Essay on Financial Relations between Center and State According to the Report of Sarkaria Commission

The Sarkaria Commission has not made any drastic recommendations in this direction. However, it has recommended an amendment to the Constitution for enabling the Parliament to provide for the sharing of the corporate tax along with suitable adjustments in sharing income tax and excise duties between the Union and the States.

It has also recommended the appointment of an expert body to recommend desirable directions of reforms in taxation and resources mobilization by the Centre and the States. But it has expressed itself against the transfer of more subjects to the States and pleaded for a strong Centre to preserve the unity and integrity of India.

The Commission has, however, suggested that the Finance Commission which is appointed after every five years should be made a permanent body, and that the Planning Commission be made a constitutional body and provided with a Secretariat. Academicians like K.N. Kabra have suggested that ‘the practice of the Centre appointing the members of, the Planning Commission must be replaced by a system by which they are jointly appointed by the Centre and the States’.

In keeping with the recommendations of the Sarkaria Commission Report, the United Front Government in its common minimum programme aimed at restoring a balance in the economic equation between the Centre and the States and bestowing greater autonomy on the latter in order that they are enabled to determine their needs and priorities independently.

The regional parties have demanded greater devolution of fiscal powers to the States. It was in the name of the centralized planning that the Centre over the years had deprived the States of their rightful due from the fiscal resources. Beginning with 1991 there has been a major reorientation in economic ideology of the Indian aggregate State in favour of economic liberalization, so one would hope that consistent with this ideology the Centre would decentralize the planning process.

The Commission has juxtaposed the development of the last thirty-seven years into ‘two diametrically opposed trends’. On the one hand, there has been a centripetal force in the economy and, on the other, centrifugal forces in the polity ‘on account of break-up of the old political order. Some of the symptoms are: Split of national parties, ever-increasing exploitation of populist slogans and caste, language, money and muscle power in elections’.

The Report shows an overriding concern for ensuring the solemnity of the ‘arranged marriage’ between the parliamentary and federal systems. The marriage is sound, proclaims the Commission and it is worth preserving. And if there has been unevenness in its working, it is primarily because the parties have abused the code of conduct so necessary to its successful functioning.

The states can be given, suggests the Commission, greater powers and more revenue; such adjustments can be made through minor constitutional amendments, and they do not call for any major changes in the Constitution. But this is not the remedy to out malaise. The problem, reports the Commission, is that of role-disorientation of political actors, and the lack of institutional values governing political behaviour. Thus the advice of the Commission to the new breed of federalists and State autonomists is simple: ‘reform themselves.

The same approach is evident with regard some other controversial issues such as reservation of State bills by the Governor or Presidential considerations and deployment of paramilitary forces of the Union in States on public order duties. To promote inter-government consultation between the levels of government, the Commission has made two recommendations: the creation of a modified National Development Council renamed as National Economic and Development Council under the Constitution rather than an executive resolution, and the setting up of an Inter-Governmental Council under Article 263 of the Constitution. The latter body has since been constituted.

General Observations Made by the Commission

In India, because of the diversities in religion, language, caste, race, etc. there are a large number of groups, seeking to establish their identity and promote their sectional interests. The issue of devolution of powers and responsibilities between the top two tiers of government, Centre and states, needs, therefore, to be considered in the context of the broader issue of decentralisation between these and other tiers of government on the one hand, and the functional agencies within each of these tiers, on the other.

Part II of the Report discusses various memoranda and opinion received from the State governments, political parties, and other organisations. Several proposals are suggested for reforms. However, most of these proposals are rejected by the Commission. It is neither willing to compromise with the principle of parliamentary supremacy nor the unity of command in the Union Executive in the last recourse.

The Commission has left the existing pattern of legislative, administrative, and financial relations between the Union and States by and large unaltered. The All-India Services, recruited and trained by the Union and allocated to the State cadres, are not tinkered with either, notwithstanding the fact that these at least partly compromise the federal principle.

In fact, the Commission recommends that a few more services of this nature should be constituted in the national interest. The whole scheme of three kinds of emergencies, which is potentially unitary in its impact on the federal provisions of the Constitution, has also escaped unscathed. Although it has recommended a very limited measure of revision in the pattern of resource sharing between the Union and the States, it has proclaimed as sound the present pattern of division of roles between the Finance Commission (that advises on non-plan resource transfers) and the Planning Commission (that recommends plan resource transfers).

The entire machinery of government in States, including the government and Presidential rule, is found by the Commission to be in order. The pre eminent role of the Parliament in amending the Constitution is not faulted either. The Commission in all these matters sees the prospect of a consensus in the country, and pronounces that there may be some smoke out there but there is no fire.

However, the Commission has endeavoured to expand the area and practice of consultation between the Union and the States and an evolution of sound conventions of institutional and political behaviour on the part of political elites. For instance while rejecting the demands for a major revision in legislative and taxation powers of the Union and States, the Commission recommends that the Union government should by a matter of convention hold prior consultation with the State governments or with the affected ones before it legislates in the area of inter-State trade and commerce and concurrent jurisdictions.

The Commission underlined the imperative of enlarging the institutional structures for consultation between the two levels of the government in pursuit of creating consensus as the basis of federal decision-making and action. To this end, the Commission recommended that the National Development Council be given a Constitutional status with a new name-National Economic Development Council. Similarly, for deliberations on political matters in Centre-State relations, it recommended the creation of the Inter­governmental Council (IGC) under Article 263 of the Constitution.

Besides, it has also proposed that the Planning Commission be reconstituted with a constitutional status and the Finance Commission appointed every five years under the constitution be made a permanent body. The Commission also took a strong critical view of the misuse of Article 356 relating to the President’s rule in States on the pretext of constitutional emergency and inordinate delays in Presidential assent to State legislations reserved by the Governor for review by the Centre.

The interests and aspirations of most people are concentrated in the localities in which they live and carry on their avocations of life. Normally, they would be content to compete at the level of the local governing bodies, making way for persons interested in larger issues of regional or national significance, to opt for higher elective forums. Decentralisation of real power to these local institutions would thus help defuse the threat of centrifugal forces, increase popular involvement all along the line, broaden the base of our democratic polity, promote administrative efficiency and improve the health and stability of inter-governmental relations.

The Constitution of India creates two tiers of government, one at the levels of the Centre (or Union) and the other at the level of the states. At the sub-state level also there are tiers, which are the creations of the state government. There are: gram Parishad and gram Panchayat. It is noteworthy that the Constitution casts a duty on the state to take steps to organise village panchayats and endow them with powers and authority to enable them to function as units of local government (Article ^o).

In this system, the district, in particular, holds a central position. The importance of developing adequate sub-state level political institutions cannot be overemphasized. It is only by providing opportunity that people can be trained to shoulder responsibilities in a system of local government. In 1959, a major experiment in decentralisation of power was launched based upon the findings of the Balwant Rai Mehta Committee on Panchayati Raj. Its success, however, has been limited.

There is considerable truth in the saying that undue centralisation leads to blood pressure at the Centre and anemia at the periphery. The inevitable result is morbidity and inefficiency. Indeed, centralisation does not solve but aggravate the problems of the people.

The Sarkaria Commission emphasised the need for decentralisation of the planning process. The objectives of decentralised planning cannot be achieved unless the Panchayati raj and other local bodies are allowed full scope to play their role.

The working of the Constitution since in its inception in 1950 has demonstrated that its fundamental scheme and provisions have withstood reasonably well the inevitable stresses and strains of the movement of a heterogeneous society towards its development goals. The Constitution has been amended a number of times to adjust its working to the changes in the environment.

‘In our view, the Commission observes, ‘it is neither advisable nor necessary to make drastic changes in the basic character of the Constitution’. But there is certainly scope for improvement and reform in a number of aspects.

The Constitutional amendments having bearing on Centre-State relations, suggested by the Sarkaria Commission, though significant, are not many. The functional aspect of Centre-State arrangements that it proposed is far more substantial. The Commission concluded on note of self-questioning.

Effective participation by citizens is an integral part of democracy. Large parts of the programmes, projects and services initiated by the Centre are executed in the states. Many of the programmes undertaken by the states also have wider implications for the centre as well as local governments. There is at present no forum where a citizen can present his view on all these matters. No doubt the inter­governmental council would discuss various issues of national importance. But it would necessarily be in camera.

So far none of these recommendations, except for the setting up of the IGC has been implemented. However, the change in the party system from one-party dominance to a multi-party system since 1989 has altered the context of Centre State relations.

This has resulted in a greater opening for consultation between the two levels of the government and a reduction in the incidence of partisan misuse of President’s rule in States. The full implementation of the Commission’s recommendations would lead to a quantum leap in the direction of the federalisation of the system by constituting a series of points of autonomy in federal relations and consultation.

The recommendations of the Sarkaria Commission were first perceived by the State autonomists to be rather conservative inasmuch as it mainly emphasised a change in attitude and behaviour of the political elites rather than any major constitutional amendments. However, when the report was placed on the table of the Parliament, the then opposition parties generally commented that even though they were not fully satisfied with the recommendations of the panel, they hope that the government would sincerely implement them in totality.

The academic opinion has since also veered to the point that a full implementation of the report would create a series of points of autonomy in the system with constitutional status that would lead to a substantial move in the direction of federalisation.

Conclusion

Centre-State financial relation is a very delicate issue and it needs a complete change not only in the perceptions, but also at the implementation level. The Finance Commission has the right credentials (being a constitutional body) to oversee the smooth transfer of funds from the Centre to the States. It can play a vital role in providing invaluable suggestions to the Government with regard to the fund transfer and also in suggesting measures to improve the working of the economy.

The National Agenda for Governance, put together by the BJP and alliance parties, states that they ‘are convinced that there is a clear case for devolution of more financial powers and functions to the States’.

They are committed ‘to ensure harmonious Centre-State relations in the light of the recommendations of the Sarkaria Commission and also effectively involving Panchayat and local bodies’. The BJP coalition government would also give a special attention to the States where the percentage of population below the poverty line has increased. A Backward Area Commission would be appointed for each State of the Union to identify least developed areas and recommend developmental package for them.