Hindu Editorial Analysis : 29-July-2024
The recent Governing Council meeting of the NITI Aayog saw several State and Union Territory representatives absent. This highlighted important structural and functional issues within India’s federal framework. As India evolves, revisiting the concept of fiscal federalism is crucial.
Understanding India’s Federal Structure
India’s Constitution established the nation as a union of States, focusing on unity and integrity. Over the years, however, the country has transformed economically, politically, and socially. To keep pace with these changes, it’s important to rethink how resources are allocated and managed among states.
The Role of NITI Aayog
NITI Aayog was created in 2015 to replace the Planning Commission. Its purpose is to encourage “Co-operative Federalism” rather than a top-down approach. Key points about NITI Aayog include:
- Advisory Role: It primarily provides advice and lacks the power to distribute funds directly.
- Conditional Transfers: Unlike the Planning Commission, which provided direct grants, NITI Aayog does not have sufficient financial resources to implement transformational projects.
- Resource Allocation Needs: For effective state support, NITI Aayog should receive significant resources, possibly 1% to 2% of GDP, to help lagging states.
Current Challenges in Federalism
Vertical Imbalance
This occurs when the Union government collects more taxes than states, despite the latter having greater responsibilities. For example, since the introduction of GST, states now handle 60% of public expenditure.
Horizontal Imbalance
This refers to the differences in development levels among states, influenced by varied growth rates and infrastructure. Two types of horizontal imbalances exist:
- Type I: Related to basic public goods and services.
- Type II: Linked to infrastructure deficits hindering growth.
Structural Issues within NITI Aayog
Transition Challenges
The shift from a centralized Planning Commission to a more dynamic NITI Aayog brought initial hurdles. Critics argue that it lacks the authority and resources needed for effective governance.
Composition Concerns
NITI Aayog includes all State Chief Ministers and Union Ministers, which can create conflicting interests. The presence of Union Ministers might overshadow state concerns.
Resource Constraints
Without direct financial resources, NITI Aayog relies on the central budget, limiting its ability to support state-level initiatives effectively.
Functional Issues Facing NITI Aayog
Limited Policy Execution
While NITI Aayog can recommend policies, actual implementation falls to individual states, which may diminish its overall impact.
Lack of Statutory Powers
NITI Aayog operates as an advisory body, lacking the legal authority to enforce policies. Some experts suggest giving it more power for better coordination between the Centre and states.
Balancing Cooperation and Competition
NITI Aayog aims to promote cooperative federalism, but some argue for a blend of cooperation and competition. States should be encouraged to enhance governance and attract investments.
Recent Recommendations
Common Vision for Development
The Prime Minister emphasized the importance of a shared vision for India’s development by 2047. He urged states to adopt financially prudent measures and use tools like the Gati Shakti Portal for better infrastructure planning.
Best Practices from States
States have shared various successful strategies in areas like green planning and tourism.
Support for MSMEs
NITI Aayog is also pushing for simplified e-commerce routes for Micro, Small, and Medium Enterprises (MSMEs) to facilitate exports and integration into global value chains.
Why In News
The recent Governing Council meeting of the NITI Aayog, which was notably skipped by representatives from several States and Union Territories, underscored both structural and functional issues, raising concerns about the effectiveness of federal cooperation in addressing regional needs.
MCQs about Revisiting Fiscal Federalism in India
- What was a significant reason for the absence of representatives at the recent NITI Aayog meeting?
A. Lack of interest in federal issues
B. Ongoing political disputes
C. Structural and functional issues within the framework
D. Scheduling conflicts
- What is the primary role of NITI Aayog?
A. Distributing financial resources directly to states
B. Formulating and advising on policies
C. Enforcing central government policies
D. Conducting elections
- What type of imbalance arises when the Union government collects more tax revenue than the states, despite states having greater responsibilities?
A. Horizontal Imbalance
B. Vertical Imbalance
C. Fiscal Imbalance
D. Budgetary Imbalance
- Which approach does NITI Aayog aim to promote in its operations?
A. Centralized Planning
B. Competitive Federalism
C. Co-operative Federalism
D. Isolated Federalism
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