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Fiscal federalism and special category status: Need for a re-look

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In the past era of coalition politics, India was moving through an uncertain economic terrain. We hadn’t done away with socialist economic model, and yet we liberalized the economy in 1991. We gave this model the name of ‘Mixed Economy’, essentially because of pretentious intellectual class, that had transpired within the Red Tape of India. That was the time when common people couldn’t use internet to make their views public. We had, what was served to us in fancy plates with a lot of seasoning. Populist decisions drew votes, and it was trendy to be politically correct all the time. There were various kinds of preferential treatment to one group over the other. One such kind of bias was granting Special Category Status.

Started in 1969, with 3 States and presently 11 States, we can easily see where this increment is coming from. It was a hollow attempt of Central Governments to stop the increasing popularity of Regional Parties, most of whom took up State issues even while contesting National Elections. Little did the Grand Old Party’s leaders realize that breaking India into smaller units, both politically and economically is succumbing to the ‘Breaking India Forces’ as Rajiv Malhotra defines. Congress constantly lost its vote bank to State Parties, who never thought of national policies. This model of polity and economy was bound to stagnate the country on all fronts.

Since 2014 elections, its clear that people hate being treated as a vote bank. People of India have started differentiating between State Elections and National Elections. Classic examples is Delhi, and more recently emergence of BJP in Odhisa during 2019 elections, not to mention that National and State elections were held simultaneously. Hence a push for One Nation, One Election is at the right point in time. On the economic front, Fiscal Federalism structure should be thought about as well. ‘Privileged’ has become the new abusive word in economic conscience of Indians as a whole. And hence, exclusive ideas of State politics won’t yield votes at the national level, keeping in mind the ever growing connectivity and internal migration in India. This gives us an opportunity of policy continuation, coupled with One Nation, One Election, where the legislature will be bound to run for full 5 years and no confidence motion will have to be replaced by confidence motion at all levels.

All this leave the Special Category Status just as a relic of Planning Commission which used to allocate funds to SCS states. However, mere scrapping SCS appears more like Marxist idea of revolution. Hence, SCS must be replaced by something more pragmatic and workable. An option could be dividing the entire nation into 5 regions- North, South, East, West and Central. States in these regions share common geographic problems that need to be addressed, more like ‘hilly terrain’ criteria in SCS eligibility. For example- Maharashtra, Gujarat and Rajasthan in the west share water scarcity as a problem, Eastern states need to uplift their tribal population, River pollution is common to Northern States etc.

The SCS states used to get 30-40% of the Central financial assistance. Each of the 5 regions can be allocated those funds one by one in each budget, over a span of 5 years, which coincides with the term of legislature. However, NITI Ayog would also have to overlook that these funds are utilized fully in order to implement matters exclusive to the Concurrent List. For example- Education, Social Security, Labour Welfare, Trade and Commerce, Factories etc. This will be more inclusive approach towards targeted development, where Center and States will partner, rather than bearing each others’ company for one year.

One time allocation in 5 years will also assure that corrupt leakage points are not fed on a regular basis. Moreover, it will also enhance competition between the States of a region. In future, such mechanisms can also be used for handling Inter State water disputes and other kinds of Inter State disputes. However, such revamp needs a proper road-map, accountability mechanism and political will.

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