W(h)ither federalism?

It is worrying for Indian democracy and federalism in India that the Delhi-centric media is trying to portray the passing of the GST (Goods and Services Tax) Bill in the Parliament as a moment of celebration. It is being couched in the language of emerging consensus and a possible beginning of the end of confrontational politics. 

It is important to interrogate the content of this claimed consensus, rather “manufactured” consensus, as a worrying development. The passing of GST neither  strengthens the interests of democracy nor of federalism. This BJP-led move (supported by the Congress party and meekly accepted by the Left and almost all regional parties) is another step in the trend towards concentration of economic and political powers at the Centre.

From Independence onwards, there has been an ongoing battle between the forces of decentralisation and diversity and of centralisation and homogenisation. The first battle was won by the forces of centralisation in the framing of India's Constitution, that was adopted on November 26, 1949 by the Constituent Assembly and brought into operation from January 26, 1950 onwards. The Constitution describes “India that is Bharat,” as a “Union of States”. A motion in the Constituent Assembly to designate India as a “Federation of States” was rejected. The contestation over the use of the word “Federation” or “Union” in the Constitution to characterise the Indian Republic was not a mere semantic quibble, it signified a sharp ideological conflict between the centralist tendencies and the decentralist tendencies oriented towards federalism. This conflict has continued in post-

Independence India. For example, in a Memorandum on Centre-State Relations, issued in 1977, the Left Front-led government of West Bengal vehemently opposed the term “Union of States” and proposed that the Preamble to the Constitution should be amended to include the word “Federal” in the Republic’s description.

In the division of powers between the Centre and the states that was specified in the Constitution, the Union List (under the jurisdiction of the Centre) has the largest number of entries, that is 97, followed by the State List, with 66 entries and the Concurrent List (under the joint jurisdiction of the Centre and the states) with 47 entries. The Concurrent List is concurrent only in name; it is virtually the Centre's list. In a situation of conflict on an item in the Concurrent List, the overriding power called the “residuary power” is with the Centre.  It is not only in the number of entries that this division is highly biased in favour of the Centre, it is also in the nature and quality of the entries in the three lists that this division is highly biased in the Centre’s favour.  

Most items with elastic sources of revenue (direct taxes, such as the income tax) are with the Centre and those with relatively inelastic sources of revenue (indirect taxes, such as sales tax or value-added tax) are left with the states. Major items of developmental expenditure, such as public health, road transport and irrigation are the states’responsibilities.

So the states are hit with a double whammy — their revenue resources are limited and expenditure responsibilities are enormous. The states’ financial dependence on the Centre is, therefore, structural in nature. This structural nature of states' financial dependence on the Centre which undermines federalism is all the more glaring if we keep in mind that the states have not lagged behind the Centre in their efforts for additional tax mobilisation, except for a blip during the 1960s and the early 1970s.  

The crucial factor for financial dependence of states on the Centre is their very narrow tax base in relation to their revenue expenditure as well as the Centre's tax base. 

It is in this context that the introduction of the GST takes away an important source of revenue and autonomy from the states and, consequently, further strengthens the concentration of economic power in the hands of the Centre in setting the development agenda. 

The argument that it streamlines the multiple layers of taxes and creates a unified national market is a thinly veiled argument in defence of the interests of big business which does not want barriers to its powers to access natural resources for profit making. No wonder, big business has welcomed this move with massive clapping of hands. In essence, it has been big business — both domestic and foreign — which has been the driving force behind this move. It is because of the power of big business that both the “national” parties, the ruling BJP and the opposition Congress, have come together on the GST. Despite many other differences, the BJP and the Congress regimes have been united in one strategic objective: strengthening the centralisation process in Indian political economy. I applaud Tamil Nadu for being consistent in opposing this growing trend towards centralisation. It is a shame that all the regional parties, including Punjab's Shiromani Akali Dal (SAD), which historically has a proud tradition of advocating devolution of powers to the states,  have been unable to see the underlying trend towards centralisation behind the GST move. The SAD is so terrified of being labelled “anti-national” by the Delhi-centric media that it has virtually stopped putting any resistance to the centralising trends. On the parliamentary Left, the absence of Jyoti Basu is felt. He took a lead in organising a meeting of the Left and regional parties in Calcutta to demand greater devolution of powers to the states. Now the only hope lies with Tamil Nadu and its political parties for taking a lead in organising a country-wide opposition to this BJP-led, Congress-supported move towards greater centralisation. One lesson from global history — right from Stalinist Russia in the 1930s to Erdogan-ruled Turkey today — emerges that there is a direct link between growing centralisation and authoritarianism.

The writer, a Professor of Economics at Oxford Brookes University, is the author of “Federalism, Nationalism & Development.”