South India is rightly agitated by unfair allocation. Limiting Centre’s power is the answer

South India is rightly agitated by unfair allocation. Limiting Centre’s power is the answer

The events of the past week are epochal in some senses. Chief Ministers of Karnataka and Kerala, Siddaramaiah and Pinarayi Vijayan, came to New Delhi to protest the absurdities of India’s fiscal resource allocation, joined by politicians from other southern states. And the long overdue discussion on fiscal federalism finally began at a national level. To be sure, all national conversations in India have their dose of shrill TV debates, but this time, it thankfully went beyond them. The question really is: why do southern states feel particularly shortchanged?

India, as the opening sentence of the Constitution reminds us, is a Union of states. The unit of consideration for resource allocation, power sharing, and realpolitik in the country is the state. Achieving relative equilibria among states for these various aspects through democratic means is a necessary condition for a stable Union. However, in the last half century, that compact between states and the Union has only been eroding.

The southern states are confronted with a difficult bargain. On the one hand, they face the threat of losing political power and relevance with the impending tussle on delimitation, which may drastically reduce their representation in Parliament. On the other hand, they are already losing out massively on their share of tax revenues; for instance, they receive far less than what they contribute to the exchequer due to their stabilised population. This is happening at a time when policy decisions—even those pertaining explicitly to state subjects—are increasingly being usurped by the Union.

This trifecta is exactly what makes a society a vassal state: it has either limited or no say on how it’s taxed or where its tax revenues are directed, its political power is reducing to the point of complete powerlessness, and it has no influence over the policies that govern it. Therefore, it’s no wonder that southern states are agitated.

Equalising states

A simple test for a functioning democracy is to determine whether the existing governance model allows a self-governing people to proceed on a slow march toward enlightened liberalism. India’s answer to that has never been an enthusiastic yes. Since Independence, that march toward liberalism has taken several dark detours, which even the loudest nationalist won’t deny.

Examining utilitarian outcomes of governance in each state, particularly in areas such as health, education and economic opportunities, is a useful place to start. Whether the political union allows states the policy space to meet and accommodate the aspirations of their citizens is another crucial question that would tell us about the overall health of India’s democracy. Regardless of a state’s achievements or lack thereof, the system should ensure its citizens can exercise the right to self-determination in order to seek light at the end of the tunnel.

What India needs is a political structure that empowers states and other subunits of society to organise themselves, devise their own policies, and possess sufficient resources to fund those policies. More importantly, this political structure must retain the democratic sanctity of the process by which states arrive at their policy decisions. After all, this is the only way to maximise developmental outcomes while minimising possible conflicts. While arriving at the right policy is often an accident, sustaining and improving it requires concerted action, knowledge, and sacrifice.

The ability to arrive at a policy option, or rather the ability to choose multiple iterations of a policy before deciding what works, is what makes decision making far more important than the decision itself. The purpose of such a structure, above all, should be one that makes people feel empowered.

The bind that southern India finds itself in is unique; it’s unlike any situation in most large federal unions across the world. Fiscal imbalance between different regions in a country is a common phenomenon worldwide, but it is corrected through tax policy. In the US, for example, the southern part has been historically poorer compared to the industrial north. Consequently, the federal government equalises the regions by sending more federal dollars to the south. Similarly, in Germany, the western part of the country is still significantly wealthier than the erstwhile Communist East. But the country’s federal structure somewhat balances the large wealth gap between the two regions. This dynamic holds true in countries as vastly diverse as Spain, China, and the UK among many others as well.

However, two important differences exist between such countries and India. The first is that the contrast between the regions in those countries isn’t as vast as it is between India’s North and South. The second and more important difference is: in those countries, the more prosperous regions are also the more populous regions, which happen to be more urbanised and have higher population growth due to greater inflows of migration. In contrast, in India, it’s the poorer regions that are more populous and have a high population growth because of a higher total fertility rate (TFR). It is the TFR that drives population growth in India, not migration.

So, attempts to equalise Telangana and Uttar Pradesh—a state four times larger in population and more than a third poorer—is neither feasible nor fair. Especially when Telangana itself isn’t that rich. Yet, this is exactly what the Indian Union has been trying to achieve. With each passing year, the divergence only grows. It is unviable for Telangana or any southern state to exist in this environment where they are taxed more for funding areas over which they have no control.

Limit Centre’s powers

The problem so far can be summed up as: Imagine a race involving some kids. One group emerges at the front, leaving another bunch far behind. In the name of equalisation, the referee decides to stop the kids at the front from running until the other kids catch up. It is fine if all the kids want to be friends and don’t care who wins. But money, as they say, knows no friends.

Political partisans, as always, have been on both sides of this issue, especially because it isn’t a recent phenomenon. Prime Minister Narendra Modi, who now calls these demands for fairness in resource allocation ‘divisive’, was a champion of this exact rhetoric when he was the chief minister of Gujarat. Self-interested politicians skewing the balance of power toward the chair they occupy is an unpleasant but inevitable consequence of representative democracy. In a federal Union, particularly one where the Centre is more powerful than the states, the politician in question invariably accrues power in favour of the Union government.

The answer is simple: We should limit the powers of the Union government so dramatically that these resource allocation problems are solved at the level of states. The states would first meet their requirements and then pass on the necessary revenue to the Union government for its core functions like defence and external affairs. Or, at the least, have the Union stop spending on state subjects. A good starting point would be to abolish the central flagship programmes and send that money back to states.

Additionally, for poorer states facing severe resource crunch, an upper limit for equalisation could be set in consultation with states that “give”. However, this would require politicians in New Delhi to voluntarily renounce power and forfeit grand announcements, which has never happened in the history of power-sharing.

This problem of unfair tax devolution, therefore, is only going to get a lot worse. One only hopes that it doesn’t turn violent.

Nilakantan RS is a data scientist and the author of South vs North: India’s Great Divide. He tweets @puram_politics. Views are personal.

(Edited by Ratan Priya)