Buried somewhere in all the palaver about the UPA’s legacy and India’s path to becoming an economic superpower, Finance Minister P Chidambaram quietly slipped in a handful of measures that give this interim budget an outsize importance. His move to transfer substantial control over spending on centrally-sponsored schemes such as Sarva Shiksha Abhiyan and employment guarantee to state governments has the potential to alter Centre-state dynamics dramatically. Unsurprisingly given the political environment, his motives are suspect. The move could be a scorched earth tactic, denying social sector ministers of the incoming dispensation — even in the view from the Congress benches, likely to be headed by the BJP — the power they have hitherto wielded. Equally, it could be a last-minute appeal to regional parties that have been pushing for more control of social welfare schemes. But there is a larger picture here: regardless of the logic behind it, it’s a step in the right direction.
The strain is beginning to tell in the growing disjunction between political and economic power, catalysed by liberalisation and perpetuated by institutional mechanisms rooted in pre-1991 context. A steeper growth trajectory catalysing regional and sub-regional aspirations has changed the political landscape considerably since then. The Congress and the BJP are now beholden to regional parties punching far above their weight; there is no putting that genie back in the bottle. Concurrently, regional parties and state units of national parties find themselves with a greater burden to deliver when it comes to governance and growth. Caste alliances and the politics of patronage alone are no longer enough to retain power. And they have stepped up in many instances. Standout social sector and governance initiatives have come at the state level — from Chhattisgarh’s e-governance systems and PDS revamp to Madhya Pradesh and Bihar’s effectiveness in boosting girl child education.
What the states have lacked is a control over the purse strings and policy formulation that is commensurate with their financial clout and their obligation to voters. This is bad governance — given vast socio-economic disparities, state governments have a far better chance of formulating and implementing social sector spending schemes effectively than the Centre — and it is bad politics, ratcheting up Centre-state tensions. Those tensions are echoed in the current Telangana mess and issues like the National Counter Terrorism Centre and the Lokpal Bill that have become flashpoints with state governments pushing back hard against what they perceive as encroachment on their turf by the Centre. And they are hobbling the Centre in other ways as well — West Bengal and Tamil Nadu holding relations with Bangladesh and Sri Lanka respectively hostage, for instance.
Getting the balance right won’t be easy, but ignoring the need for it is not an option. While revenue sharing and social sector spending formulas will have to keep the need for supporting financially weak states in mind, there must be enough devolution to allow for the fact that growth patterns have become increasingly localised. And from a macro perspective, giving states the power to compete — the idea of India as an investment destination is something of a misnomer now with investors looking at a more granular picture, picking and choosing states that give the best value for their money — can spur greater growth. Chidambaram’s initiative must be seen as the first step in a necessary rejigging of power dynamics.