India, its Constitution says, is a Union of states. The format consists of nearly 30 state governments and a Union government, for convenience called the Centre. The Centre is supposed to hold the nation together and exercise jurisdiction over matters of common concern, such as international relations, defence and foreign trade. Article 246 and the Seventh Schedule of the Constitution detail the distribution of responsibilities and prerogatives between the Centre and the states; both are expected to conduct their activities in conformity with this framework under the supervision of a legal system presided over by the Supreme Court.

In the scheme of things, Centre-state relations are a cooperative arrangement, which should be marked by mutual respect and an attitude of as much to give as to take. However, if perchance or by design, the Centre, availing itself of its vantage position as the regime overseeing affairs of the Union and holding residuary powers, begins to shortchange the states, misunderstanding between them is bound to come to the fore.

This is, in essence, what the hullabaloo over the recent rise in petro-product prices is all about. Irrespective of the trends in international prices, corporate entities distributing petro-products in the country, including those in the public sector, were not running at a loss on account of their being forced to sell at administered prices not always in alignment with trends in the international market. They, each of them, were in fact making huge profits; all they could claim was that had they not been compelled to sell to consumers at prices fixed by the government, their profits would have been still higher.

But a particular mode of thought dominates the mindset of the powers-that-be in New Delhi: it is a globalized world and our domestic prices too should be globalized. A parallel impulse is to keep the states on a tight leash and squeeze them as vassals were squeezed in the feudal milieu of the medieval age. If, in order to please the corporate bodies, it is considered important to raise the prices of petro-products and the decision leads to public outcry, why, it is smugly suggested, it is for the state governments to deal with the problem; they could provide some relief to people by reducing the cesses they levy on the affected commodities, the Centre will not offer any ameliorative gesture.

It is no innocent prank, but part of a carefully thought out strategy. A memorandum from the World Bank, with a date-mark of the 1980s, still rests in the archives of the ministry of finance imparting to the latter the rudiments of fiscal probity: efforts should concentrate on balancing the Union government’s budget; if, in the pursuit of that objective, the Centre were to arrange some extra resources for itself by denying the states, it must not hesitate to do so. In the view of the Bank, it did not matter if the states constituting the Union went to the dogs as long as the Centre was able to adhere to the canons of fiscal discipline.

To further that goal, the focus is on continuous centralization of the sources of resource-raising and on deploying those resources in whatever manner the Centre chooses, thereby automatically reducing the ability of the states to have any leeway for spending on development and social-welfare activities decided on the basis of their own priorities. The major tax heads, including taxes on individual and corporate incomes, excise duty on production and levies on foreign trade already belong to the ambit of the Centre. How much money the states can borrow from the market is also regulated by New Delhi. A part of the proceeds from income tax and excise collections has to devolve to the states; a constitutional body, the Finance Commission, decides the mode of this devolution. But the commission is appointed by the Centre and it has increasingly become its obedient servant.

The allocation of development funds from the national exchequer to the states rests with the Planning Commission, which again is nothing more than a Central ministry. The banking system is the total preserve of the Centre. That apart, the Fiscal Responsibility and Budget Management Act legislated by New Delhi has set rigid limits to overdrafts that could be drawn by the states from the Reserve Bank of India.

The coup de grâce was executed when, half a dozen years ago, the Centre persuaded the states to abandon their prerogative to impose taxes on the sale and purchase of commodities, by far the most important source of revenue-raising for them. It was replaced by the value-added tax, the design of which is worked out by a committee functioning under the benign guidance of the ministry of finance.

The aspirations of the Centre do not seem to have quite ended there. Although the VAT rates are informally regulated by the Centre, the tax still technically falls within the purview of the states. The goods and services tax, currently being discussed, has the grand objective of doing away with this ambivalence and transferring the prerogative to tax the transaction of commodities under the aegis of the Centre. The proposal is to integrate taxation of commodity sales with provisions related to taxation on services. To induce the state governments to agree to the proposal, the bait is being offered of allowing them a share of the revenue from the tax on services, something the states as of now have no entitlement for. Once the GST is legislated, it would however be an altogether Central terrain; the mode and rates of taxing transactions of both commodities and services would be determined by the ministry of finance, and the states left to suck their thumbs.

The only roadblock the Centre faces is that introduction of the GST calls for an amendment to the Constitution. The GST is a new fiscal animal not occurring in the Seventh Schedule delineating the separate and concurrent ambits of the Centre and the states. Any revision of the Schedule entails, as per Article 368 of the Constitution, a constitutional amendment, which has to be passed not only by both Houses of Parliament through a majority of their respective total membership and by a majority of not less than two-thirds of the members present and voting, but also by a majority of the state legislatures.

The problem confronting the Centre is not altogether new. It had also cropped up at the time of supplanting sales tax by the VAT. Since taxations on sales and purchase of commodities is specifically listed in the Seventh Schedule, its abolition should have necessitated a constitutional amendment. Similarly, since the VAT was an alien item not listed in the Seventh Schedule, its introduction, too, should have called for a parallel constitutional amendment. New Delhi, however, succeeded in inducing the states to adopt a subterfuge. Each state government was advised to proceed as if VAT were not a new instrument, but a refurbished version of the sales tax. The text of the sales tax statute was riddled with tortuous revisions in order to vest it with the content of a VAT. Nobody approached the Supreme Court or any of the high courts challenging this fiscal brigandage; the judiciary failed to take any suo motu action either.

The Centre could indulge in this highway robbery largely because one or two state regimes, which in the past were vociferous in their demand for a fundamental re-structuring of Centre-state relations in order to deepen and widen the capability of the states to have a greater share of the nation’s fiscal resources, chose, for whatever reason, to don the role of Judas. That was a great tragedy. It would be an immensely greater tragedy if the states — and political parties, in general, sensitive about states’ rights — allow, absentmindedly or otherwise, the smooth passage of the GST in Parliament and state legislatures.

It is a vast, far-flung country with a wide complexity of problems. These problems pile up every day at local and regional levels. Only the state governments and their lower rungs are in a position to assess the relative significance of these problems. If fiscal and monetary resources are totally controlled by New Delhi, they would be left in the lurch. What would eventuate is a proliferation of Central schemes, which might have little relationship with the expressed priorities of people for whom these are nominally intended. New Delhi would perhaps tag to each such project the name of this or that dignitary belonging to the dynasty at the head of the ruling party at the Centre and feel content with a great deal having been done. The sequel, nonetheless, could be setting in motion a million mutinies.