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No let-up in centralisation

The continuing trend of financial powers getting concentrated in the hands of the Central government at the expense of the States was viewed with concern at a seminar held recently in Thiruvananthapuram. West Bengal’s Finance Minister Asim Dasgupta, who also heads the empowered committee of State Finance Ministers, said that the Central government should give up the practice of imposing external loans and aid agency conditionalities on the States insofar as they rela te to the State subjects. The States should be given the powers to tax services — the fastest growing sector of the economy — and their share in total market borrowings should be raised to 50 per cent. These suggestions need to be considered seriously if the right balance, appropriate to a federal set-up, is to be struck in the management of public finance. The tendency to grab fiscal powers is so ingrained in the Centre that even the Union budget proposals, more often than not, reflect the tilt. A more recent example is the massive loan waiver — involving Rs.60,000 crore and seeking to benefit certain categories of small farmer-borrowers — announced in the latest budget. The very nature of the scheme and the huge stakes involved in its successful implementation demand that the States are given a say in determining the modalities of the waiver, taking into account the situation and circumstances obtaining in their own areas.

The current emphasis on inclusive growth underlines the importance of apportioning extensive financial powers to the States. In any case, much of the effort at promoting inclusion through irrigation, education, local development, and health is undertaken largely by the States. It is true that a substantial portion of the Central government expenditure goes towards transfer of funds to the States, but of late the nature of such transfers has been changing drastically. Funds allocated by way of normal Central plan assistance form a relatively small part of the public expenditure, compared to funds earmarked for centrally sponsored schemes such as the National Rural Employment Guarantee programme, Sarva Shiksha Abhiyan, and the National Rural Health Mission. The increased budgetary allocation, year after year, for such schemes is cited as proof of the Centre’s commitment to social objectives and poverty alleviation. It is in the interest of healthy fiscal federalism that neither the State budgets nor the State-level institutions are bypassed in the process. Delegation of responsibility, including financial responsibility, is a necessary precondition for efficient governance, improved delivery of services, and attaining social objectives.

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