Federalism During Pandemic

Syllabus: General studies Paper 2

Current scenario:

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.

Introduction:

India’s success in defeating Covid-19 actively rests upon Centre-State collaboration. As it is the States which act as first responders to the pandemic, supplying them with adequate funds and autonomy becomes a prerequisite in effectively tackling the crisis. This requires the Centre to view the States as equals, and strengthen their capabilities, instead of increasing their dependence upon itself. In this context, Covid-19 poses a litmus test for the federal structure of India, whose nature is already a matter of debate amongst constitutional experts.

Federalism in India:

Federalism traditionally signifies the independence of the Union and State governments of a country, in their respective spheres. However, due to the centralising tendency of Indian federalism, K C Wheare referred to it as “Quasi federal”.

Similarly other constitutional experts describe it as, “federation without federalism” and “a Union of Unequal States”, particularly the way it has evolved over the years.

Federalism during 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 has 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 vests 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:

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.
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 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.
4. 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 by the government:

1. 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.

2. More active collaboration with states in policy making: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
3. 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.

Dialing Mains:

Question: Covid-19 pandemic has created imbalance in the federal structure of India. Discuss