Context: The states are urging the Central Government to work in the spirit of cooperative federalism.

More on News:

  • The central government is being criticised owing to the gap between what the 14th Finance Commission (FC) promised to states and what they are receiving.
  • Earlier the principal tool to coerce states was Article 356 ( State Emergency) of the constitution but now non adherence to FC’s report in spirit is adversely impacting them.

Hurdles faced by states:

  • Delayed payments: The 14th FC recommended 42%  share of taxes of the centre to states, up from earlier 32% but tax devolution has been quite low.
    • The economic slowdown coupled with a shortfall in GST collections are primary reasons behind this.
    • The Centre owed States about Rs. 35,000 crore as GST compensation for December 2019 and January 2020, which was only paid in June 2020 after a delay of more than five months.
  • Cess Approach: The centre is resorting to cess route as the same is not to be shared with states, thereby decreasing the amount to be transferred from Central pool of taxes.
  • More Burden of Social Development: As per a study by the Centre for Policy Research, there is a Rs. 6.84 lakh crore gap between what the 14 FC promised to States and what they have received. 
    • Still in 2014-2015 the states undertook programmes and projects spending 46% more than the Central Government; today the figure is 64%.
  • Lack of Centre’s Support: The states are not receiving adequate financial support considering the nature and magnitude of liability.
    • For instance in West Bengal the State government had spent Rs.1,200 crore in fighting COVID-19 while the Centre has given Rs. 400 crore under the National Health Mission and to the State Disaster Response Mitigation Fund, but specifically for the pandemic. 
  • Directives to Cut the Expenditure: The Ministry of Finance has instructed other ministries to cut expenditure due to which crucial programmes in the states has come to standstill
    • The rural development ministry has not transferred the promised 4900 crores to west bengal which has impeded the local area development in the state.
  • FRBM Act provisions: As per provisions of the Fiscal Responsibility and Budget Management (FRBM) Act, the Gross State Domestic Product (GSDP) can actually accommodate a fiscal deficit of 3%. 
    • This would be difficult to achieve amidst the pandemic.
    • Further the “escape clause” that allows for a one-time relaxation of the fiscal deficit threshold upto 0.5% in a time of exigency has already been utilised by the Centre but it has proven woefully insufficient in addressing the current crisis.

Way Ahead:

  • In such difficult times the Central and State governments must keep their political gains aside and work together in the spirit of cooperative federalism.
    • It is a concept of federalism in which federal, state, and local governments interact cooperatively and collectively to solve common problems, rather than making policies separately .
  • The rigidity of the FRBM has to be revisited
    • It should allow for greater flexibility and consultation as to when and how the “escape clause” can be applied. 
    • In theory, the Centre has raised the fiscal deficit limit for States, under the FRBM, from 3% to 5%. 
      • But only 0.5% of this rise is unconditional. 
      • The remaining 1.5% is dependent on fulfilling certain difficult conditions — including privatisation of power distribution,and enhancing revenues of urban local bodies.


Image Source: The Hindu