The Political Fix: GST to Covid-19 vaccine – what the Centre-state battles tell us about India

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The Big Story: Centri-fugue

Granville Austin, the renowned scholar of the Indian Constitution, described the representatives of the Constituent Assembly from various states as being “members of a family, who for the first time were in possession of their own house, and as a result had to find a way to live together”.

Prime Minister Narendra Modi, like others who have governed the country with immense popularity and a Parliamentary majority, appears to have embraced the role of the patriarch in the Indian family, putting forward a simple refrain: my house, my rules.

Take a look at the number of tussles involving the Centre and the states over the last few months:

• GST compensation: After illegally treating the funds collected by the Goods and Services Tax compensation cess as its own funds in years when there was a surplus, the Centre – citing Covid-19 and a massive tax and cess shortfall – insisted that it did not have a responsibility to pay states their share. It then used a mix of leaks, dodgy calculations, heavy-handed behaviour in meetings and threats in the hope of having to avoid paying what it was legally required to, before partially caving to a portion of state demands. Shoaib Daniyal explores this in greater detail here.
• Jharkhand debit: The Centre ordered the Reserve Bank of India to automatically debit Rs 1,417 crore from the state’s account and move the amount to the Centre, as the first instalment against outstanding dues to a Central public sector unit. Though the Centre invoked a tripartite agreement with the state and the Reserve Bank of India , the act of debiting state funds even as the amount was under dispute – and as New Delhi has itself failed to repay legally mandated amounts under GST to states – is a reflection of the manner in which “cooperative federalism” is being perceived.
• Farm Bills: The Centre bulldozed three far-reaching farm laws through Parliament – without even checking to see if the legislation had sufficient votes in the Upper House (which we covered when it happened). That action, plus the fact that the laws involved no consultation with the states even though they are nominally in charge of agriculture, prompted Opposition-ruled assemblies in Punjab, Chhattisgarh and Rajasthan to consider legislation to reverse the Centre’s decisions. Those efforts may well be short-lived, since they need assent from the President who will most likely refuse. Yet they reflect a severe breakdown in Centre-state cooperation on an important subject, raising questions about the sustainability of Modi’s efforts at “reform”.
• Central Bureau of Investigation: Maharashtra has withdrawn the general consent given to the Central Bureau of Investigation to inquire into cases in the state, saying it fears that the agency is being used by the Centre “to settle political scores”. This forces the CBI to get consent on every single case it wants to investigate in the state, and is a reminder of how India’s premier investigating agencies, including also the Enforcement Directorate, are now even more widely believed to be political tools for the Centre than they were before.
• Covid-19 vaccine: Union Finance Minister Nirmala Sitharaman announced on Thursday that the very first promise made in the Bharatiya Janata Party’s manifesto for the upcoming Bihar elections was to deliver a Covid-19 vaccine for free to all residents in the state, if the party returned to power. It quickly emerged that the Union government had not yet engaged in a discussion with the states on how it plans to distribute a potential vaccine, how much it would cost or from where the funds will come. To make things worse, the first glimpse of what the Union’s approach would be came from Amit Malviya, the head of the party’s IT Cell and a well-known purveyor of false propaganda, rather than from a minister or bureaucrat. The development suggested that the Centre was even willing to play politics over a Covid-19 vaccine, instead of consulting with the states and working out a solution.

Is Indian federalism in crisis?

But this major breakdown in trust and coordination between Centre and states has been overshadowed by the profusion of crises India is struggling to handle – the Covid-19 pandemic, an economic downturn made worse by the lockdown, a migrant crisis, China threatening Indian territory in Ladakh, religious tensions sparked by the ruling party’s political approach.

Referring to the handling of the GST issue alone, M Govinda Rao, member of the 14th Finance Commission and former director of the National Institute of Public Finance and Policy, wrote:

“The way the entire episode has been managed smacks of gaming and strategy in a period of crisis which does not augur well for the future of the Union-state relationship…

Reneging on the agreement, by not recognising the Centre’s commitment, will make states wary of any future reforms involving an agreement with the Centre. Second, giving selective press statements from time to time by ‘officials’ and ‘sources’ to pressurise the states into accepting one or the other option does not infuse confidence…

This issue is of immense significance for the future of Centre-state relations. This is not merely a matter related to compensation for the loss of revenue, but has to do with the credibility of honouring the agreement… Pressuring states on the basis of political strength will have adverse consequences for the country’s federal structure.”

In a different time with a different dispensation in charge and a more watchful national newsmedia, this combination of headlines would have at least led to more questions being asked about the Centre’s ability to bring states on board for its efforts.

In the Modi era, developments like these are brushed off as examples of anti-BJP political opportunism.

Take the farm laws. It is undeniable that the national Congress position in previous elections echoed the legislative changes that the current government eventually passed, making the pushback from former president Rahul Gandhi and the rest of the party seem like hypocrisy – much like the BJP’s own opposition to GST in the past.

But they could very well be looked at in a different context.

For one, the Congress – historically opposed to decentralisation and federalism in India – has been forced to champion states rights much more over the past six years, since it is in this arena where it remains much more politically relevant, partly through the efforts of state leaders like “Captain” Amarinder Singh in Punjab and Ashok Gehlot in Rajasthan.

The other side of that coin is that the public has, in a sense, asked for this pushback. Remember, the Bharatiya Janata Party’s record in state elections has been rather poor since early 2017, despite the party explicitly campaigning on centralisation, through its proliferation of “One Nation” taglines.

Even as Modi remains massively popular at the national level, aided by tremendous control of electoral funds and mass media, Indian voters have made it clear that their support doesn’t automatically translate into an unconditional embrace of all BJP leaders or policy positions.

Political scientist Neelanjan Sircar, who we spoke to on the Friday Q&A a little while ago, has argued that it is in fact the centralisation within the BJP, where all power now rests with Modi and Home Minister Amit Shah, that has made the party’s state leaders weaker. And this, in turn, explains why both political and administratively, Modi and Shah are doing everything they can to suppress the aspriations of the states and regional parties.

“This hollowing out of [BJP] state units to strengthen the party at the Centre, also generates incentives for the central party to use its institutional heft to bully its rivals at the state level,” Sircar wrote in December 2019. “Many commentators have claimed that competitive state elections have shown that the BJP is not as hegemonic as many claim. Whereas the above logic now shows that the BJP is hegemonic in nature precisely because of it.”

This is a worrisome development for Indian federalism, because it has thrown into doubt the ability of even an organisation like the GST Council to manage competition Centre-state tensions. The council was touted as an ideal model of Indian federal institution-building, one that ought to be replicated in other policy-making verticals that require coordination.

Yet, unlike the fear expressed by former Chief Economic Adviser Arvind Subramanian that the states would “defect” from the GST system, the Centre turned out to be the one reneging on the deal – raising questions about how this much-touted institution can be expected to bear the weight of Centre-state tensions over coming years.

At the start of 2020, the Political Fix asked if federalism and the “states vs Centre” battle would dominate Indian political talk over the coming decade. We haven’t had to wait long to witness a disturbing breakdown in trust, with little hope that the Centre has any intention of accomodating interests beyond its own anytime soon.

Read also: Our Friday Q&A with Yamini Aiyar, who heads the Centre for Policy Research, from two weeks ago focused on Modi’s centralising tendencies and what that means for federalism and accountability.

Flotsam and Jetsam

• Ajai Shukla reports that China has offered a potential deal to India that would allow the armies of both countries to disengage in Eastern Ladakh ahead of the inhospitable winter conditions that would make deployment a dangerous challenge. The catch: This would mean a new Line of Actual control that gives up territory to the Chinese, though Beijing has reportedly offered to let New Delhi claim some sort of victory as it did in the Doklam crisis, even though China kept the upper hand.
• Even though US elections are barely a week away, the Secretaries of State and Defense will arrive in New Delhi on Monday for talks with the Indian defence and external affairs ministries as part of the 2+2 dialogue, a reflection of the importance of Indo-US ties to both sides.
• The Union Cabinet is expected to take up the proposal to define new “strategic sectors” and “non-strategic sectors” some time over the next few weeks. This would create the impetus for the government to privatise all of its assets in the non-strategic ones and keep “one to four” public sector enterprises in strategic ones, like banking or insurance.
• Senior BJP leader Eknath Khadse quit the party and switched to the Nationalist Congress Party in Maharashtra this week, claiming that former Chief Minister Devendra Fadnavis had “destroyed his life” by attempting to frame him on charges of rape.
• In what some are seeing as a sign of the wind blowing in favour of the Trinamool Congress in West Bengal, Bimal Gurung, the head of the Gorkha Janmukti Morcha who had been on the run from authorities since he led a statehood movement for Gorkhas in Darjeeling, cut his ties with the BJP and extended his support to Chief Minister Mamata Banerjee ahead of the 2021 West Bengal elections.
• Rashtriya Swayamsevak Sangh chief Mohan Bhagwat said India needs to be better militarily prepared against China in his annual Vijaydashami speech, with National Security Advisor Ajit Doval echoing his sentiments.

Can’t make this up

This week’s ‘Can’t make this up’ brings you some alternative South Asian history:

Plus, some classic Indian jugaad:

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