State it like it is

There is unnecessary confusion over the devolution of central taxes which is bound to fuel unnecessary suspicion in the states. Their dema...

There is unnecessary confusion over the devolution of central taxes which is bound to fuel unnecessary suspicion in the states. Their demand for a higher share of central revenues was made decades ago. Years have gone by since the recommendations of the Tenth Finance Commission were made. Subsequently, obligatory discussions with state governments were completed and the 29 per cent formula was adopted. Even allowing for frequent changes of government at the Centre, there has been plenty of time to dot the i8217;s and cross the t8217;s in preparation for putting the new formula to the vote in Parliament. That was scheduled to take place last year and it was therefore assumed the Bill had been examined with a fine toothcomb and everything found in order.

Long delays and the tortuous process of implementing the Finance Commission8217;s recommendations have worn the patience of state governments very thin. It must come as something of a shock now to be told there are technical hitches, a conflict between the FinanceCommission8217;s use of words and the Constitution8217;s. One refers to a proportion of 8220;gross8221; receipts and the other to 8220;net8221; receipts.

It is bound to be asked how this important difference slipped the attention of the highly paid mandarins in the Finance and Law ministries all these years. And having stumbled on the error, the least the Central government could have done was to announce a clear cut remedy at the same time. If the states are to get 29 per cent of net receipts of all but a few central government taxes they will get Rs 2000 crore less than they had anticipated. This will dismay all state governments. Minister for parliamentary affairs, Pramod Mahajan, has assured them that provision has been made to compensate for the shortfall. What provision? How can the states be sure it will be adhered to? Will this 8220;provision8221; rise as Union government tax receipts rise? These are the kind of questions being asked. Whatever be the Centre8217;s method of making up the loss to the states it does not seempossible that it will be underwritten by statute and therein lies cause for concern.

Some states may want to dispute the revised devolution formula. In that event the whole process will be stalled again. That would be a great pity because the issue has been hanging fire for far too long and, the equity principle apart, there is desperate need in the states for the infusion of more funds. When it comes to such issues it is better for the Centre to talk the problem through with the states. It makes sense to seek their cooperation rather than merely announce a Union cabinet decision and expect it to stick without trouble. Even though it may only be an attempt to correct an error, the Centre should know better than to take unilateral decisions on subjects as crucial as state finances. Many sensitivities are involved. The states are rightly jealous of their statutory rights and believe they have been denied a fair share of central revenues for decades.

Centre-state relations can only get better when eachside displays a healthy respect for the other. The National Democratic Alliance which is a mosaic of regional interests should understand this better than others.