Column | GST compensation issues wear down India's centre-state relations

Finance Minister Nirmala Sitharaman

The frustration of states over the delay in payment of goods and services tax dues is a new worry for the Narendra Modi government which is battling crisis on multiple fronts.

Even though non Congress governments are more vocal in their demand for the finance minister Nirmala Sitharaman to make up the shortfall of states' due of Rs. 2.3 lakh crores this year, the BJP ruled governments too are also feeling the pinch.

But large states ruled by NDA like Uttar Pradesh, Bihar, Madhya Pradesh, Karnataka and Gujarat are privately requesting Nirmala Sitharaman and Narendra Modi to find a way out of the crisis, which has been caused by last year's economic slowdown compounded by lockdowns caused by the pandemic.

But the relation between the centre and the states is also less harmonious for other reasons.

States ruled by Congress and regional parties are complaining that the centre is tightening its grip over the federal system - whether it is in creating a common agricultural market or imposing the new education policy with its definition of the languages to be taught in schools  or arguing for primacy of university grants commission over state legislatures which have passed for establishing universities or of new mineral and environmental policies with more say for centre -  the big brother is becoming bigger by the day.

As the  arguments swelled over GST dues, the centre lacks a good go between who would deal with the states.

Normally it is the  home minister and  the finance minister who have maximum dealings with the state governments on the maximum number of issues. Apart from the prime minister, these two senior ministers, who also are members of all powerful cabinet committees, have daily contact with state governments.

While the team of Arun Jaitley as finance minister and Rajnath Singh as home minister managed the centre state relations in the first term of Modi government, both ministries got new bosses last year in Amit Shah and Nirmala Sitharaman. Shah has been busy during the past year with the Kashmir issue, internal security matters, coordination of central investigative agencies  and now the management of the Covid disaster.

Part of the year he had to run the BJP till his presidential term was completed. As the most important minister in the cabinet,  he has also been entrusted with many non-home related subjects like Air India privatisation.

From defence ministry, Nirmala Sitharaman walked into a warlike situation as the economic slowdown and global trade crisis impacted her first budget and she has been busy firefighting on multiple economic fronts. As she once explained, once an issue which looms as very critical gets sorted out, another issue comes as a challenge. She also stepped into the larger than life shoes of her mentor Arun Jaitley and comparisons were inevitable. Even now some state finance ministers are saying that it was Jaitley who had successfully conducted the GST negotiations by personally promising to ensure 14 per cent growth in annual revenues, and if the collections could not be met by the special cess on GST, the centre would compensate the states.

Planning commission vs Niti Aaayog
Sitharaman's suggestion that states can borrow the shortfall of Rs 2.3 lakhs from the Reserve Bank of India is seen as going against the GST spirit propagated by Jaitley.

The role of the finance minister became even more important in 2014 after the planning commission was dissolved and instead the consultative Niti Aayog was set up by the government. With the elimination of five year and annual plans, some of the functions of the planning commission disappeared, but other functions were transferred to the finance ministry.

The deputy chairman of the planning commission - occupied over the years by political  stalwarts like Manmohan Singh, Pranab Mukherjee, Ramakrishna Hegde, Madhu Dandavate, K C Pant, N D Tiwari - was a permanent invitee to the cabinet and would communicate the position of state economies to the prime minister and his ministers.

Even a bureaucrat like Montek Singh Ahluwalia, who was deputy chairman under Manmohan Singh for ten years had enormous clout because of his proximity to the prime minister and experience in government.

However, the deputy chairman of Niti Aayog does not a systematic interaction with states nor does the present incumbent Rajeev Kumar, an economist have a seat at the cabinet high table.

With the abolition of the five year plans, the national development council of which prime minister, senior ministers and all chief ministers were members, also has become defunct. It used to meet for approving the five year plan, where there would be serious discussion on the economy and role of central and state governments.
Though the prime minister has spoken to groups of chief ministers on the handling of pandemic and reopening of the economy after lockdown, he can address the concerns of the state governments by calling a conference of chief ministers on GST, rather than leaving it to finance ministers alone.
There is another economic time bomb ticking, the finance commission is finalising its delayed recommendations on the division of non-GST taxes like income tax and customs collected by the centre between centre and states.

When Jaitely was finance minister he asked the commission to consider whether the share of the centre should go up to finance expenditure on critical national security areas like defence and internal security.

With tensions on the borders and heightened internal vigilance, the centre's demand may be accepted by the commission. But that allocation would be at the expense of the share of the states. It is also an issue which needs a consensus in national interest.

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