At the stroke of midnight between June 30 and July 1, 2017, Prime Minister Narendra Modi called the Goods and Services Tax (GST) an example of “cooperative federalism”. In his words, while Sardar Patel ensured political integration, the GST would result in economic integration.
Over two years since the GST rolled out, the concept of “one nation, one tax” continues to face teething troubles. As 2019 is set to melt into history, the federalism represented by the GST represents seems to wobble, thanks largely to the centre's inability to compensate the states according to the GST Act.
The GST is a successful integration of multiple central and state taxes, enabled by persuading all the states with different party governments to come together. On their part, the states unanimously got the centre to agree on making good their shortfall in tax collection if any.
The central government hailed it as the greatest financial reform since the Constitution was adopted. But, discordant voices have mounted against the tax. There have been complaints over the GST rates, its administration and its implementation. When the Centre moved for a 28 per cent GST on lottery schemes in December, it was the first time in the GST’s two-year history that a move to fix a uniform rate was put to vote.
The GST as an ingredient of cooperative federalism is clearly subject to pulls and pressures. The economic slowdown adds an impetus to its reform, even as taxpayers and assesses have complaints galore. The Congress has been asking for a single GST rate of 18 per cent, something the BJP has outright opposed.
Yet, the GST continues to be a major success in terms of cooperative federalism. For, in matters such as revenue, education, healthcare, the role of the governor, river-linking, central investigative agencies, and traffic fines, states continue to disagree with the Centre.
When Modi came to power, he promised that Chiefs Ministers and the Prime Minister together would make Team India. But, in theory, the idea of cooperative federalism must also co-exist with that of competitive federalism, where states have to compete amongst themselves as they work towards development.
The Prime Minister says his idea of cooperative federalism has worked, particularly in the fiscal space where the changes he made have resulted in more leeway to the states to design their own policies.
But, there are complaints from chief ministers who protest interference by the PMO, the Central government, the Parliament and even by the Supreme Court.
The 14th Finance Commission increased the share of the states in the central revenue from 32 to 42 per cent—a substantive hike after a long time. But, the additional money came with additional responsibility. Many centrally-aided schemes—popular on the ground and necessary for the people—were abolished or left out of the hands of state governments to implement.
Over the years, the actual transfer of funds to the states has not gone up. More so in the last couple of years. The states are now demanding that the 15th Finance Commission give them a higher share of the central revenues.
On the other hand, the social welfare and rural development central ministries complained that with the bigger share of revenues going to the states, their own purse had shrunk. The Finance Ministry feels the higher share of the states has been disproportionate to the work they do; because the central government bears the complete burden of defence, internal security, foreign affairs, currency, intelligence and more, for which the money given to them by the finance commission is not enough!
They introduced an additional term of reference for the commission to examine how to raise resources for mandatory expenses and whether a part of it can come from the central taxes.
While the Commission's report is awaited, the states have opposed any dilution in their share, and in fact, have asked for more. They have pointed out that the Centre receives cess, surcharges, and revenue from PSU financial institutions like LIC—but they do not. It is wrong and patently unfair to look at the income from direct and indirect taxes alone as the revenue of the states, they have maintained. The Commission's report on the substantive issue is delayed by a year, though the interim report is likely to be tabled before Parliament early into the new year.
No less important has been how Team India (made up of CMs+PM) have dealt with the Constitution.
Since coming to power, the Aam Aadmi Party-led Delhi government has fought for its rights in a state that is not a full-fledged state, where the lieutenant governor has been at constant loggerheads with the elected setup.
The excessive control wielded by the LG has been a major constraint in the functioning of their government, Delhi chief minister Kejriwal often says. High Courts of multiple states and the Supreme court have given their verdicts restricting the powers of the Centre and favoured elbow room for elected governments. Another not-a-full-state, Puducherry, has also seen a similar showdown between the elected government and the LG, with a case in the Madras High Court. Again, the verdict has been in favour of the elected government.
More tussles are likely to come, with the abrogation of Kashmir in 2019 provoking a raging debate on federalism and the Indian Constitution.
Abolishing Article 370 and creating the Union Territories of J&K with an assembly and Ladakh without one leaves virtually all power with the Lt Governor. It has been called an assault on federalism because Article 1 of the Constitution says that India is a Union of States, with Article 3 stating that the boundaries of a state and its status can be altered only with the consent of the state legislature. In the case of J&K, the bill was introduced in Parliament at a time when there was no state legislature and the governor of the state was deemed to be the state legislature.
The Constitutional test of this is before the Supreme Court, amid apprehensions that if the apex court upholds this, the Central government can alter the status of any state without the consent of its elected representatives. The future of federalism hangs in the balance.
Another trend has been that of BJP-appointed governors inviting the BJP to form a government when an election fails to yield a single majority. In 2017, this happened in Goa and Manipur; in 2019, in Karnataka and Maharashtra. This has not only led to bitter fights, with the courts having to intervene to discipline the governors, but it has also impacted the ruling party's real commitment to federalism.
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Both Centre and state have tussled over items in the state list. The introduction of Ayushman Bharat in 2018, the centralised health insurance scheme enacted by an Act of Parliament, saw five states rejected it on multiple grounds, preferring their own health schemes and fearing it as an intrusion into a state subject.
Another state issue under contention is that of river waters. The centre's proposal to bring all dams across inter-state rivers under the Central government to manage the distribution of its waters, still pending before Parliament, has ruffled many feathers as water is a sensitive issue.
Education, too, has seen the Centre try to intervene, with the introduction of the National Eligibility cum Entrance Test (NEET) to replace the national medical college entrance exams under the principle of “one nation, one examination”. This ended up sparking protests in Tamil Nadu, where almost all opposition parties were against it.
One centre-state difference that survives a change of government is the role of central investigation agencies. When the UPA were in power, the BJP accused it of ‘misusing’ the CBI. Now the sides have reversed, but the accusation stays the same, as opposition parties allege that these agencies have been used to intimidate their ministers, and have become instruments of central oppression.
While opposition party chief ministers like Mamata Banerjee and Chandrababu Naidu accuse their governors of political interference, dissent is not just from the opposition.
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States like Maharashtra and Gujarat had opposed the unilateral changes made to the Motor Vehicles Act imposing steep fines for traffic offences. Both states later went on to reduce the fines being levied, even as they were under BJP state-governments.
Likewise, now the Citizenship Amendment Act and the proposed National Register of Citizens have made not just the non-NDA parties, but also the allies of the BJP come out strongly against it. Home Minister Amit Shah says they have no choice because it is an act of Parliament, but chief ministers believe that if the states decide not to implement it, it will be no more than a piece of paper.
As more and more states turn from saffron to green or blue since Prime Minister Modi assumed office for a second time this May, he has to work way harder, and way more honestly to ensure India's federal structure is not threatened.
