity of the country.
We face two mutually contradictory pressures. On the one hand, it is necessary to promote a common market to help increase the rate of growth. On the other hand, autonomy enables States to make experiments, which ultimately provide benefits to the whole country. We have to find a way to face both pressures.
The issue can be clarified by comparing the federal structures of the United States of America and Canada. Independent States came together to form the United States of America in 1776. The States ceded certain authorities to the Centre for the common good. However, hundred years later America was embroiled in a civil war. States of the South refused to honour the diktat of the Federal Government on removal of slavery. At the same time the Canadian Constitution was being framed. The Canadian legislators felt that a weak Centre was responsible for the American Civil War. They, therefore, opted for a strong Centre. Moreover, they thought that this would help keep the English and French speaking people in the country together.
The federal structures of the two countries are fundamentally different. The Federal Government in the United States cannot veto a legislation made by a state. In Canada, on the contrary, a State legislation is applied only after the Centre gives consent. The Canadian Central Government can veto a legislation brought forth by a state. The state-level judiciary is wholly appointed and controlled by the State Government in the United States. The entire judiciary is controlled by the Central Government in Canada. The highest executive of the State—the Governor—is elected by people of the State in the United States. The Governor is appointed, paid and removed by the Central Government in Canada. There are other differences which too are tilted in favour of the Central Government in Canada.
A weak Federal Government does not appear to have been a roadblock for economic progress of America. In 2005, the per capita income of America was $43,000 against $32,000 for Canada. Canada does not shine in other fields such as education and technological innovation either when compared with smaller countries like Germany. Reason for this strength of America appears to lie in the innovation and experimentation that is made possible by State autonomy. A successful advance made by a State can be replicated by others and even by the Federal Government. For example, the State of California introduced a scheme for replacing petrol-guzzling cars with fuel-efficient hybrid models. This scheme was later promoted by the Federal Government across the country. Similar was done in India when the Central Government copied the Maharashtra Employment Guarantee Scheme to roll out MNREGA. The mind and administrative systems are kept flexible and thinking can go in various directions when States are given autonomy. These experiments add to the national wisdom. This is happening in India presently under the leadership of Nitish Kumar in Bihar and Narendra Modi in Gujarat. Such suppleness is absent when the Centre is strong. The rigidity of the Central schemes percolates throughout the country and does not allow for rectification as we are seeing in the widespread complaints against MNREGA now-a-days.
India’s federal structure essentially follows that of Canada. The Centre is all powerful and States are weak. More importantly, the Centre is becoming yet stronger by the day. Share of the States in total revenue of Centre and States was 32.7 per cent in 1991. This has declined to 29.5 per cent in 2005. The Central Government retains 65 per cent of the total taxes collected by Centre and the States. This is happening despite the Finance Commissions repeatedly underlining the need to devolve more funds to the States. This heaviness of the Centre is harmful for economic growth as seen in the example of America. Notably, Australia and Switzerland also follow the American example of autonomous states and have done quite well in the economic sphere. Hence the beneficial nature of a weak Centre is not a solitary example of the United States.
The other aspect is that of unity of the country. Surely, the United States is more homogenous with most people being English speaking. On the other hand Canada has sizable English and French speaking population. The French-speaking residents of Quebec have long been agitating for separation. Canadian leaders felt that a strong Centre will help control the fissiparous tendency of language-based blocks. India too should opt for a strong Centre on this consideration. However, there are three factors that augur against this view. One, a strong Centre may yet fail to keep different language groups together as has happened in the disintegration of Pakistan and Soviet Russia. The Bangladeshis and various nationalities of Russia revolted against the strong Centre. Two, India is not a young country like Canada that is still developing its identity. Our people have lived together for more than five millennia. Followers of Buddha and Adi Shankaracharya have tied the people in one common thread of spirituality. Therefore, language does not bring forth the kind of antagonism in India as it does in other countries with not so long shared history. Three, autonomy of the States is, in my view, more helpful in keeping the people united because it makes it possible for them to fulfill their regional aspirations. Why should they revolt against the Centre if they can have their liking done within a federal structure? Bangladesh is again a case in point. Regional autonomy would perhaps have prevented the breakup of that country. I believe India will be better off in every way with greater autonomy to the States.
It could be argued that autonomy may lead to mis-governance as we have seen happening in Bihar and Uttar Pradesh. This is indeed a real possibility. However, we should also realise that the people have learnt their lessons and brought back good governance. Just as the wise mother allows the errant child to make mistakes and learn by his doings; so also we must allow people of a State to make their experiments and learn. Otherwise, their energies will be channeled in opposing the Centre instead of building their State howsoever painfully.
Economic policies of our Central Government have to be assessed in this backdrop. The Goods and Service Tax, fixing of low royalty on minerals, signing of the WTO agreement without consulting the States and implementation of the Pay Commission awards without taking the States into confidence are some of the negative centralising policies that the Central Government has implemented. These should be opposed. We should encourage experimentation and allow many flowers to bloom in the garden of India instead of one big overweening banyan tree.
