People's Democracy

(Weekly Organ of the Communist Party of India (Marxist)


No. 13

March 28, 2004

              CPI(M) Attacks NDA On Fiscal Federalism


The Communist Party of India (Marxist) charged the BJP-led central government with undermining the federal principle both politically, by issuing threats against states where parties opposed to it were in power, and economically, by starving them of resources and reducing them to bankruptcy.

Dismissing prime minister Vajpayee’s claim that “cooperative federalism” has been the corner stone of governance under NDA, CPI(M) Polit Bureau member Sitaram Yechury told a news conference on March 18 that the same NDA's convenor George Fernandes has been openly declaring that if voted back to power, NDA government would dismiss the Bihar government. Even Mamta Banerjee keeps demanding dismissal of the West Bengal government, he reminded.

Focussing on Vajpayee government's “virtually ruining” of the finances of the states, Yechury said the combined revenue deficit of all states taken together had shot up to Rs 70,000 crore during the last five years of BJP rule. The states finances were in such a mess that many states were not in a position to pay salaries to their employees, he said. This news conference was held as part of the Party’s series of exposures "Lies, damned lies and statistics" against the BJP’s “Shining India” campaign.

The fiscal crisis faced by the states, Yechury said, has resulted from firstly, by raising the interest rate charged on the outstanding liabilities of the states and secondly, in order to reduce its own fiscal deficit arising out of tax concessions to the rich, the central government has passed on its burden to the states by reducing the share of transfer to the states.

Subsiding the rich, he said, had resulted in fall in the tax revenue of the centre, adding that the Tax-Gross Domestic Product (GDP) ratio of the centre had fallen from 9.14 per cent in 1997-98 to 8.10 per cent in 2001-02. With one per cent fall working out to Rs 29,000 crore, he said transfer of resources to the states has also been adversely affected.

Accusing the Vajpayee government of  “profiteering”, Yechury said it had been charging an interest rate of 11 per cent from states on loans obtained by it at an interest rate of 4 per cent, thus placing a heavy burden on the exchequers of the states.

There is a political motive behind keeping states dependent on the centre, he said, adding that particularly small states cannot stand up to the centre.  Calling it a “dangerous trend”, Yechury said the new government would have to reverse it. (See also page 9 of this issue)