This piece is written by a manager and an applied economist, and not by a lawyer or one well-versed in the Indian Constitution. But none can deny that India is a union of states and Union territories in which the Central government has an added leverage. Both the Central and the state governments have areas exclusively under their respective jurisdictions, with some in which both have concurrent jurisdictions. Most of the time, however, this last provision gives Central legislation an overriding importance in matters in which the state governments have passed contrary legislation. There is no equality between the Centre and states in such matters.
However, the Union government has tried to bring in 'cooperative federalism'. Thus in the 2015-2016 budget, it reduced its share of taxes and increased the grants from Central tax collections to states, which could use the fund for their schemes. But a look at the constitutional amendment to the goods and services tax shows that the Centre hopes to keep an overriding authority over state governments in the GST council. The Centre has 33 per cent votes in the GST council that will decide on contentious issues or major matters. With support from states governed by the ruling party at the Centre and other states that can be persuaded, the Centre can muster the 75 per cent majority required, allowing greater possibility for the Centre to get its way. In the past, sales tax rates were a state decision but it will no longer be so. The Centre might have the votes in the council to override a state decision.
The media could also push decisions in the way the Centre wants them to. Thus the Central Bureau of Investigation can be called to investigate cases in a state only if the state government wants it. The CBI is suspected by many to be a creature of the ruling party at the Centre and states are reluctant to call it in. In recent years, the media have acquired considerable influence and are able to compel a state government to call the CBI even when the state's inclination is not to do so.
Yet there are also matters in which the Centre cannot intervene to use its influence. An example is real estate. This is a fundamental factor that affects investment, urbanization, housing, property values that have little relation to supply and demand. The whole sector is riddled with shady practices, black money, corruption and so on. It is a major block in the path of industrial development and to better urban living. However, the Centre has not used its power and influence to clean up the sector. For example, Maharashtra has a rent control law and a floor space index provision that give real estate developers a virtual monopoly to set and maintain the prices of real estate. The Union government has the clout to intervene but does not do so. Perhaps, real estate operators are important contributors to ruling parties' election-funding.
Another good example is in the electricity sector, a concurrent subject under the Constitution. State governments control electricity distribution, which is a state subject. Populism often makes state governments give away free power to the agricultural sector, leading to massive groundwater depletion, land salinity because crops that are grown use excessive water on unsuitable soils, and decline in the recharging of water bodies such as lakes. The Centre might be able to intervene on various grounds but has not done so. The Centre has never asked the Supreme Court or the national green tribunal (with authority over all jurisdictions) to intervene.
Parliament passed the Electricity Regulatory Commissions Act in 1998. There is an appellate tribunal. The Centre has never used it to correct serious lapses by state commissions that are usually manned by retired government officers who tend to be subservient to the ruling governments. In order to keep tariffs low, some state commissions have kept aside expenses approved by distribution enterprises and avoided raising tariffs. They have labelled them 'regulatory assets' on which interest would be paid. This has effectively taken away cash from the enterprise that should have been reimbursed. All this has constrained the enterprises from spending on maintenance, new equipment and so on, thereby compromising efficiency and expansion.
Statutory regulatory commissions were created at the Centre to monitor telecommunications, airports, competition, future markets, and petroleum and natural gas. Others are under creation to supervise the coal industry, railways and so on. Concurrent subjects have seen both Central and state commissions - such as in electricity, and the yet to come commission for real estate. There are appellate tribunals to hear appeals against the orders of these commissions. But appellate tribunals have tended, in most cases, to dilute the decisions and penalties imposed by the state and Central commissions. This is particularly so in the cases of the competition tribunal and the telecom tribunal. The competition commission has imposed severe penalties for the misdeeds of operating companies, but these have mostly been stayed by the appellate tribunal.
The Central government must find ways to prevent these contradictions by asking the Supreme Court to intervene or by passing corrective legislation if possible. Since the record shows that the courts are less likely to oppose the decisions of commissions unless the law is bad, perhaps the tribunals should be abolished. Commissions in the states tend to go little by precedents set by commissions in other states. A journal on regulatory law will help the commissions find commonalities and precedents.
Is there a difference between the Central and the state governments in their exercise of powers? Some might disagree but the Centre is not subject to the same local political pressures as state governments are. This pressure is exerted by local leaders, communities, non-governmental organizations and others to give special privileges to some groups. There is also the problem of corruption in executing projects. Urban facilities, especially in the big cities, confirm this. Money is spent but drains are not cleared, encroachments are not removed, garbage keeps accumulating, new or existing roads are pitted with potholes and housing construction for slums and unauthorized colonies is poor. There is a litany of such issues. Local politicians and bureaucrats gang up with contractors and businessmen to give poor service and to steal public funds. There is no coordination between different agencies and it is impossible to hold any individual accountable for poor and shoddy work.
This is a problem that is extending to rural communities as well. As social and infrastructure development schemes get extended to rural communities, local panchayats get the money to spend on them and they can easily divert the money for their own purposes. Amendments to the Constitution provide for delegation of spending powers to different levels in the village or municipal authority, state and Central government. But there is little supervision down the ladder. Nor is there a single person at each level who is responsible for proper spending.
Centre-state relations are not merely about money being available at different levels. They call for systems, organizational structures and procedures that ensure that spending is done honestly. Indian federal relations between the Union and the states are works in progress. Before they achieve fulfilment, states must become more efficient and the Centre less desirous of control.
The author is former director-general, National Council of Applied Economic Research
