Big Brother Watching

T

Economic and Political Weekly January 14, 2006

judgments on the governments they have elected. They alsovote with their feet: an ill governed state loses its skilled andthe talented; capital too moves out. Competition amonggovernments makes for efficiency in governance, but it is thedemocratic process that provides the corrective. Witness thechange of government in Bihar. The NAC apparently doesnot have much faith in the democratic process to secureresults and thinks nothing of the damage likely to the workingof democracy when it calls on the centre to rank statesaccording to their performance. The suggestion that therating be done by an “independent” body of experts is notgoing to carry conviction about fairness, especially whenmore than half the states are ruled, as now, by parties notbelonging to the ruling coalition at the centre. Even whenthe judgments are fair, they will be suspect if states ruled bythe opposition are downgraded. The result will not be healthycompetition, but bitter acrimony.

One also wonders how the many indicators of performancewill be combined to generate a single index. By attachingweights? Obviously there will be an enormous play of subjectivity even in deciding what weights to attach to thedifferent parameters. In several areas such as employmentgeneration, the performance of a state depends largely oncentral policies and the policies may not affect all statesequally. Can such states be judged as “poor performers” forno fault of theirs? And what about fiscal performance? A statemay wish to provide public services at a nationally desiredlevel, but finds this impossible given the obligations underthe fiscal responsibility laws, which too the states have been“incentivised” to legislate to access the benefit of debt reliefheld out by the Twelfth Finance Commission.

Finally, there is the fundamental question of what empowersthe centre to sit in judgment over the states and reward/punish them for good/bad governance. In order that thetransfer of funds from the centre to the states (necessitatedby the division of functions and financial powers) does not make the latter subservient to the former, the Constitution has very thoughtfully mandated that the task be entrustedto an independent constitutionally-created body, the FinanceCommission. All revenue transfers and grants from the centreshould therefore be routed through the Finance Commission.That unfortunately has not happened with the PlanningCommission, an extra-constitutional body, coming into thepicture. The flow of grants for state plans, bypassing theFinance Commission, is something that the states have cometo live with, although central discretion in the matter ofallocating centrally sponsored schemes has tended to foulup both equity and efficiency. Grants by way of reward forgood performance clearly militate against the constitutionalscheme of inter-governmental transfers. By no stretch of imagination can Article 282, which is usually invoked insupport of plan grants (a matter that remains controversialeven now), be used to justify such a scheme of transfers.

Economic and Political Weekly January 14, 2006