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BW Businessworld

Towards Fiscal Federalism

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The day Narendra Modi was sworn in as the Prime Minister it rained in parts of Bihar, bringing relief from the scorching summer heat. The God-fearing people, as most of them are, construed it as a sign of things to come. A friend who was in that part of the country heard them saying: “If day one is so comforting, rest assured that coming days and months are going to change our lives.”

When I asked the same friend recently about the perception of the same set of people, his reply was: “They still believe that achche din will eventually come. But they have given up on the expectation of a miracle.”

You do not have to be a perceptive journalist or a wily politician to sense that something has changed in the last one year. Modi, the quintessential outsider who could do no wrong, has become the principal face of the establishment. After promising a lot to people, Modi faces the onerous task of delivering them. And delivery, as we all know, carries different meaning for different sets of people.

So what has been the delivery track record in the last one year? After a few months of what I call announcement overdrive, the new government has gone into the business-as-usual mode. Or so it seems. There have been quite a few big announcements — Make in India, Jan Dhan Yojana, Swachh Bharat Abhiyan, Digital India, smart cities and bullet trains. The General Budget was satisfactory and the Railway Budget future-oriented. Goods and Services Tax is set to become a reality soon. The government is bent on pushing through with the amendments to the land acquisition legislation. The latter has proved to be a tough task given the BJP’s numbers in the Upper House.

All through his first year as the Prime Minister, Modi spent a fair bit of time building sustainable ties with other countries and with considerable success. US President Barack Obama calling him “India’s reformer-in-chief” and one who is “determined to help more Indians follow in his path” was acknowledgement of that.

Announcements and frequent foreign trips aside, there are two areas where Modi has made a lasting contribution. The first and most important is his espousal of fiscal federalism. The adoption of recommendations of the Fourteenth Finance Commission was one aspect of it. The idea itself is powerful enough to change the country.

While we have been talking about devolution of power for quite a while, the real devolution will only come about once states build more financial muscle. Fiscal federation in letter and spirit will make that possible. Imagine states having resources and a blueprint to implement police reforms! Or panchayats executing digitisation plans on their own! States will no longer have the excuse of blaming the Centre for their lacklustre performance.

Modi’s efforts towards building a participative democracy are likely to yield results in the long-term. His frequent Maan Ki Baat in the language people understand and on issues people like to get associated with will help him establish direct connect with the people.

The author is the group editorial advisor of BW | Businessworld Group

(This story was published in BW | Businessworld Issue Dated 01-06-2015)