Centre-State relations and Punchhi Commission – Explained, pointwise

Introduction

Recently, the government’s reply to an unstarred question revealed that the Union Ministry of Home Affairs (MHA) has decided to start the process of seeking the states’ comments on the Punchhi Commission’s report on Centre-state relations. This is to obtain updated comments of the State Governments/ UT Administrations on the recommendations.

About Punchhi Commission

India’s federalism has been shaped by the complex interactions between the political actors at the Centre and the state level. Sarkaria Committee and the Punchhi Commission were the most important commissions established to reduce the government’s complexity and streamline its operations.

In April 2007, the government set up a three-person commission led by former Chief Justice of India M.M. Punchhi to look at the roles and responsibilities of different levels of government and how they work together. In 2010, this group submitted its report to the then-Home Minister.  

What is the reason behind the non-implementation of the recommendations of Punchhi Commission on Centre-State relations?

The central government wants to implement the recommendations, but before that, it wants to develop consensus among the states. The standing committee of the Inter-State Council(ISC) met three times in 2017 and once in 2018 to talk about the Punchhi commission’s suggestions.  

The recommendations of the Standing Committee were finalized in the two meetings. But, the Centre has now decided to go back to the states for another round of feedback on the report. Hence, the implementation will be delayed further.

What are the challenges at present in Centre-State relations? 

Political federalism: 

• The Inter-State Council has met only once in the last seven years, while the National Development Council has not met at all.
• The constitutional office of the governor has come under scrutiny several times for encroaching on the powers of state executive and legislature.
• Many important and politically sensitive decisions are taken without reference to, and consultation with, the concerned states. For instance,
  • Article 370 was removed without consulting the state legislature. 
  • Parliament legislated on “agriculture”, entry no. 14 in the state list, to enact the three contentious farm laws, overstepping its jurisdiction and imposing a law on the states.  
  • The BSF’s jurisdiction was extended in Assam, West Bengal and Punjab without any consultation with the concerned states.  
  • The New Education Policy has been flagged as encroaching on the federal nature of the polity. 
  • Students in Tamil Nadu have committed suicide over the discriminatory nature of the NEET examination. Other centralised examinations are also indifferent to languages spoken in different parts of India and education boards of different states.  
  • Recently, the rejection of the Republic Day tableaux of Kerala, Tamil Nadu and West Bengal by the Centre prompted protests by the respective states. 

Economic federalism:

• Revenue sharing concern: When it comes to sharing revenue, the states are upset with the Center. In an effort to provide economic relief and fulfil the GST shortfall, the Centre announced in 2020 two alternatives for borrowing to be returned through an extension of the compensation cess beyond June 2022. Some states agreed to look at the ideas, but others didn’t want to “borrow from the market at a higher interest rate. 
• Vertical and horizontal revenue imbalances: Two main challenges in the fiscal transfer system pertain to tackling the vertical ( transfer of Union taxes to states) and horizontal (distribution between countries) imbalances. So far, the share of the states emanating from the combined revenues has remained more or less stable, thus taking care of the vertical balance. As far as horizontal balance is concerned, some Finance Commissions have addressed the issue of equalisation.  
• GST concern: The GST has already taken away much of the autonomy available to states and has made the country’s indirect tax regime unitary in nature.  
• The tenure of the 15th Finance Commission was mired in controversy, and many states expressed apprehensions about devolution.  
• NITI Aayog witnessed a boycott: The recent meeting of the Governing Council of NITI Aayog witnessed a boycott and mounting criticism from some states. 

Environmental federalism: 

The State Action Plans on Climate Change (SAPCCs) have suffered from a lack of specificity in design and inadequate financial support from the Centre, and rank low among governance priorities in state capitals.

The Centre controls the major part of national revenue (in 2018-19 it raised 62.7% of the aggregate resources of the Centre and states) and plays a large normative role in defining state priorities, only the states can assess and respond to the political and physical implications of climate impacts and local energy transitions.   

What are the major recommendations of the Punchhi Commission on Centre-State relations? 

Issue related to Governor: 

• Appointment: The appointment of the Governor must be done by a panel which among others also has the State Chief Minister. 
• Removal of Governor: The doctrine of pleasure should end and should be deleted from the constitution. Governors should not be removed at the whim of the central government. Instead, a resolution by the state legislature should be there to remove Governor. There should be provisions for the impeachment of the Governor by the state legislature along the same lines as that of the President by Parliament. 

On Inter-State Council (ISC): ISC needs to be “substantially strengthened. The council must meet at least thrice a year on an agenda evolved after proper consultation with states. 

On economic federalism

• Handling the issues listed in the Finance Commission’s terms of reference should be done between the Center and the States. The States should be involved in the Finance Commissions’ work to come up with the final terms of the contract.  
• The commission was worried about the growing amount of money that was being made through cesses and surcharges. It was suggested that the Central Government look at all of the current cesses and surcharges to lower the amount they add to the total amount of taxes collected.  
• The Finance Commission and the Planning Commission (now NITI Aayog) should work much closer together.

On environmental federalism: 

The Punchhi Commission was formed before major climate initiatives like the Paris Agreement (COP 21), the Sustainable Development Goals (SDGs), etc. However, the committee has a dedicated volume on environmental, resource, and infrastructural issues related to federalism. For example:  

• On water sharing: The National Water Resources Council needs to play a greater role in integrating policy and programmes on a continuous basis.  
• On forest: A National Policy on ‘Compensation’ should be put together through consultation and consensus. 
• On mineral: To determine royalty rates an independent statutory body comprising  experts and representatives from Central, State, and industries and utilities need to be set up. The Central Government, if it differs from the recommendations or modifies them, would need to lay its reasons for the same, before Parliament.

What should be done to improve Centre-State Relations further? 

Apart from implementing the recommendations of the Punchhi Commission recommendations,

The government should also work on economic federalism and a coordinated reform process at all levels of government to speed up growth, reduce poverty, get rid of inequality, and make sure that people develop. This will help make up for the disadvantages and problems that come with new and smaller states.  

There is a need to find a workable solution by making big changes to the way resources are given out. The Finance Commission’s structure can also be changed so that it has more members and advisory bodies.

The GST Council’s job could be expanded so that it could talk about how resources should be used and make suggestions, even though these suggestions are not binding.  

In China and Indonesia over the last 20 years, having a strong political centre was good for everything except the economy. China had to split up its economy and change how it handled money with the states. When it comes to how to handle economic issues with the states, India can learn from how a strong Union government runs a decentralised economy.  

There is a need to evolve institutional mechanisms that will not only align resources, competencies, and capabilities of the governments  at all levels but also engage civil society,  non-governmental  organizations (NGOs), and the private sector in the policymaking implementation process. 

There is a need to go beyond the concept of cooperative federalism and create a new federal architecture for collaborative engagement of the appropriate levels and actors in the policy-making and implementation process. 

Sources: Indian Express, The Print, The Hindu, Economic Times, Research Gate.