The road to true federalism

Business Standard, April 02, 2014

By Pradeep S Mehta

India’s Planning Commission needs to evolve into an independent body that is open to public scrutiny and gives more power to the states

It is one of the happy incidents of the federal system that a single courageous state may, if its citizens choose, serve as a laboratory, and try novel social and economic experiments without risk to the rest of the country,” said Justice Louis D Brandeis, Associate Justice on the Supreme Court of the US, in 1932. This view forms the basis of the new federalism philosophy in the US that advocated restoration of some of the autonomy and powers to the states , which they lost to the federal government, as a consequence of the New Deal.

A key determinant of the role of the states in a federal polity is their participation in the formulation and implementation of critical economic plans. A central plan body usually indicates a stronger role for the central government and vice versa. It is unable to handle the differences among the states in a clear manner.

The experiment of a central plan body formulating long-term plans was pioneered by the erstwhile USSR. China still has a National Development and Reform Commission having broad administrative and planning control over the economy. The General Commission for Strategy and Foresight in France assists the government in determining the direction for economic development. The Federal Planning Bureau in Belgium provides expert assistance to the government and issues studies and projections on economic and other issues. In the US, other than the state-level plan bodies, the Council of Economic Advisers offers the president objective economic advice on the formulation of domestic and international economic policy.

India’s plan body, the Planning Commission of India, is located in the central government. It was constituted by a resolution in 1950 with the objective of setting national growth priorities and determining the systematic course of balanced development. It probably suited the times, given the imminent hunger for rapid development of a newly born Union of India with weak states.

The Commission’s roles include formulating a plan for most effective and balanced utilisation of the country’s resources, in close understanding and consultation with the state governments, and determining devolution of funds to the states. In practice, however, due to a strong Centre, and the governments at the Centre and states being led by the same party for a significant period since independence, states have been relegated to following national priorities and directions and have little say in planning and implementation.

Over time, with the evolution of coalition governments, multiple political parties, and the realisation that the states have different growth capacity and requirements, the demand for a greater role of the states in the Union has grown. However, the Commission continues with its practice of formulating ambitious plans and allocating funds to the states. The members of the Commission are appointed by the prime minister, and are not answerable to Parliament. Thus, the Commission is increasingly being viewed as a roadblock to true federalism.

This calls for an Australian-style review of governance, wherein the recently constituted Commission of Audit is assessing the current split of roles and responsibilities between and within the federal government, state and territory governments, among other things.

It is not that the Commission has not realised its maladies. It has started taking corrective measures by introducing greater stakeholder participation (by adopting the India Backbone Implementation Network), and identifying critical intervention areas (such as improving business regulatory environment and human asset environment for enhancing manufacturing). However, this is not sufficient, and more needs to be done from within the Commission as well as by the government, on a priority basis.

The Finance Commission has been charged by the Constitution with the responsibility of transfer of resources from the Centre to states. It could do the task of allocating funds to the states on a regular basis as well.

Thus, in order to deal with evolving economic governance challenges, the Commission must be transformed into an independent expert body with two key roles. First, to advise the central and state governments on critical economic policy issues on the basis of in-depth research, data collection, analysis, identification of alternatives, and evaluation of impact of policy proposals. Second, to facilitate co-ordination between different government departments, central and state governments, and different state governments.

In order to facilitate these functions, the Commission could have offices in all the states. These offices must be connected to an online central repository wherein all the data, reports, minutes of meetings, recommendations and so on should be uploaded. The Commission’s association with the Prime Minister’s Office must be discontinued. Its members must be selected through a transparent process. Its performance must be evaluated against a set of predetermined identifiable targets (including evaluating utility of suggestions in the real world, should they be accepted). The Commission should be capable of evolving with the needs of the economy, and its actions must be open to public scrutiny.

Only if these suggestions are implemented, plans would be made on the basis of first-rate information with greater participation from the states, and they could act as laboratories for democracy, as envisaged by Justice Brandeis.

The writer is the Secretary General of CUTS International. Co-authored with Amol Kulkarni, Policy Analyst, CUTS International

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