Economic Federalism
For years, a few CMs, including Modi in his past avatar, Jayalalithaa and Patnaik, wooed private investments into their states to spur growth. They have succeeded, too. But as they realised that the ‘trickle-down’ effect of growth does not reach the poor people in time, they focussed on welfare schemes to target such households. Despite the noble intent, they found themselves strapped for cash. Higher devolution and freedom to the states to spend the budgets for central schemes is a step in the right direction.
At the same time, the CMs knew that the Centre’s attitude of ‘one size fits all’ doesn’t work. A central scheme, which envisaged rural employment for all, may sound grandiose, even something that is urgently required. However, the modalities of how it should be implemented may differ from employment-deficit states such as Punjab, which depends on migrant workers, and employment-surplus ones such as Uttar Pradesh.
Moreover, such schemes can wreak havoc and lead to economic distortions in some states. An unintended outcome of the rural employment scheme was a drastic reduction in the availability of migrant workers. However, an inadvertent positive outcome was that the school dropout rates among girls came down sharply, as there were no financial pressures on poor households to make them work to earn extra incomes.
The huge concern: corruption levels may go up as the state-level officials and politicians snap up the new opportunities to siphon off money from such schemes. As the discretionary powers shift from the Centre to the states, there is no guarantee that it will inculcate greater transparency, efficiencies or effectiveness. Given the new hands-off approach of the Centre, the bigger scams may now occur at the state level.
Social Manifestations
Jaitley is concerned about subsidies and national connectivity, the two issues that consumed Atal Bihari Vajpayee’s NDA-1. They will become more crucial because with the higher devolution to the states, the Centre will have less money to manage its expenses and, hence, fiscal deficit. If Jaitley has to ensure that the Centre’s finances hold together and the deficit remains under check, he will need to target expenses. He cannot touch salaries or interest payment; his only option is to cut subsidies.
In Budget 2015, the allocation for the ministry of petroleum and natural gas has slumped from Rs 85,418 crore in 2013-14 to just over Rs 30,000 crore in 2015-16. One of the main reasons is that the subsidies on petrol and diesel, which were earlier priced at below-the-market rates, has completely vanished. The only components of the fuel subsidies that exist are the ones given for kerosene and liquefied petroleum gas (LPG).
But if subsidies are targeted and reduced, slowly but surely, over the next few years, Jaitley has to ensure that the poor, lower and middle classes benefit in some other form. He has put all his eggs in the growth basket, which he hopes will trickle down because of his emphasis on connectivity. If he can ensure that more and better roads are built and railways become faster and efficient, it will boost the incomes of both the rural and urban households. The end result: higher prosperity levels.
This explains why the Budget allocations on road transport and highways, and railways has jumped from Rs 25,476 crore in 2013-14 to Rs 42,842 crore in 2015-16, and from Rs 27,072 crore in 2013-14 to Rs 40,000 crore in 2015-16, respectively. To be fair, one of the reasons for the proposed increase in roads and highways is because of a change in bookkeeping. Earlier, the expenditure on rural roads came under the purview of a different ministry; now it has been clubbed with all roads under transport.
All these assumptions and presumptions can easily go for a six. Armed with so much money, the CMs or the ruling regimes in the states can target specific communities and castes for the largesse. What will now stop the Samajwadi Party to dole out higher benefits to the Yadav clan in UP, or Patnaik to his supporters in Odisha? These will further crater the social divide, which may lead to civil aggression in the future. If this happens, the red Maoist belt along the eastern coast can easily stretch westwards.
editor@tehelka.com
