Last year, Prime Minister Narendra Modi announced the formation of Niti Aayog to replace the Planning Commission from the ramparts of the Red Fort in the Capital. This year, the name did not cross his lips even once during the 86-minute Independence Day speech. The revamp of 65-year old body into Niti Aayog was touted as being the single most daring reform all set to usher in a new era of Centre-state economic ties. The move was perceived as a decisive departure from the Congress’ model of federalism. However, the mystery behind PM’s silence on the Planning Commission or its new avatar the Niti Aayog got unraveled four days later when he announced a generous Rs 1.25 lakh crore package for Bihar during an election rally at Arah.
With the declaration of a fiscally impractical Bihar package, Modi has not only turned his own model of Centre-state financial relations upside down but has also rehabilitated the package politics of the Congress era. The Congress party’s notion of federalism was based on the political arithmetic of distributing doles to states. There is enough research available on transfer of funds from the Centre to states according to a political formula, which shows that from 1972 to 1995 states that were close to the Centre, or even states with better electoral possibilities received more funds. It was only after the advent of several non-Congress governments in states, that the opposition against the biased political disbursement of Central resources became more vociferous.
As a result of resistance from non-Congress ruled states, successive Finance Commissions gradually capped major channels for the Centre’s discretionary transfers to states. The 14th Finance Commission even went a step further by abolishing the classification of states as general and special categories in the sharing of Central resources. The finance panel suggested a couple of formulas to limit the scope of open transfers to the states even in the case of states running revenue deficits.
The abolition of the Planning Commission was essential for a complete elimination of politics from the Centre-state financial relations. The Plan panel was fostering a politicised transfer of funds by way of Central schemes. This is why last year’s announcement from the Red Fort to disband the Planning Commission was considered a harbinger of financial autonomy for states. After the end of the Planning Commission and the implementation of Finance Commission’s recommendations, state governments were liberated from Congress type federalism that granted them Central assistance on the basis of their relationship with the Centre or on the basis of electoral considerations. Alas! With the Bihar package, Prime Minister Modi has jeopardised his most valuable reform.
The Bihar package is bound to aggravate difficulties for Modi’s Team India, that is, the country’s states. States are already stuck with uncertainties arising out of the Planning Commission’s absence and underperformance of its successor, the NITI Ayog. The Plan panel’s departure has created practical challenges regarding the administrative coordination and distribution of resources between the Central departments and states. Niti Ayog has neither powers nor capabilities to address them.
State governments get Central resources under different plans and schemes. As per the advice of the 14th Finance Commission, a new formula is being prepared by a Niti Aayog Committee constituted under Madhya Pradesh chief minister Shivraj Singh Chouhan. The recommendations of the committee are still awaited. Owing to uncertainties about fund sharing formula, the speed of allocation has slowed down which is hurting the states. The implementation of Central plans has also become vulnerable to delays. The Planning Commission used to monitor Central and states’ schemes on the basis of which allocations used to be rationalised. An alternative to this is yet to emerge.
After the abrogation of the Planning Commission, some of the chief ministers have been complaining, informally, about a void in Centre-state coordination, though they add that a new beginning has been made in Centre-state financial relations by the Modi government and the decision ensures financial independence for states which would soon lead to better coordination. However, the manner in which this Bihar package has been offered is bound to shake the foundation of Modi’s model of federalism.
It is confounding to observe that Modi, who advocated economic freedom to states, has brought back the Indira-Rajiv politics of packages, under which Central governments allocated resources to states only on consideration of political arithmetic.
Political somersaults and U-turns are unavoidable in electoral politics, but there are some reforms that demand resolve beyond political reckoning. Modi’s dream of achhe din largely depends on his Team India (read states) that has pinned great hopes on his co-operative federalism. Let us hope that the Bihar package will be an exception and the Prime Minister will not indulge in package politics anymore.