Friday, Oct 07, 2022

Spending limits

Centre needs to re-evaluate its expenditure priorities. States should have the autonomy to decide on theirs

floods in india, maharashtra floods, maharashtra floods news, kerala floods, assam floods, bihar floods  Rather than setting up an expenditure council, perhaps a better alternative to mediate intergovernmental relations, one which reflects the federal nature of the polity, is the Inter-State Council

An argument has been made, most recently by Bibek Debroy, chairman of the Prime Minister’s Economic Advisory Council, in an interview to this paper, for the creation of a body on the lines of the GST Council to oversee public expenditure in India. Given the limits of public spending owing to issues of fiscal consolidation, this argument goes, there is a need to rationalise and prioritise spending by the Centre and state governments. To be sure, there is a case for greater coordination in spending by different levels of government. But, in a federal architecture, shouldn’t states have the autonomy to decide on their own spending priorities? It is debatable if setting up a new body to monitor public expenditure is a prudent approach to negotiating Centre-state relations.

The Seventh Schedule of the Constitution clearly lays out the separate as well as joint responsibilities of the central and state governments. But, over the years, successive governments have encroached on the space of states. Studies have shown that despite state governments accounting for around three-fourths of the total expenditure (Centre and states) in sectors such as agriculture, education and health, central government intervention in these areas has increased, leaving it in the peculiar position of not having enough funds for spending on items in the Union list such as defence. This has occurred even as the relative size of the central government has shrunk, while that of states (put together) has surged. This raises pertinent questions: First, if the Centre wants greater resources for spending on items in the Union list, shouldn’t it draw back on its expenditure on items in the state list and re-orient its spending? Second, in a federal system, shouldn’t states have the freedom to decide on their expenditure priorities in line with their developmental needs?

Moves such as these, seen in tandem with the Centre asking the Finance Commission to sequester resources for defence and internal security, are bound to raise anxieties over India’s federal architecture vis a vis the government’s centralising impulses. It might be seen as an attempt by the Centre to grab even more space at the expense of the states. State governments have already ceded part of their taxation powers with the shift to GST — they may resist yielding to the Centre on items falling exclusively in their domain. Part of the problem is that India does not have robust institutions to negotiate Centre-state relations. Rather than setting up an expenditure council, perhaps a better alternative to mediate intergovernmental relations, one which reflects the federal nature of the polity, is the Inter-State Council. Set up in 1990, following the recommendations of the Sarkaria Commission, the primary duty of the Inter-State Council is to investigate and discuss subjects where the states and the Union have a common interest. Rejuvenating this council — its last meeting was held three years ago — should ideally be the first step.

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First published on: 21-08-2019 at 12:14:30 am
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