[ Yojana Summary] Federalism during the Pandemic – Explained, Pointwise

Introduction

The second wave of Covid-19 is creating havoc in the country. The country is facing challenges in overcoming the medical Oxygen crisis, lockdown associated losses to the economy, etc. All this necessitated coordination between the center and the states. While states are struggling with a lack of financial resources, the center is finding itself helpless in tackling the pandemic all over the country on its own. This situation highlights the need for functioning federalism in the country, where both the center and the states take responsibility for their respective domains.

But the government has to remember that both extreme political centralisation or chaotic political decentralisation can lead to the weakening of Indian federalism. Controlling these extremes is a challenge, as federalism must accept the need for national unity on the one hand, and regional autonomy on the other. The forms of Federalism during the pandemic changed a lot in India.

Federalism in India

The Indian Constitution has structurally made the Union government more powerful than the states, called “centralised federalism”.

During the Constituent Assembly debates, Jawaharlal Nehru highlighted the need for a strong center. Further, the members of the Assembly also demanded a stronger Union government. They were of the opinion that a strong center is necessary for India’s survival and political stability. Especially when considering India’s vast diversity based on religion, language, caste, and ethnicity.

But our final Constitution did not completely favour centralization. India’s Constitution provides for the separation of powers between the center and the state through union and state subjects. Further, the Finance Commission recommended the division of revenue between the center and the States.

This is why the Australian Constitutional expert K.C. Wheare called the Indian constitution “quasi-federal”. He stated, “Indian Union as a unitary state with subsidiary federal features rather than a federal state with subsidiary unitary features.”

Federalism during Initial phase of Covid-19 Pandemic

The initial stages of the Covid-19 response highlighted the unitary tilt in the Indian federal structure. For example,

• Implementing a national lockdown using the powers under Disaster Management Act.
• The Ministry of Home Affairs also issued extensive guidelines to states for controlling the pandemic.
• Although the State have independent powers under the Epidemic Diseases Act, 1897, State governments followed the Centre’s orders.
• State governments also requested the central government to continue its administration of the national lockdown.
• In doing so, states ceded considerable decision-making power to the central government

Federalism at present

If the initial phase of Covid-19 management resulted in high centralisation, then the later phase seen high decentralisation. For example,

• The Union government provided adequate autonomy to the states to strengthen their healthcare facilities. For example, the New Vaccination policy vest 50 percent of the purchasing of vaccines to the State governments.
• Imposition of localised lockdowns: The central government permitted the State government to impose local lockdowns to control the spread of the pandemic. For example, Lockdowns by Delhi and Tamil Nadu government.
• Implement social security measures to mitigate the impact of the pandemic. Many state governments have introduced local health policies, welfare measures for vulnerable sections, etc.

Challenges to federalism during the pandemic

1. More centralisation:  At present the Autonomy of the state is limited. The Centre using its power to push much-needed reforms in the State list also. For example, The enactment of farm laws and various policies of centre in subjects like Health, etc. The centre mentions that it will consider the welfare of the entire country and its citizens. That too with a long-term holistic view. Such a view is limited for States according to the Centre’s argument.
2. Loss of Fiscal revenue for States: The national lockdown resulted in shutting down almost all economic activity, the State Governments faced a drastic reduction in revenue. Even before the lockdown, many states in India already breached their mandated fiscal deficit limits. The lockdown has further increased their financial dependence on the centre.
3. The centre’s indulgence in Agriculture: Agriculture is a state matter in India. But, the enactment of the Three Agricultural legislation reformed the long-standing agricultural marketing system. Some states such as Punjab and Haryana opposed these reforms. Further, they view these legislations as a violation of federalism.
4. The power of the Centre to approve the FDI inflows: Even many states are negotiating with foreign investors, they do not have the power to bring FDI into their state. In India, the approval for FDIs is centralised. The Department for Promotion of Industry and Internal Trade(DPIIT)  being the nodal Ministry for FDI approvals. So, the state governments depend on the centre for approval/rejection/modification of their Foreign inflows.
5. The power of the Centre to accept Foreign aid: The states have no power to receive foreign aid to tackle the disaster they face. For instance, During the Kerala Floods, the center turned down the foreign aid despite the Kerala government’s request for approval of aid.

Initiatives taken to strengthen Federalism during the pandemic

• The concept of Fiscal Federalism: As the national lockdown impacted the State’s revenue the centre implemented many measures to strengthen “Fiscal Federalism.” Such as
  • Enhancement of Borrowing Limit of States: Union Government permitted the State Governments to borrow within the Net Borrowing Ceiling of 3% of their GSDP in a financial year.
  • Ways and Means Advances: The Reserve Bank of India (RBI) provides Ways and Means Advances (WMA) to the States. This is to help them tide over temporary mismatches in the cash flow of their receipts and payments. During the pandemic, the RBI increased the WMA limit of States. This gave immediate liquidity to States to borrow short-term funds from RBI at a lower rate of interest. It provided them greater comfort to undertake Covid-19 containment and mitigation efforts.
  • Financial Assistance to States: The central government announced the Scheme of Financial Assistance to States for Capital Expenditure in October 2020. The Scheme contains total funding of Rs. 12,000 crore. Of that part of the allocation was set aside for States.
  • Maintaining Tax Devolution to States: The 15th Finance Commission recommended 41% tax devolution. The centre accepted the devolution. Despite
    the pandemic, the Centre empowered the States fiscally well-equipped to fight the pandemic.
• More active collaboration with states in policymaking: While drafting new legislation or trying to amend any existing legislation the Central Government consults all State Governments. Today, the draft legislations are shared online on websites for larger outreach and stakeholder consultations.
  • For example, the drafting of the Model Tenancy Act has involved all State Governments and stakeholders
• States ability to perform foreign economic policy: The Centre encouraging states to negotiate loans / FDI directly with overseas banks/institutions. Such initiatives have helped some states in their economic development and reduced their financial dependence on the Centre. So at present, the State not only relies on the Centre’s grants in aid. But still, the approval for FDIs is centralised.
  • At present, the States also start overseas facilities to attract FDI directly. For example, Gujarat Government in 2014 set up international desks independently in the USA, China, Japan for facilitating “INVEST IN VIBRANT GUJARAT”.

Conclusion

India’s response to the Covid-19 pandemic has shifted the balance of its federal structure. The most important moment for federalism during the pandemic is the role of state governments on the ground level in managing the Covid-19 crisis. The Centre also provided more power and autonomy to states to tackle the pandemic. But the Centre and States have to ensure the right balance between extreme political centralisation or chaotic political decentralisation. As the right balance will protect the States from threatening the national unity and providing adequate autonomy to states.

Source: Yojana May, 2021