Column | Cooperative federalism vital to Indian economy's revival

Finance Minister Nirmala Sitharaman and former PM Manmohan Singh

Prime Minister Narendra Modi's admirers claim that when he is about take a major decision on a topical subject, he becomes silent or expresses very few words. Thus some of his ministers and officials think his comparative silence on the economic slowdown, compared to the volubility of his ministers, indicate that he is on the cusp of announcing a big decision.

As the economy itself is gasping for collective action of governments and industry, with GDP growth sliding down, critics led by former PM Manmohan Singh are vociferous. The 36 decisions announced by Union Finance Minister Nirmala Sitharaman to boost growth in the last three months are yet to take effect, given the extremity of the decline which has affected all sectors despite increased spending by the central government.

The Economic Advisory Council to the Prime Minister (PMEAC) headed by Bibek Debroy, the Vice-Chairman of NITI Aayog Rajiv Kumar, and the government's own Chief Economic Advisor K V Subrahmanian have sent copious proposals on steps to be taken for revival.

The finance ministry is also leaning on both the Reserve Bank of India and the Securities and Exchange Board of India (SEBI), both based in Mumbai, to come up with steps to encourage flow of credit and investment by banks and companies. But both the bodies are struggling with regulatory issues. The RBI is concerned about the health of banks, after the collapse of the Punjab and Maharashtra Cooperative Bank, and the stress faced by private banks. The SEBI which controls listed companies is busy with investigating frauds by companies as well stockbroking agencies.

While Manmohan Singh lamented on the fractured social condition as one of the main reasons for economic deceleration, industrialist Rahul Bajaj said there is an atmosphere of fear among investors. Strong Modi critic and former BJP finance minister Yashwant Sinha has insisted that the "death of demand" will take three to four years to recover. The government is also grappling with the disorder in global trade, as binding agreements under the World Trade Organisation are no more sacrosanct for countries like the United States of America, which is having its own trade disputes with many countries including India.

Finance Minister Sitharaman is the one facing the most intense heat as senior BJP leader Subramanian Swamy, another aspirant for her job, has been criticising that Modi's naivety on economic matters is being exploited by his ministers, who either do not know the bitter truth or are afraid to tell him. The proceedings of the cabinet show that the most important committee on economic affairs -- the Cabinet Committee on Economic Affairs -- which has all ministers dealing with economic and infrastructure subjects, apart from the Home and Defence ministers -- has not had a full discussion on the economic slowdown. Sitharaman has however defended saying pressing issues in each sector of the economy are being addressed.

No dialogue on Cooperative Federalism

As the blame for the slowdown is being only put at the door of the central government, far less attention is given to what the states can do to improve the economy. Though Modi has spoken of cooperative federalism, which was evident by the centre-state consensus on GST, efforts to remove other bottlenecks for economic development, there has been no major dialogue so far.

The National Development Council, headed by the Prime Minister, and having its members all chief ministers of states and administrators of Union Territories, as well as key central ministers, would have been a good forum to discuss economic slowdown and work out a national plan. But its last meeting was held seven years ago in December 2012 under the chairmanship of then-PM Manmohan Singh to finalise the five-year plan. After Modi came to power, he had dismantled the Planning Commission and established the NITI Aayog in its place, reasoning there would be greater autonomy and fund transfer to states.

But the Council was a useful forum for chief ministers belonging to different political parties to give their inputs on resolving economic issues, and for the centre to persuade states to initiative their own reforms, which would be supplementary to the efforts of the centre. Interestingly, economically significant states like Maharashtra, Gujarat, Tamil Nadu, Uttar Pradesh, Karnataka, Telangana and Delhi have not woken up to the seriousness of the deceleration so that they could revamp their own policies. These states are affected more by slowdown due to partial or full closure of small, medium and heavy industries.

Just as the PM attends the G20 summit of advanced countries to discuss the state of the world economy, he needs to take an initiative for summoning a G36 within India - a group comprising of the centre, 28 states and 8 Union Territories -- (updated figures after the status change of Jammu and Kashmir and its bifurcation into two UTs and the merger of UTs Dadra and Nagar Haveli & Daman and Diu.) A national brainstorming and consensus to tackle the slowdown has become necessary. Political parties too need to be involved in the process.

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