CHANDIGARH- December 11, 2008: The Finance Minister of Punjab,S. Manpreet Badal, was the chief guest on the second day of the workshop on Centre-State Relations being held at Panjab University.Highlighting the importance of the topic in the backdrop of the recent Mumbai blasts, the Minister said, “The only way to make your opponent irrelevant is to continue with our economic resurgence and maintain a 7-9% growth trajectory”.
Quoting Iqbal, he referred to the whole process of planning as “husne tadbeer” as these were exciting times to be a finance minister. He was pained at the imbalance in centre-state relations particularly in the case of allocation of funds for development or administration, especially as the revenue raising powers were concentrated in the hands of the Centre. For instance, the Centre has the power to levy service tax. “At least the residuary powers regarding this should be given to the states,” he said. He looked at the Pay Commission as an “enrichment exercise for the Centre as 30% would go back to it in the form of taxes. Quoting statistics, he called for a matching devolution of resources from the Centre. The Finance Minister also referred to the “conditionalities” imposed by the Centre as a “carrot and stick policy” that left quite a few states out in the cold where centrally funded schemes were concerned. He was also critical of the fact that the developed states were victimised for this very fact when it came to resource allocation and most of these were funnelled to the less developed states, making it difficult to maintain the growth trajectory. It was a case of being put in the “boxing ring with both your hands tied”, not a happy situation especially with most states becoming “addicted to debt”.
The focus in the morning session was on Centre State Economic and Financial relations with special reference to inter governmental funds transfer, conditionalities on transfer of funds from the centre to the states and centrally sponsored schemes. The session was chaired by R.R. Shah, Member Secretary, Planning Commission and Ramesh Inder Singh, Chief Secretary, Punjab.
While introducing the theme and giving an overview of the various acts governing centre-state relations, Mr Shah spoke of the “eternal tension”, both horizontal and vertical, that exists between the various bodies of government, but referred to it as a positive development as it activated resource mobilisation as per the nuances of the requirements of each state. “A powerful centre would be able to ally itself with each state’s development by redistributing resources through the Finance and Planning Commissions. The conditionalities that are imposed have to be seen in light of the spirit of the Constitution – removal of inter-regional disparities, social inclusion et al,” he said.
Mr Ramesh Inder Singh, referring to India as a “quasi-federal system”, questioned this system particularly where resource allocation was concerned. Some of the policies of the Planning and Finance Commission and the allocation formulaes adopted tend to put certain states at a disadvantage. States that are bailing out the country should be given more money for capital investment on maintenance and upgradation of infrastructure, yet states that are lagging behind are being allocated more resources. It was not that a “think tank” was not necessary, but after the initial planning, the states should be allowed to decide “the length of the arm and the size of the pocket” rather than executive bodies, he said.
The speakers included Dr Sanjeev Mahajan, Chairperson, Dept of Public Administration, HP University; Akshay Sood, Special Secretary (Finance), HP; Dr. M.M. Goel, Professor of Economics, Kurukshetra University; Ajit Sharma, Financial Commissioner & Principal Secretary, Finance Department, Haryana; S.C. Agrawal, Principal Secretary (Finance), Punjab and Mohammad Syed Khan, Secretary, Rural Department, J & K.
Dr Mahajan focussed his presentation on issues pertaining to Himachal Pradesh based on certain criterion such as geographical, infrastructural, social and tax structures. For instance, the State was disadvantaged where its terrain was concerned, leading to increased infrastructural and administrative costs. “It is even disadvantaged because it is a peaceful state” as no extra allocations are done on this ground.
Mr Sood, elaborated on the previous speaker’s points, highlighting their presentation through pictures, particularly illustrating the disadvantages of terrain and weather. He stressed the crippling effects that the 6th Pay Commission would have on the State as it is already a “severely debt stressed”. He referred to the imbalance of “resources available and expenditure liabilities” and called for a lenient look where the hill states were concerned. On a general level, he felt that “states should be allowed to chart their own paths of development within the framework of national priorities”.
Dr Goel, quoting the Bhagvad Gita, which he called a “treatise on relationship management”, felt that there was a need to “trust each other” as there is always “scope for co-ordination”. “The discretionary transfer of funds needs to be increased without political bias,” he said. He felt that conditionalities were required to prevent leakages and under-utilization of resources by the states as also a monitoring mechanism by independent authorities, perhaps academic bodies.
Mr Sharma, giving an overview of the fiscal reforms programme in Haryana, said that the next few years are going to be “traumatic” because of the 6th Pay Commission. “There is a vertical imbalance in the capacity of the state to raise revenue and its expenditure liabilities,” he said. Though in favour of centrally funded schemes, he was critical of the monitoring mechanisms and the fact that more than half of the central assistance is not formula based but dependant on the discretion of the Centre. “A much better plan outlay would be segregation into Capital and Revenue,” he felt.
Mr Agrawal said that Punjab would become the “slowest growing state in the country” once the 6th Pay Commission comes into effect. He was critical of the fiscal relationship between the centre and the states which has led to an ever-increasing debt burden on the state, leading to a situation where even essential expenditures cannot be met and this was tragic as it smacks of dereliction of duty. Meanwhile, he called for “investment in research if a sustained quantum jump is to be ensured”, he said.
Mr Khan, critical of the conditionalities, rued their linking to completion of certain activities at the state level before grants are released by the Centre. “Half of the panchayats do not even have ‘panchayat ghars’. At least a basic logistic support system should be put in place,” he said. Citing his state as a ‘special-category’ one, he pointed that that there was no scheme to generate employment during the winter months when most of the populace is sitting idle.
The audience was unanimous in projecting the need to put a humane face on centre-state relations and greater self-sufficiency on the part of the states where resource generation is concerned.
The post-lunch session, chaired by Dr. S.S. Gill, Professor of Economics, Punjabi University and Dr. Anjan Roy, Advisor (Economics & Research), FICCI, was devoted to centre-state economic and financial relations with special reference to unified and integrated domestic market.
While introducing the theme, Dr Gill focused on certain issues of conflicts such as SEZs and mega projects. “There should be independent authorities to ensure their completion without being at the mercy of changing governments,” he said. He also suggested certain changes, such as: the share of states in funding for developmental purposes at the grassroots to be constitutionally laid down as 50% instead of the current 33%; darin of resources through tax leakage to be addressed. Punjab itself loses upto 3500 crore on this account.
Dr Roy called upon everyone to capitalise on the 1billion strong market and also cautioned against forces that cut into it.. For instance, agriculture will determine the pace of India’s economy and there is a strong need to develop it. “In fact our 13% inflation was spearheaded by it,” he said. Simplification of the tax structure and its nationalisation is also another important area for India’s unified market. “Cascading taxes should be done away with and dual GST promoted out of all the current options.” He also felt that the issue of housing, inclusive of townships, needs to be addressed as it is a parameter of economic activity. “Our model is now private sector development and this is where the states can best harness their resources,” said Dr Roy.
The speakers for the afternoon session included Prof. Shiv Raj Singh, Department of Public Administration, Dean, Faculty of Social Sciences, HP University; Anil Khachi, Secretary (Election), HP and R.N. Sharma, Additional Excise and Taxation Commissioner, HP; Dr Kuldeep Singh, Prof. of Economics, Kurukshetra University; Dr. Rekha Saxena, Associate Professor, Centre for Federal Studies, Hamdard University; B.K. Srivastava, Director General, Mahatma Gandhi Institute of Public Administration; Punjab and Prof. Mohammad Altaf Mir, Department of Law, Kashmir University.
Prof Singh spoke on the need for greater financial devolution to the hill states, especially in terms of the economic environment today..
Mr Khachi and Mr Sharma aired the views of the state government when they stressed the need for reallocation of fiscal resources. They called for reform in VAT and were critical of a national GST which was against the spirit of decentralisation. They also stressed the necessity of creating an authority under Article 307 to carry out purposes of free trade and commerce.
Dr Singh called for concentration of all forces to promote liberalisation, privatisation and globalisation. “For this the role of politicians should be discouraged. Instead experts and academicians should be encouraged to spearhead the reforms required for comprehensive national growth,” he said.
Dr Saxena called for some say of the states in the constitution of the Planning and the Finance Commissions.
Mr Srivastava emphasised on the “importance of the consultancy mechanism” in any issue of policy and a need to understand “barriers” – usually for curtailing tax evasion. He called for the setting up of a ‘National Market Integration Council’ where issues of federalism can be taken up under one umbrella head. “If decisions are taken at the top, they will usually be prescriptive in nature. The need is instead for inclusive discussion and development,” he said.
Prof Mir focussed his presentation on market integration.
In his concluding remarks, the Vice Chancellor, Prof. R.C. Sobti, taking up the cause of Panjab University, spoke of discrimination in the education sector where resource allocation to universities was concerned. He rued the poor monetary status of the University despite it being amongst the top four universities of the country. “If we are adhering to all the dictates of the Knowledge Commission, why can’t concominant funds be allocated,” he questioned.
Mr. Kanwar Sandhu, Resident Editor, Hindustan Times, referring to the opportune timing of the workshop, commented on the comprehensive terms of reference of the Punchhi Commission that have taken those of the Sarkaria Commission forward. He suggested that the recommendations of the current Commission be divided into two parts – ones that needed prompt attention and others that called for long-term implementation – otherwise they might just be sacrificed at the altar of electoral vagaries. He gave an overview of all the issues that trouble centre-state relations, whether they be those to do with fiscal resources, drug peddling or terrorism.
In his Valedictory address, His Excellency, Dr A.R. Kidwai, Governor of Haryana supported the contentions of the Vice Chancellor. He also stressed the need for cooperation if the country was to tread a holistic path to growth and called for the Commission to analyse how best the resources available could be utilised as these were the “urgent needs of tomorrow as also today”.