Towards a new compact (On centre-state relations)

Source: Business Standard

Relevance:  Bringing in the second generation of reforms – challenges and way forward

Synopsis:  Without a collaborative arrangement between the Centre and the states, second generation reforms (Reforms in health, education, land, labour, electricity and agriculture) would become more contentious.

Background

• The reach of economic reforms in the last 30 years remained limited to a few sectors of the economy.
• Further, much-needed reforms in the social sector like health, education, land, labour, electricity and agriculture have either been slow or non-existent.
• Without cooperative federalism, the progress of second-generation reforms could remain fraught with problems, agitations and delays.

Implementation of 2^nd generation reforms & challenges faced

1. Reforms in Agriculture:

• After decades of wait and deliberations, the present government introduced reforms in three agriculture-related laws.
• Their broad intent and objectives were unexceptionable, and the reforms to be achieved through them were long overdue.
• Yet, faced with the continuing long-drawn agitation by farmers and the Supreme Court’s intervention, those agriculture reforms remain suspended.

2. Labour Reforms

• The new Labour Codes, ushering in the much-awaited flexibilities in labour laws, were passed a little more than a year ago and even gazetted.
• But the rules for these four Labour Codes are yet to be framed and notified, due to the lack of unanimity among the states.

3. Power sector reforms

• The present government had recently proposed the next phase of electricity sector reforms via draft electricity amendment bill 2021, by delicensing power distribution.
• But some states have already opposed the move, as they fear it could adversely affect the financial viability of the state-owned power distribution companies.
• The proposal on delicensing power distribution, potentially a big reform, now awaits how the political movement gathers momentum in the states.

4. Land Reforms

• Early in the first term of the present government, the proposal on relaxing the land acquisition laws had met with strong political resistance.
• That move was dropped in deference to the collective lobbying of states and the Opposition political parties.

What needs to be done?

1. A new compact: The Indian Constitution does not give the Centre complete authority in framing laws pertaining to areas like and, labour, agriculture and electricity. So, the reform must take place in the governance framework, creating a new compact between the Centre and the states. The new compact must recognise and accept the need for a collaborative and consultative procedure to be followed for such policy changes.
2. The states must be taken on board while the Centre plans to bring about reforms in land, labour, agriculture, electricity as also in health and education.
3. Learnings from GST: The learning from the way the GST was introduced needs to be studied. It was the consultative process that helped in persuading the states to give up their rights to independently fix tax rates for goods and services.

Conclusion

A new governance framework should be devised to determine the relations between the Centre and the states. Till such time, the progress of reforms in health, education, land, labour, electricity and agriculture could remain fraught with problems, agitations and delays.