By Dr Dhanabir Laishram
This article was originally published by the E-pao on 21 Oct 2012

In the first clause of our constitution defines our country as "India, that is, Bharat is a Union of States". The federal structure of our constitution flows from this definition and has been upheld by the apex court as a basic feature of our constitution. Over the years, there has been a steady erosion of the rights of the states and federal character of our constitution is being, slowly but steadily, converted into a unitary state structure. In other words maximizing zone of interference to the state by the centre is increasing more and more. It is also one of the factors of increasing political violence in the NE India. Even maximum contentions of agreement in between GoI and NSCN (IM) and even ULFA's talk in their ongoing peace process are also for bringing real federal relationship.

Patrick Hoeing, currently working on a project on federalism and identity in India, with a special emphasis on Jammu and Kashmir and Northeast India, of the views that Federalism as a complex multi-layered system of governance has gained prominence in a discourse that is increasingly becoming polarized between attempts at building on the strengths of diversity in the pursuit of a multicultural society and tendencies of excluding identity markers seen as extraneous to the notion of the nation. Depending on the harmony that is struck in a particular (national) context, federalism is being portrayed as a recipe for meeting the demands of territorially based communities for autonomy or a resting point on the road to secession.

Academics usually argue one side of the case or the other, but the connective tissue between federalism and identity has rarely come under the scanner of political analysts and constitutional experts. His presentation is mainly concerned with to break new ground on the nexus of the two areas, which have generated considerable research interest separately, but hardly for the relationship have they shared. Moreover, in the context of ethnic identity claims, it has often been argued that discussing the principle of federalism, in whatever form, will not make a decisive difference for people who are determined to break away from the host state. There is force in this argument and yet, from a conceptual standpoint, self-determination and federalism overlap. The principal reason for peoples to aspire to borders of their own is the imposition of overly narrow limitations on their aspirations in existing political frameworks (Patrick Hoenig)

India sprang to life as anything but a natural federation. It was conflicted by strong regional aspirations within and ill-defined borders without; pockmarked with, as the national political elite would have it, yet to be integrated princely states; and released into independence after a long hard struggle, amid the pain and horrors of partition. In the period leading up to the Great Partition of 1947, the South Asian sub-continent was overflowing with ideas of what shape it could take. In the margins of colonial high table politics, there was no limit to visions and counter-visions of how to reconfigure the space that was soon to have been British India. Governance models that had a lot in common with what would later be called consociationalist schemes were in free circulation. Some historians blame the political leadership, in particular, depending on the ideological outlook, Nehru or Jinnah, others cite considerations of political economy, but whatever the reason, a confederation did not come to pass. The crown colony India disintegrated into what came to be India, Pakistan (East and West) and Burma. As a result, centre-state relations in India (as well as Pakistan) are characterized by an uneasy mix of unitary tendencies and regional aspirations.

Both India and Pakistan are routinely cited as federal countries in handbooks on federalism, but rhetoric aside, in deciding on the vertical dispensation of power, the Indian polity acted on two contradictory impulses. On the one hand, it tapped into a deep well of pride that finds expression in the celebration of ethnic, religious, linguistic and cultural variety, such a distinct feature of South Asia. On the other hand, India's political class harbours, since partition, a deep sense of wariness toward all political manifestations turning in the direction of secession. It appears that federalism, though not quite as dirty a word as autonomy in post-war Sri Lanka, is seen by the Indian political establishment as a necessary evil rather than a political asset, a notion largely unchallenged by opinion-makers and the public at large. Meanwhile, alternative viewpoints exist. If federalism were to be considered as a theoretical framework for 'government of complexity', diversity might indeed overtake unity as an ordering principle of society.

The objections raised in respect to India's qualification as a federal state are threefold. Historically, the drafting committee was known to be given to centripetal leanings, which explains the introduction of provisions allowing for direct central intervention in state affairs, notably by means of President's rule. Legally, the power of national parliament to unilaterally slice new states from the territory of existing ones, "increase" or "diminish" the area or "alter the boundaries of any state" runs counter to the notion of clear delineation of powers, a prerequisite of a federal system (it does not matter much that state legislatures can express their views on any such decisions because they do not have the power to veto them). He concluded that "In short, politically, the centre of gravity has been steadily leaning towards the Union government in nearly all vital fields of policy-making, including security, welfare, development and education."

The Indian brand of federalism is vital for a comprehensive understanding of the way regions relate to each other and the centre. But to the extent federalism requires flexibility, cooperation and sophistication its level of implementation is also indicative of the central government's ability and preparedness to accommodate societal complexity. India, like Canada, constitutes an asymmetrical federation in the sense that some states have constitutionally guaranteed prerogatives setting them apart from the other states of the federation. However, in the case of India, rather unlike Canada, the affording of special status to a group or territorial entity never came easy. It was routinely preceded by hard bargaining, political turmoil and, in the lead-up to the creation of states of NE, armed struggle. Of the numerous unresolved puzzles in Indian security analysis, perhaps the most baffling is the geographical match of 'disturbed areas' allegedly requiring special laws and constitutionally recognized territories holding special autonomy. From that angle, the introduction of asymmetrical federalism may very well be seen as a ploy to help make a case for the denial of constitutional rights—notably the right to life—to people considered to be a threat to the state and therefore undeserving of protection (Patrick Hoeing).

The proposition of NE look at the inherent qualities of federalism would be valid question to resolve the vexed problem of political violence in the region. The best example is special federal relationship which was demanded by NSCN (IM) in this on going peace talk. Moreover pro talk group of ULFA also demanded like special federal relationship with the centre after the group dropped its primary demand for sovereignty. The group demanded constitutional and political arrangements, protection of the identity and material resources of the local indigenous population of the state besides financial and economic arrangements such as settlement of all royalties on mines, minerals, including oil, on a retrospective compensatory basis and rights of independent use for a sustainable economic development in future. Even it includes development of native force to man the borders and ethnic issues (The Sangai Express, 5.4.2012).

The constitution of India is federal in form unitary in spirit. So it is also known as quasi-federal. But on the other hand strengthening the federal system is necessary for satisfying the demands and aspiration of the people who are governed through state government and for transforming conflict situation of various states of India having political violence (Dhanabir L 2011). Therefore, centre-state relation is the arrangements between the union government and the states in regard to their powers, functions and responsibilities have always been a crucial issue. The basic structure remain to be one where legislative, administrative and financial powers are disproportionately concentrated in the union government with the states having a large number of responsibilities without sufficient autonomy. Along with significant socio-economic and political changes occurring in the post independent period, centre-state relations have also undergone some changes. The period since 1991, which witnessed a paradigm shift in the economic strategy from planned development to a market-oriented one, has also thrown up new issues and challenges for the federal setup. These have an important bearing on the functioning of our democracy as well as the well being of our people (Dhanabir L 2009).

The need for a thorough restructuring of centre-state relations, in order to correct existing imbalances and strengthen the federal system by empowering the states with genuine autonomous, is therefore being felt strongly. But it is still a controversial matter whether federal form of government would be more suitable for India, though a federal government has been established in India. So a small states having small number of MPs, always make argument that their representatives could not be Prime Minister and President, even cabinet minister in the union government from cradle to grave of political history of them because number of representation is based on population in this existing political system of India. It means that the small states like Manipur, Nagaland and Mizoram can't get such prestigious head of state and real executive of India.

Thus, the people of North East has always held that while the state structure in India is federal in name, most powers and resources are concentrated in the hands of the central government. It is also one of the important factors for the cause of political violence in the NE. The best example is demanding of autonomy by maximum numbers of insurgent group in NE except Manipur. Even one has witnessed that reactions coming out from the chief ministers of various states of India when Home Minister issued the order of constituting a National Counter Terrorism Centre(NCTC) located in the Intelligence Bureau(IB) in the states, NCTC has been given the powers to arrest and to search under the Unlawful Activities (Prevention) Act, 1967. The NCTC has also been given the power to set up Inter-State Intelligence Support Teams. But the 'public Order' and 'police' is a state subject under the constitution of India, this action of the MHA amounts to encroachment upon the powers of the states. Similarly, some of the state governments have correctly come out against the proposed amendment in the Railway Protection Force Act which would confer the powers of state police offices to the RPF, which is violative of the constitutional division of powers between the centre and the states. Some of the valid points could be found in the following discussion.

What happened on 16 April 2012 at New Delhi meeting of the chief ministers on internal security convened by the Union Home Ministry? All the non-congress state's chief ministers opposed center's move to set up the National Centre for Counter Terrorism. Jayalalithaa, CM of Tamil Nadu , in her speech, hit out at the Centre for " encroaching on state powers" through the NCTC which was in " contravention" to constitutional provisions that accord priority status to police in the state list. Further she commented that "lack of consultation with the states and failure to take the states into confidence is a cogent commentary on the system of governance in the centre". On the same line Narendra Modi, CM of Gujarat, reacted that Centre was adopting a "non-consultative" approach with state governments on key security issues. He said Centre was creating a "state within a state" by considering changes to RPFAct and BSF Act which take away powers from the state police and meddling with subjects under the state list. On the matter of this NCTC, Mamata Banerjee( CM of Bengal) also makes strong argument that it upsets the federal structure of the country.

Misusing of Articles 355 and 356 

The misuse of Article 356 is the vivid example of colourable legislation in the centre-state relationship. With the help of this Article, the central government dismisses state governments and dissolves state Assembly. It has been subverting the federal principles and the rights of the states. The demand to restrict the use of Article 356 only to cases where there is a serious threat to national unity or the secular fabric of the country has been raised from various quarters in successive meetings of the Inter-State Council. In view of the supreme court judgement in the S. R. Bommai case, there is an urgent need to build in strong safeguards in Article 356 and 365 through appropriate amendments to the constitution. However, no decision has been taken by the union government in this regard. There is also a new and alarming proposal for central deployment of paramilitary forces in the states unilaterally in a situation which the centre would consider as an 'internal disturbance'.

The provisions of Article 355 need to be clarified. As has been repeatedly stressed by several constituents of the Inter-State Council, the term 'internal disturbance' in Article 355 is related to 'public order', which is the first entry in state list. The proposal for central deployment of paramilitary forces in a state in a situation which the centre would consider as 'internal disturbance' without the states concurrence is unacceptable. Article 355 should be amended on the lines suggested above for Article 356. Apart from external aggression, only a serious threat to national unity or an assault on the secular principle can be taken cognizance of such misusing of Article 355 and 356.

In case of Manipur, the state was under the president rule more than ten times before Anti Defection Act was implemented. Most of them were against the formation of government by regional parties or national parties, which were not ruled in the centre. Moreover deployment of paramilitary forces in a state by the centre in a situation in which the centre would consider as 'internal disturbance' without the state's concurrence created all forms of human rights violation like killing, torture, raping, disappearances, fake encounter, massacre, detention in custody more than 24 hours, etc.

Here one may analyse the demand of NSCN (IM) in this on going peace talk regarding such misusing of Acts. They demanded that the Government of Nagaland has to have its own Armed Forces and would be exclusively responsible for the internal security of Nagaland though both the armed forces will be responsible for the external threat. In response, Government of India's (GoI) position as conveyed during negotiation is that the Armed Forces of the Union can set up cantonments and camps anywhere in Nagaland but there would be no deployment for internal security.

Appointment and Role of Governors

The provision for centrally appointed governors for the states has remained as an anachronism, which is not in keeping with a federal democratic polity. By the post of governor has to be retained, and then the governor should be appointed by the president from a list of three eminent persons suggested by the chief minister, satisfying the criteria mentioned by the Sarkaria Commission. This has also been repeatedly discussed in the Inter-State Council. None of the major countries of the world with a federal constitution have any provision for the post of the governor in a state to be appointed by the centre. There should also be a time limit with regard to governor's assent to bills passed by the state assemblies. Moreover, the requirement of an explicit norm debarring governors from publicly expressing disagreements or differences with the state government also needs to be debated. There is also need to review whether governor should continue to be ex-officio chancellor of state universities. In Manipur maximum numbers of governors are army officers. Inspite of having competent persons in the state, not a single person of Manipuri had been appointed as governor to other states since 1951.

In such cases of governor's role in the state and its appointment, there is no demand to revision it except to change the name as Yarulwo in the demand of the NSCN (IM). Central Intrusion into the State List: The state subjects have already been transferred such as education to the concurrent list. It had been left unreserved. But further intrusions have also been made into the state list in terms of proliferation of the so-called centrally sponsored schemes. These central schemes on the state subjects, which contain rigid guidelines imposed by the centre, besides having implications in the financial sphere, also weaken the autonomy of the states and affect their development priorities. There is an urgent need to review the impact of the transfer of legislative items from the state to the union or concurrent list.

The union government has so far ignored the demand of the states to place at least the residuary powers of legislation in the state list. The residuary power of taxation in the sphere of services is being pre-emptorily used by the union government to the total exclusion of the states. Despite discussions in the Inter-State Council, the proposal for a constitutional amendment to set define times limits for receiving the assent of governors or president in the case of bills passed by the state assemblies has so far been ignored. Moreover, there is no formal institutional structure that requires mandatory consultation between the centre and the states in areas of legislation under the concurrent list. As far as education is concerned, NSCN (IM) demanded that government of Nagaland to be responsible for education. Government's response is positive and agreed by stating that "Education in Nagaland would be exclusive responsibility of Govt. of Nagaland subject to condition that they adopt standards laid down by Government of India regarding technical and higher education." But there is no reaction against the central sponsored schemes.

Treaty Making Powers 

The present constitutional scheme with regard to treaty making power being exclusively in the domain of the union executive needs to be urgently reviewed. The constitution should be amended to make legislative sanction mandatory for any international treaty. Besides, several international treaties like WTO agreement have serious implications for the states, especially with respect to state subjects like agriculture. In all such cases, consultation with the states and concurrence of the Inter-State Council must also be made mandatory.

In case of NSCN (IM)'s position on economy and relationship with other countries, Nagaland will have authority to enter into economic and trade relations with other countries. Nevertheless a special economic relationship could be agreed upon between India and Nagaland. The economic policy of Nagaland will be formulated and managed in close consultation with the Government of India as long as it is deemed mutually beneficial.

All India Services

The All India Services are under the exclusive domain of the centre. Some of the powers can be sphered with the states. The state government should specially have a greater role in the administration of the Rules and Regulations of All India Services. According to their on going talk the Nagaland will have its own Civil Service, responsible for its own government. But the Govt. of India's position as conveyed during negotiation is same as which is being practice in other states. GoI conveyed that Nagaland shall have its own civil service. The number of All India Services officers to be posted in Nagaland and their tenure at different levels in Nagaland, will be decided in consultation with the Government of Nagaland. The members of the Nagaland civil services will have the right to be considered for promotion to the All India Services.

Financial Sphere Unresolved Issue 

Fiscal federalism in India has always been deeply problematic, with vertical and horizontal imbalance not only persisting till date but also getting aggravated in many cases. Resources have always remained as centralized in the hands of the union government with the states suffering from gross inadequacy of resources in relation to their development needs. The already limited financial and economic decision making powers of the states have got further constrain in the post-liberlisation period.

Vertical Imbalance: The basic imbalance in the Indian constitution with regard to centre-state relations arises out of the fact that, while the major responsibilities in the sphere of development expenditure (irrigation, roads, power, education, health,etc.) and administrative expenditure (law and order, general administration,etc.) have been given to the states, the more important powers of revenue-raising have been given to the centre. In the year 2004-05 for instance, annual development expenditure borned by the states taken together was Rs. 3.62 lakh crores which was more than one and a half times of what was borned by the centre Rs. 2.33 lakh crores. This also implies that the states undertook around 60.8% of the total development expenditure incurred in 2004-05. It also needs to be noted here that this expenditure was incurred by the states under serious financial constraints, and the actual expenditure that is required to fulfill their responsibilities adequately would be least twice the amount RBI Handbook of statics on Indian Economy, 2005-06 that was spent. In contrast, the share of the states in total revenue receipts was merely 38%, with around 62% going to the central government. This vertical imbalance remains the basic problem in centre-state financial relations.

Inadequate Central Transfer: This mismatch between the greater responsibilities for undertaking development expenditure lying with the states on the one hand, with greater powers of revenue mobilization lying with the centre on the other, has not been met through commensurate resource transfers from the centre to the states. The devolution of central taxes and grants as was envisaged in chapter 1 of the part xii and Article 275 of the constitution have remained grossly inadequate. In fact, the share of net central transfer in terms of devolution of central taxes and grants (net of interest payment by the states or centrally imposed loans) as a proportion of total revenue receipts of the centre has fallen from 32.7% in 1990-91 to 29.5% in 2004-05.

Devolution of 50% Of Central taxes to States: It is essential to work out a fair principle for sharing of central taxes with the states. The central taxes net of transfer to the states and the state taxes including states' share in central taxes should be in proportion to the development expenditures incurred by the centre and the states respectively. On the basis of this principle and the available data on the trend of existing as well as the required development expenditure of the states, it had been worked out that the state's share of central tax revenue should be at least 50%. The states, over a long period, have therefore been demanding that 50% of the total pool of collection of central taxes be developed to the states. However, this demand has been ignored so far and the states' share of central taxes currently stands at 30.5% only. This needs to be increased to 50% on an urgent basis.

Residual Powers of Taxation: The states had justifiably demanded the transfer of at least the residual powers of taxation, particularly the power to tax services, to the states. Ignoring this demand, the centre acquired for itself the entire power of taxing services through a constitutional amendment. Fairness demands that the states are allowed to tax certain services including some services, which are currently being taxed by the centre, central surcharges and ceases do not form a part of the divisible pool, thus denying the states their due share in total revenue receipts. These surcharges and ceases should also be made a part of the divisible pools. There is also a need to evolve a suitable model for the proposed goods and services tax so that the states have a fair share in the revenues especially keeping in mind the interests of the special category states (Jain. SN, 1985).

Restriction on Borrowing by States: The share of total market borrowing to which the state may be entitled is also dictated by the centre. While in the 1950s, the share of market borrowing by the Government were approximately equal in proportion, the share of market borrowing of the states has now fallen sharply to around 15%, with more than 85% of the market borrowing being cornered by the centre. Consistent with the development responsibilities of the states, the share of market borrowing of the states should be increased from the absurdly low proportion of about 15% per cent currently to 50%. Moreover, Article 293 of the constitution should be amended to provide more flexibility and autonomy to the states in regard to market borrowing.

The Reserve Bank of India restrains the state governments' flexibility in market borrowing in a number of ways. It denies access to the market for resources beyond limits, ranging from 5% to 35% of gross borrowings, depending on the fiscal indicators of the state. The most restrictive condition imposed by the RBI is that market borrowing cannot be used to finance revenue deficits. This ignores the fact that state finances are in doldrums largely on account of high interest – debt from the central government. Another perverse condition makes the amount that can be borrowed inversely proportional to the need, i.e. the size of the deficit. Furthermore, the RBI has undermined state government guarantees by stating that these should not be a key consideration in loans to the public sector. These constrains, which adversely affect the public borrowing of the states, need to be removed.

The position of Nagaland regarding taxation and customs is in favour of state. They demanded that government of Nagaland will have the authority to levy income and other taxes on citizens and residents of Nagaland. It shall also have the authority to set the level of taxes for individuals and corporations, which have powers to levy excise and sales tax. Furthermore Government of India not to levy duties on goods in transit destined for Nagaland. A special arrangement should also be made with respect to exemption of central excise and sales tax for goods manufactured in India and destined for Nagaland.

Present position of Government of India and its response is agreed with them by mentioning that - To the extent such taxes, duties and levies are not subsumed in the Goods and Services Taxes, the state government will be competent to levy land revenue, tax on agricultural income, tax on land and building, mineral rights, excise duty on alcoholic liquors for human consumption and narcotics, entry tax on goods into local area, tax on consumption or sale of electricity. Sales Tax/ VAT, taxes on professionals, taxes on luxuries, entertainment, amusements and betting and gambling, taxes on mechanical and other vehicles, taxes on animals and goats, taxes on goods and passengers carried by road or inland waterways, stamp duties on documents other than those mentioned in Entry 91 of List 1.

(Post-Liberlisation Scenario) 

Declining Tax Revenue: The post-liberlisation period witnessed a fall in revenue mobilization of the centre, mainly on account of reductions in direct and indirect taxes and the overall weakening of the resource mobilization effort. Revenue mobilisation by the Central Government declined from 12.17% of GDP in 1990-91 to 10.74% of GDP in 1998-99. States' own revenues, however, remained fairly stable at around 7% during this period. Central transfers to the states also declined from 4.73% of GDP in 1990-91 to 3.79% of GDP in 1999-00. During the reference period of the Eleventh Finance Commission (2000-05), the actual collection of central taxes fell significantly short of the projected amount. As a result, the actual amount received by the states has also been substantially less, by nearly 19%, from what was recommended by the commission. (State Finance, Reserve Bank of India, Nov, 2006; Handbook of Statics on Indian Economy and Report of the 11th Finance Commission, June 2000).

Tax Concession: While there has been some improvement in revenue collection by the centre in the recent period, the resources mobilization effort continues to be severely constrained by tax myriad tax concessions. The latest budget documents show that revenue worth Rs. 2.78 lakh crore were foregone on account of the various extent direct and indirect tax exemptions in 2007-08, which amounted to 48% of total central tax collection in that year.

These tax concessions, especially the ones on corporate taxes, not only course enormous revenue losses, but also distort the patterns of investment and growth and aggravate regional imbalances. Tax experience of mushrooming Special Economic Zone following the passage of the SEZ Act, which grants a ten-year income tax holiday for the developers and units in the SEZs is a glaring case in point. This also has major implications for the revenue mobilization capacity of the states. The competition to attract investment of the leads to the states offering exemptions from states taxes and duties and other concessions in a competitive manner, are causing revenue losses. There is an urgent need to review the central tax exemptions and devising mechanism to compensate the states for the losses and distortions arising out of such tax exemptions. There is also need for the centre as well as the states to set some collective limits to tax concessions in order to safeguard against a race to the bottom.

Fiscal Crisis of the State: The Eleventh Finance Commission had failed to recommend only increase in the states' share of central taxes beyond 29.5% or provide debt relief to the states. Rather, the commission recommended that the revenue deficit grants for the states be linked up with the condition that 15% of the states entitlement of revenue deficit grant would be withheld unless the states has complied with a progressive reduction of the revenue deficit over the period 2000-2005. There were strong protest from the states, and a dissent note was also submitted by a member of the Eleventh Finance Commission (Dr. Amaresh Bagchi) who wrote that the centre had no business "to withhold even a single paisa of the grants arising out of the needs assessed by the commission". However, this conditionality was imposed by the Union Government, thereby forcing the states to impose a virtual ban on recruitment that created genuine problems in the delivery of welfare services and development activities of the states. Moreover, this mechanically applied conditionality also started showing signs of design failure. The prescription of a uniform 5% compression of revenue deficit to revenue receipt every year was oblivious to the widely different causes and magnitudes of the revenue deficit to revenue receipts ratio among the states, and it created an anomalous situation in centre state relations.

The Twelfth Finance Commission had also imposed several conditions on states, one of them being enacting Fiscal Responsibility and Budged Management (FRBM) Act in order to avail of debt relief and restricting from the centre. The implied annual reduction targets of revenue and fiscal deficit with the total elimination of revenue deficit by 2008-09. This restrictive conditionality for revenue deficit reduction, which had been imposed without any inadequate understanding of the components of revenue expenditure. Grants to the local bodies (Panchayats, Municipalities etc.), aided schools and colleges, expenditure on account of salaries of doctors, medicines etc., came under revenue expenditure. Efforts to achieve the deficit reduction targets of the FRBM Act would therefore severally constrain the fiscal space for the states and adversely affect development expenditure. Moreover, the restriction of fiscal deficit to 3% of the GDP will also impinge upon the capital expenditure of the states. The obsession with curbing the size of the fiscal deficit and cutting down upon government expenditure in order to impose fiscal discipline irrespective of the economic situation is not based upon any sound economic theory.

In keeping with a World Bank recommendation, the Twelfth Finance Commission also suggested the abdication of the central government's responsibility in borrowing by the state governments. Accordingly, the loan component of the central assistance to state plans has been done away with, resulting in a huge disadvantage for backward states. The states are therefore being pushed into negotiating high interest and or conditionality linked loans from external agencies like the ADB and the World Bank. Moreover, the Twelfth Finance Commission had also echoed the conditionalities suggested by the RBI, of creating a guarantee Redemption Fund and a Sinking Fund for amortization of loans outside the consolidated fund of the states and centre, to avail debt relief. These are meant to subject the states to greater market discipline; which will only imply conditionality linked and high interest cost loans for the states and abandonment of projects whose risks are assessed to be too high by the market.

These conditionalities being imposed by the Finance Commission are violating of the principles of fiscal federalism and severely impinge upon the financial autonomy of the states – debt relief for the states on account of the central loans must not be tied to any conditionality solutions should be worked out in a state specific manner, with a component of the relief in terms of writing off a part of loan and another part in terms of consolidation of past loans with a provision of interest relief. The debt of the special category states should be settled in a one-time manner.

A new problem has recently arisen due to the rate of interest as bank deposits becoming much higher than the rate of interest on small saving schemes resulting in erosion of small savings collection. The interest rates on small saving schemes also need to be realigned in order to maintain its attractiveness relative to bank interest rates. National Small Saving Fund Loan: The central loans connected with small savings collection (National Savings Scheme Fund) involved a special burden since the rate of interest charged by the union government from the states is significantly higher (often by more than 2%) than the rate of interest paid to the depositors. The states had urged upon the Twelfth Finance Commission to suggest remedial measures. However, none of the major problems of the state were satisfactorily addressed. The debt-relief package recommended by the commission in respect of central loans to the states specially excluded from its purview the NSSF loan extended by the centre to the states from 1999-2000 onwards, which constitutes the predominant component of the central loans for several states. Debt relief vis-à-vis the loans from the NSSF should be worked out in a state specific manner.

Problems with Centrally Sponsored Schemes: The proliferation of centrally sponsored schemes, whose design and implementation are totally determined by the centre without adequate consultation with the state governments, is another serious problem. These excessiveness or centralized and rigid formats of these schemes often man them ill-suited for the specific needs of the states. Since the state governments have to bear a part of the expenditure behind such schemes in most cases, the states find it difficult to make proper allocation of their own resources keeping their own priorities in view. Moreover, conditionalities are often imposed through these schemes, which impinge upon the autonomy of the states.

For instance, the centrally sponsored JNNURM requires the state governments to bring down the stamp duty rate within five years to a level not exceeding 5% and also impose user charges for various utilities and necessary services. This is a direct intrusion into the power of the states, since with respect to takes in the state list like the stamp duty, the Legislative Assembly has full powers to prescribe rates. Recently, the Union Government has accepted in recommendations of the Vaidyanathan Committee on revival of the co-operative credit structure. In the case too, the power of the states in regard to the co-operation has been curtailed and the flow of funds linked up with the acceptance of the attached conditionalities. In some of the schemes, the share of the states financial burden has also been unilaterally increased. For instance, despite repeated objections by all the chief ministers, the share of the states in the Sarva Shiksha Abhiyan will be increased from 25% to reach 50% by the end of the Eleventh Plan Period. The inflexibility of the design as the manner of provision of funds for the SSA also leads to significant under utilization of funds. Similarly the rigidity in the Schedule of work under the NREGA also precludes its effective implementation in several states.

At the conference of the chief ministers convened by the then Prime Minister on May 4, 1996, it was resolved that all centrally sponsored schemes pertaining to the states subject, would be transferred to the states with funds. Since then, although several exercises have been carried out in this regard from time to time, there has been no effective resolution of the issue. Rather, more and more centrally sponsored schemes, with attached conditionalities, have been introduced by the central government. While central transfers to the states as a proportion of the centre's revenue receipt have fallen over the years, the proportion of transfer of funds with conditionalities in the form of Grants-in-Aid has increased from 40.9% in 1980-81 to 49.3% in2005-06.

All centrally sponsored schemes under the state subject, as well as those under panchayats and municipalities, should be transferred to the states with funds. Broad guidelines can be worked out on the basis of discussions between the centre and the states and also appropriately periodic joint Centre-State review. However the formation and implementation of the schemes should be left to the states along with transfer of funds. Besides ensuring decentralization, transfer of the central scheme to the states would also reduce the cost of programme implementation and save central resources.

Decentralisation, Devolution and Local Self-Government: The proliferation of centrally sponsored schemes has also meant an imposition by the centre into the functional domain of the panchayats and the municipalities. Direct fiscal provisions are made in some cases to the local bodies from the centre by pass the state governments. This, in addition to the capacity building of members of local bodies by the centre amounts to an extremely centralized motion of decentralization. In such cases the real decisions are made at the centre rather than being delegated to the states and the local bodies and there in an effort to decide the pattern of decision making at the local body level from the centre. These perversions of decentralization should not be promoted and the states should be given the freedom to create an overall contact within which local bodies can function. Moreover, a target minimum level of local self government expenditure to GDP or combined government expenditure (Centre and States) needs to be set by the Finance Commission. Funds developed to the local bodies should mandatorily be routed through the state governments.

There is also a trend towards involving entitles like private corporate groups or NGOs, in governance at the local level. These entities, which have no desecratic accountability, should have, absolutely no role to play in governance. Rather ways and means of improving accountability and transparency in governance through greater participation of common people in policy planning and their implementation should be explored.

Special Category States: In view of their relative backwardness, the problems faced by the special category states, especially the North Eastern States and Jammu and Kashmir should be accorded priority. The differential benefits given to these states in term of the non-plan gap grant and normal central assistance should continue and adequate resources allocated to these states to meet their development needs. The debt of these state governments should be settled in a one time manner without any conditionality. The release of funds to the special category states under the central sponsored schemes should be done in a timely manner without stringent conditions on fund utilization.

Other Issues: There are several other national and inter-states issues, which are important for centre-state relations these include major irrigation projects, erosion of major rivers, central investment in CPSUs, railways, national highways, ports, airports etc. In each of these issues, the interests of the centre and states are involved and it is necessary to ensure inter-state balance in taking decisions. There are also issues like strengthening the PDS, BPL identification and administration of the Essential Commodities Act, which have become very relevant in the backdrop of inflation. The present scheme of the National Calamity Relief Fund needs to be changed in order to increase the corpus of funds for the states. In view of the inter-state competition over mineral resources, there is a meet to set some common norms regarding extraction of minerals. The royalty rates on coal and other minerals should be revised more frequently. It is also important to involve the state government in the policies of credit disbursement by banks and financial institutions, particularly to ensure proper allocation priority sector lending and an inter-state balance in the sphere of the loan disbursement. Effective resolution of these and other issues requires robust institutional arrangement within which center-state and inter-state consultations can take place on a regular basis and decisions reached.

Regarding natural resources the position of Nagaland is very clear that all natural resources in below and above the soil will belong to Nagaland. But in the response and its position, Government of India belittle NSCN(IM)'s insistent on their proposal without any dilution because the existing position also gives greater powers to Nagaland in this respect

Issue Related to Present Institutional Arrangements: The institution bodies through which the issues related to centre-state relations are supposed to be discussion and resolved are the Inter-State Council, National Integration Council, National Development Council, Planning Commission, Finance Commission and the Boards of the Reserve Bank of India and other financial institutions. However, a past record shows that neither have these bodies worked with effective representation of the states. In fact, these have functioned ceremonially and almost as an extension of the Union Government with an implied bias in favour of concentrating power at the centre. These need to be changed and these institutional arrangements developed into vibrant bodies with appropriate statutory backing.

Inter-State Council: The functioning of the Inter-State, which had gathered some momentum in the earlier years, has once again lost steam. Despite the council arriving at several decisions regarding implementation of the Sarkaria Commission's recommendation they have not been implemented by the Union Government. The decisions of the Inter-State Council therefore have to be made binding on the Union Government through appropriate constitutional amendment. All major issues involving centre-relations, including legislations under the concurrent list, have to be discussed and decided by the Inter-State Council. The schedule of meetings of the council as well as the standing committee of the council has to be made mandatory. The Inter-State Council should mandatorily meet twice in a year. The secretariat or the Inter-State Council should have better representation from the states.

End of Part 3


-       Gourachandra, Political Development in Manipur (1984-2002), Unpublished Thesis, Submitted to M.U.
- Patrick Hoenig is Visiting Professor at the Academy of International Studies, Jamia Millia Islamia, New Delhi. He is currently working on a project on federalism and identity in India, with a special emphasis on Jammu and Kashmir and Northeast India.
- Dhanabir Laishram, The Stitch, Akansha Publishing House, New Delhi, 2009.
- Dhanabir Laishram, The Middle Space, Akansha Publishing House, New Delhi, 2011.
- Jain S.N., Allocation of Taxing Power Between the Centre and the State, N.Sanajaoba(Ed) Basic Issues on Centre-State relation, Omson Publications, Gauhati, 1985.
- Approach Paper on Restricting of Centre-State Relation – A dopted by the Central Committee of the CPI(M) at its meeting held at Kolkata from October 12-14-2008.
- State Finance, Reserve Bank of India, Nov,2006; Handbook of Statistics on India Economy and Report of the 11th Finance Commission, June 2000.
- The Gist of Status of Discussions and Negociations on Various Issues Submitted By NSCN(IM) 2011.
- The Hindu, August 10,2009.
- The Sentinel, April 12, 2012.
- The Sangai Express
- The Seven Sister' Post.

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