Federal Finance : Central Intrusion

Finance minister Yashwant Sinha claimed, in his reply to the discussion in the Lok Sabha on the 89th Constitution amendment bill providing for devolution of a share of all central taxes to the states as recommended by the Tenth Finance Commission, that the NDA government was functioning "in a spirit of cooperative federalism". Yet the government does not apparently hesitate to make moves which are clearly intended to encroach on the autonomy of the states in regard to subjects and functions which the Constitution assigns to the states. This can be readily seen from the additional term of reference for the Eleventh Finance Commission (EFC) notified in the Presidential Order of April 28. According to the order, the Finance Commission has been asked to "draw a monitorable fiscal reforms programme aimed at reduction of revenue deficit of the states and recommend the manner in which the grants to the states to cover the assessed deficit in their non-plan revenue account may be linked to progress in implementing the programme". This additional term of reference of the Finance Commission has been tagged on without any consultation with the state governments. The Sarkaria Commission on centre-state relations, it may be recalled, had called for adequate consultation with the state governments before finalising the Finance Commissions' terms of reference.

In any case a meeting of the Inter-State Council (ISC) has been convened on May 20 and the centre could have waited to hold consultations with the states at the meeting on the proposed additional term of reference of the Finance Commission before formally notifying it through the presidential order. In fact it would not be unreasonable to speculate that the additional term of reference was notified early precisely to avoid any discussion on it in the ISC. That the present Finance Commission is due to submit its final report by June 30 is not an entirely convincing argument since the commission would still have had six weeks to finalise its report. It is true that a clear enough indication of the centre's unilateral decision to ask the Finance Commission to "draw up a monitorable fiscal reform programme for the states" had been given in the memorandum presented to parliament on action taken on the Finance Commission's interim report and this had escaped the notice of opposition MPs. However, that does not absolve the centre of the responsibility of consultation with the states before enlarging the Finance Commissions' terms of reference in a manner affecting their interests.