Continuing with my previous such posts and pointers, here is another superb paper from Prof Govind Rao. The more you read on Federalism area the more intrigued it becomes. It needs an understanding on so many areas- economics, finance, history, geography, law, culture, institutions and the list goes on and on.
Prof Rao gives a nice primer on how Indian Federalism has evolved and where it is headed:
This chapter deals with the evolution and working of Indian fiscal federalism. Many observers characterize India as a “quasi federal” country due to its heavy centripetal bias.2 The political environment at the time of Independence and the adoption of a public-sector strategy dominated by planned development led to the creation of a multilevel fiscal system with a high degree of centralization. The adoption of market-oriented reforms in 1991 brought out the contradictions between the functioning of markets and the centralized fiscal system. It also underlined the difficulties of subnational governments financing the basic social services and physical infrastructure assigned to them. The growing inequalities in the provision of public services in a market- based environment, leading to sharply widening regional disparities, have also necessitated reforms in intergovernmental transfer systems.
Indian fiscal federalism faces formidable challenges due to economic liberalization and globalization. Creating a competitive environment by providing efficient infrastructure is a major challenge, especially in light of the severe fiscal stress faced by the states. The problem is particularly severe for poorer states. Finding appropriate substitutes for declining customs revenue, reforming the tax systems to enhance revenue productivity while minimizing distortions, and ensuring a common market in the country are important challenges. Designing the transfer system to arrest sharply increasing inequalities in service standards also needs to be addressed sooner rather than later. The emergence of coalition governments at the centre and regional parties in the states, the latter becoming pivotal members of the coalition, and the declining time horizon of political parties and politicians also present serious issues for the functioning of Indian fiscal federalism.
Actually when you read such stuff you realize the vision of the founders of the nation. I mean to set up a constitution like India’s and think about issues back then is no small feat.
One is only awed to read all this stuff on Federalism and how it has moved in India. It gives you a sense of why most reforms which have been done so far are in the Centre’s domain – International trade and commerce, banking, finance, commerce, etc. Hence it was easier to do. Things like healthcare, water, law, environment, agriculture etc are either in domain of state or concurrent list. Hence much more difficult to do and get going. Some states have which have managed to reform have grown, others have remained laggard.
The future of economic reform will only get more interesting with many political parties and regionalism. And perhaps we are only seeing a trailer now.
