Opinion

Reinventing India’s federal system

Sthanu R Nair / Deva Prasad M | Updated on September 29, 2020 Published on September 29, 2020

Institutional frameworks for Centre-State ties need to be strengthened. NITI Aayog’s Governing Council should get into the act

The government’s capacity to implement policies is determined, among others, by the political system — federal or unitary — followed in a country. A federal system like in India divides powers of government between the central government and sub-national governments (SNGs) comprising states and local governments through a constitutional mechanism.

In contrast, in a unitary system like in the UK, most or all of the governing power rests with the national government, which delegates the powers to SNGs and implements policies through them. Compared to the unitary system, a federal system causes difficulties and delays in implementing government policies due to three key reasons.

First, on matters that are performed jointly by national and SNGs and solely by the SNGs, the implementation of transformational policy ideas would be delayed or stalled due to time-taking negotiations required to build consensus. For instance, India took 17 years to roll out the GST.

Second, contradictory policy stands by the Central and State governments may weaken the overall impact of a policy. An example is a different stand taken by the centre and states on the quantum of penalties imposed for traffic rules violations under the new Motor Vehicles (Amendment) Act 2019.

Third, in case of policy changes initiated by the national government on matters which have severe implications for the livelihood of the local population, the SNGs show resistance. For example, the signing of a free trade agreement by the national government would adversely affect the livelihood of farmers residing within a sub-national jurisdiction, thereby inviting resistance.

Farm laws

In this background, the passage of the landmark and controversial farm bills by the Parliament assumes greater policy significance. The legislations are aimed mainly at providing a legal framework for protecting and empowering farmers engaged in contract farming.

These are long-pending reforms, stalled or opposed by the States owing to pressure from the two influential intermediaries, traders and commission agents operating in mandis. Since agriculture, including “markets and fairs,” are State subjects as per the Constitution, State governments have governing power over these subjects.

The Constitution permits the Centre to act upon a State subject under three circumstances.

First, as per Article 252, if two or more States pass a resolution in the respective State assembly, allowing the Centre to formulate legislation on a State subject, the centre can legislate on it.

Second, Article 253 allows the parliament to enact a law on any subject matter, including those governed by the states, to implement obligation under any international agreement.

Third, as per Article 368, with a two-third majority in each house of Parliament and ratification by at least on half of the State legislatures, the subject matters assigned to the central and State governments in the Constitution can be amended.

Interestingly, for the passage of the agricultural legislations, none of these possibilities was used. Instead, the Centre relied upon the provisions under Entry 33 of the Concurrent List of Constitution, which delineates the functions that are performed jointly by the centre and States. Entry 33 provides legislative competency on the subjects of “Trade and commerce in, and the production, supply and distribution of” five product categories, including “foodstuffs.”

Critics have argued that since agriculture is a State subject, the passage of the Bills by Parliament is a legislative overreach by the Centre. Although there is merit in the criticism, the Centre’s action in the present case could be perceived as Constitutionally permissible since Entry 33 does not appear to conflict with Entry 26 (trade and commerce within the State) under State List, which contains the subject matters assigned to the states.

Also, the Centre has clarified that the State-specific Agricultural Produce and Marketing Committee Acts, which govern the mandis, will continue to exist. Therefore farmers can continue to sell their produce in mandis if they choose to do so.

Major implications

From the point of view of advancing critical economic reforms, what the Centre has done makes economic sense.

However, from the point of view of maintaining the federal governance structure and the cordial centre-State relationship, the centre’s move is questionable. If the States are not proactive in initiating transformational economic reforms, the tendency of the centre to act on States’ domain might increase and opening Pandora’s Box.

Therefore, in the larger interest of the economic prosperity of the nation, we need an effective institutional mechanism for furthering transformational economic agendas in areas where the cooperation of the centre and States is required.

In this regard, NITI Aayog’s Governing Council can play an important role. The Council, which replaced the earlier National Development Council in 2015, is chaired by the Prime Minister, and all chief ministers are its members. In the five meetings convened so far, the council held consultations on several reform agendas such as land acquisition, doubling farmers’ incomes, Ayushman Bharat, MGNREGA, and reforming agricultural markets.

On many contentious issues, sub-groups of chief ministers were constituted to arrive at a consensus. In the meetings of the Council, the PM has on many occasions stressed the need for the Centre and States to work as a team for development. Though these are welcome developments for enabling direct involvement of States in national policymaking, on contentious economic policy areas the Centre and States are yet to come on the same page.

This is evident from the Centre’s unilateral decision to introduce agricultural legislations. A way out of this problem to increase the frequency of deliberation in the Council from the current level of one meeting a year.

If the Council has time constraints to engage regularly, an institutional mechanism a la GST council can be put in place in critical areas of economic planning to take forward the policy goals.

The record of GST Council, a constitutional body comprising the Union Finance Minister as Chairperson and State Finance Ministers as members, in implementing one of the most challenging indirect tax reform of Independent India has been reasonably good from a pragmatic perspective.

And most importantly, barring the recent standoff on the GST compensation issue, the Council has been working without much friction between Centre and States. GST Council is the best example of the practice of cooperative federalism.

Nair and Prasad are Associate Professor of Economics and Assistant Professor of Law, respectively, at the Indian Institute of Management Kozhikode. Views are personal

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Published on September 29, 2020
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