Platitudes, centralisation are no alternative to effective federalism

An ad-hoc, top-down approach seems to underpin the Covid-19 consultations between Prime Minister Narendra Modi and the State chief ministers. After the fourth such round on Monday, no one is left any wiser about any substantive policy directions to deal with the catastrophic economic and health impact of the pandemic. With just six days to go for the May 3 deadline for lifting the lockdown, voices from the States battling the worst of the crisis, such as Maharashtra, Punjab and Tamil Nadu, were missing. And the Chief Minister of the State that has gained international reputation for not just the flattening of the infection curve but also the least mortality and highest recovery rates — Kerala — skipped the meeting altogether. Following a curious rota system in these consultations, the line-up of chief ministers who actually spoke included those in States where the pandemic impact is relatively mild — Meghalaya, Mizoram, Puducherry, Himachal Pradesh, Uttarakhand — as well as Bihar, which is gaining notoriety for the least amount of testing, surveillance and healthcare measures.

Indeed, as harried finance ministers of some States conducted a simultaneous video conference to discuss how the pandemic has exposed the fragility of their finances, the PM seemed to be sanguine about the state of the economy. No specific measures seem to have been thrashed out to address the severe strain on the finances of the States who are arrayed in the frontlines of the Covid battle. State finances were not in the pink of health even prior to this, with SBI data suggesting that 19 key States faced revenue shortfalls of ₹1.26 lakh crore in their share of Central taxes in FY20, struggling to keep their deficits within the 3 per cent FRBM (Fiscal Responsibility and Budget Management) limits. This fiscal, State resources are further stretched by the Covid response, while revenues are in contraction mode from falling GST and a standstill on key tax-generating activities such as transport, real estate transactions, liquor sales and entertainment, which have been deemed non-essential during the lockdown. The Centre seems to be still debating allowing States a 0.5-percentage point escape clause under the FRBM, but what is needed is more substantive measures such as the monetisation of the Central deficit, adhering to commitments on GST compensation, and a constructive debate on how State fiscal capacity and flexibility can be enhanced. The focus on platitudes and optics in such high-level meetings is disappointing at a time when the States need urgent financial support from the Centre.

It is time that the Centre opened its purse strings and initiated a fresh phase in the battle against the pandemic by adopting a bottoms-up approach. Centralising political and fiscal power triggers uncertainty and trust deficit, hardly a desired element in the polity in the midst of a crisis. Political and fiscal federalism must go hand in hand.

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