People's Democracy
(Weekly Organ of the Communist Party of India (Marxist)
No. 22
June 02, 2013
|
Vol. XXXVII
No. 22 June 02, 2013 |
The Diminution of the Finance Commission
Prabhat Patnaik
THE Finance
Commission is one of the
grandest institutions conjured up by the Indian
Constitution. Its role is to
overcome a basic anomaly in
The job of the
Commission being of
such great importance, and its position being one that
overarches both the centre
and the states, the constitution of a Finance Commission
should be front-page
news. But that alas is not the case. The Fourteenth Finance
Commission has been
recently set up, but it has scarcely attracted notice. The
reason for this
diminution of the Finance Commission lies in the fact that
the central
government has converted it virtually to a departmental body
entrusted with the
task of imposing neo-liberal policies on unwilling state
governments, by using,
entirely illegally, the threat of withholding resources from
them that are constitutionally
their due.
Of course, even
before the Finance
Commissions were forced to become policemen for the central
government, their
importance had got undermined. This was because the centre
had insisted on
routing a large chunk of the total transfers it made to
states through the
non-FC route. The Planning Commission which is a mere
departmental body of the
central government, with no constitutionally-sanctified
position, was one route
for such transfers, viz. in the form of Plan assistance; and
in addition there
were discretionary transfers made at the whim of the central
government. The transfers
effected through the constitutionally-sanctified body, the
Finance Commission,
accounted for only a fraction of the total transfers from
the centre to the
states; and this of course enabled the centre to indulge in
“favouritism”,
rewarding “obedient” states and penalising “inconvenient”
ones.
But at least the
plan assistance, no
matter how small and despite being given at usurious
interest rates (the term
“assistance” was indeed a misnomer), allowed the state
governments to decide on
their own plan priorities. Of late, however, a new entity
has emerged called centrally
sponsored schemes, through which not only does much of the
centre’s devolution
of plan resources to states take place, but which actually
amount to interfering
in states’ plan priorities.
State governments
have to share a
part of the expenditure on centrally-sponsored schemes,
which have not been
designed by them, and whose implementation itself is largely
outside their
control (often entrusted to independent bodies like the
Sarva Shiksha Abhiyan,
or the NRHM). States, when confronted with a CSS, are given
a “take it or leave
it” choice; and naturally since such schemes entail some
money coming from the
centre, there is pressure on them, given their straitened
circumstances, to
“take it”. Their own plan resources therefore get partly
diverted to centrally
sponsored schemes.
But that is not
all. After some time,
the centre decides unilaterally to lower its share of
contribution to the CSS. (This
unilateralism is so brazen that in the case of SSA, the
centre went ahead with
its proposed reduction in share despite a unanimous plea to
the contrary by all
the chief ministers at an NDC meet). For the continuation of
the schemes
therefore the state governments have to make proportionately
more and more
resources available. They are thus left holding schemes,
over whose designing
and inception they had no say whatsoever; and their own plan
priorities and
plan conceptions get subverted.
The NDC had
decided long ago, in view
of the state governments’ unanimous demand to this effect,
that CSSs should be
handed over, together with funds, to the state governments.
But nothing has
come of this decision; on the contrary the scope of such
schemes has got
enlarged, and the resources they absorb have increased
manifold. The fact that
successive Finance Commissions have turned a blind eye to
this travesty of the Constitution
is one reason for their diminution of status. In addition,
however, the Finance
Commission itself has become a tool of the central
government.
The reasons for
this are obvious. The
centre unilaterally decides on the membership of the
Commissions. It is
reasonable to expect that if a body is to adjudicate between
the centre and the
states, then its composition should be decided not by one of
the two parties
unilaterally, but by both, through mutual agreement. There
are plenty of
institutions, such as the National Development Council, or
the Inter-State Council,
where both the centre and the state governments are
represented; these
naturally should be the fora at which the composition of the
FC should be
decided. But despite the fact that this demand has been put
forward by the Left
parties and the Left-led governments for long, the
membership of the FC to this
day is decided entirely by the centre, which naturally fills
it with persons
“acceptable” to it.
The centre also
unilaterally decides
on the terms of reference of the FCs. Here again, the NDC or
the ISC could be
used to get an agreed set of terms of reference, but this
has never happened.
In fixing the terms of reference, the centre also ensures
that the FC,
consisting of its handpicked persons as members, works on
the centre’s agenda.
The terms of reference of the Fourteenth Finance Commission
for instance
include assessing what progress the states have made in
following the “road map
for fiscal consolidation” suggested by the thirteenth FC and
what “incentives”
and “disincentives” should be used to make state governments
conform to this
“road map”; this in plain language means compelling the
states, by withholding
their resources, to practice fiscal austerity (and enact
Fiscal Responsibility
Legislation).
CONDITIONAL
RESOURCES
This obnoxious
practice of
withholding resources due to them from the states, unless
they satisfied
certain “conditionalities” (involving the adoption of
neo-liberal measures)
started with the Eleventh Finance Commission. The eleventh
FC asked for a
“package” of measures, which included “reforms” of State
Electricity Boards
(involving “unbundling” and “trifurcation”), to be adopted to the satisfaction of central
government personnel, as
a condition for a part of the devolved resources to be made
available to them.
This was clearly
un-constitutional.
The Constitution was explicit that the resources made
available to states by
the FC were to be made available unconditionally.
This is not surprising since it visualised the possibility
of different state
governments being ruled by different political parties with
different
programmes, who were electorally chosen by the people; and
if this choice was
to have any meaning then these different state governments
should be allowed to
have their different trajectories of development. Since it
was neither the centre’s
nor the FC’s job to tell them what development strategy to
pursue, the
resources being made available to them should be made
available unconditionally
so that they could
pursue different trajectories. But
the neo-liberal policy-makers decided to use the institution
of the FC to ram
their favoured measures down the throats of the state
governments, no matter
what the ideology that the political parties running these
state governments
subscribed to.
It must be said to
the credit of Dr Amaresh
Bagchi, one of the members of the eleventh FC, that he gave a
dissenting note to the FC’s
report, protesting against this un-constitutional step of
the Commission. What
is constitutionally due to the states, he argued, must be
given to them
unconditionally. Even though this obnoxious and
un-constitutional practice has
been followed by all subsequent Finance Commissions, no
other member alas has
had the courage or the conviction of Dr Bagchi to voice a
similar protest.
The Twelfth
Finance Commission made
the provision of debt relief conditional upon states passing
Fiscal Responsibility
Legislation which would provide for an elimination of
revenue deficits and
limit fiscal deficit to three per cent of the Gross State
Domestic Product.
This was not just un-constitutional and undemocratic, making
the provision of
assistance to a popularly elected government conditional
upon the pursuit of specific
and uniform policies which had
no constitutional sanction; but it was as silly in its
content, as it was
shallow in its analysis of the causes of state indebtedness.
Through the decade
of the nineties,
states taken as a whole were better at mobilising revenue
than the centre:
while the ratio of the centre’s tax revenue to GDP came down
over the decade,
that of the states taken together did not. And yet the
states taken together
had a worsening debt situation over the decade. A major
reason for this lay in
the exorbitant rates of interest charged by the centre on
the loans, including
Plan assistance, it made available to states. These rates in
many instances
exceeded in real terms the rate of growth state GSDP, which
is a sure recipe
for falling into a debt-trap. Having virtually pushed the
states into a debt
trap, the centre then used the FC to get them to pass
“Fiscal Responsibility
Legislation”!
And the absurdity
of such legislation
lies in the fact that a lot of development expenditures
undertaken by state
governments, such as salaries of teachers in government and
“aided” schools, salaries
of doctors and costs of medicine in government hospitals,
plan transfers to
local bodies, are counted as revenue expenditure. Zero
revenue deficit
therefore would mean cutting many of these expenditures,
which impinge on the
lives of the common people. In short, the idea that revenue
expenditure is
non-developmental, which underlies the prescription for zero
revenue deficit,
is fundamentally wrong.
NEO-LIBERAL
VIGILANTE
The Thirteenth
Finance Commission
continued with this undemocratic neo-liberal orthodoxy,
through its imposition
of a “road map for fiscal consolidation”. The case of
Tripura illustrates its
absurdity. Every state, irrespective of its size and GSDP,
has to have a
certain minimal administrative structure in absolute terms.
When salaries of
state government personnel have to increase in the wake of
central pay
increases, as a fall-out of Central Pay Commission
recommendations, a small
state has to bear a heavier burden. Instead of taking this
fact into account,
the thirteenth FC used arbitrary “norms” for administrative
expenditure, on the
basis of which it penalised
states
like Tripura for no fault of theirs. Instead of acting as a
constitutional
body, the FC had acted as neo-liberal vigilante
at the behest of the centre.
The fact that
successive FCs have
acted in this manner is what explains the current diminished
status of this constitutional
body of grand conception.
