Context: NITI Aayog has been criticized for not taking any significant steps in promoting cooperative federalism. The author has used several instances to highlight that the central policies have undermined the spirit of federalism and eroded the autonomy of the states.

• The Cabinet Resolution of 1st January 2015 constituted the National Institution for Transforming India (NITI) Aayog. It replaced the Planning Commission of India with the main objective of promoting cooperative federalism.

• The resolution explicitly articulated that the States should not be seen as mere appendages of the Centre. They should have a decisive say in determining the architecture of economic growth and development.

• One of the major mandates of NITI Aayog is to strengthen cooperative federalism through structured support initiatives and mechanisms with the States on a continuous basis. It should be recognized that strong States make a strong nation.

Associated Concerns

• NITI Aayog has been criticized for not taking any significant steps in promoting cooperative federalism. The author has used several instances to highlight that the central policies have undermined the spirit of federalism and eroded the autonomy of the states.

• One such instance is about not accepting the recommendation of the Fifteenth Finance Commission and undermining its stature. The central government has been accused of not accepting the suggestion of special grants to three states, grants for nutrition, and grants to states for the year 2021-26.

• Another example quoted by the author is about off-budget borrowing. The decision has been taken to consider off-budget borrowings from 2021-22 onwards serviced from the State budgets as States’ borrowings and adjusting them against borrowing limits under Fiscal Responsibility and Budget Management (FRBM) in 2022-23. The government of India says that this is in accordance with the Finance Commission recommendations.

• However, it is argued that there is no such recommendation and instead Finance Commission recommended that governments at all tiers should observe strict discipline by resisting any further additions to the stock of off-budget transactions.

• Moreover, no high-powered intergovernmental group has been appointed to define debt sustainability and suggest amendments to the FRBM Act, as proposed by the commission.

• The borrowings of the states are used for capital investment but the off-budget borrowings of the Centre were used to meet revenue expenditure. The Comptroller and Auditor General of India (C&AG) Report on the Compliance of the FRBM Act for 2017-18 and 2018-19 showed eight instances of meeting revenue expenditure through Extra Budgetary Resources (EBR).

The central government has also resorted to levying cesses and surcharges. It should be noted that these are not shareable with the States under the Constitution. Some key details associated with cesses and surcharges are:

• The share of cesses and surcharges in the gross tax revenue of the Centre increased from 13.5% in 2014-15 to 20% in the Budget estimates for 2022-23. 

• The share of the States in the Central taxes is 41% (in accordance with the Fifteenth Finance Commission) but they only get a 29.6% share due to higher cesses and surcharges.

• According to the Audit Report of C&AG on Union Government Accounts for 2018-19, approximately 2.75 lakh crores were collected from 35 cesses and only 1.65 lakh crore was credited to different funds and the remaining amount was retained by the Consolidated Fund of India.

The states have also lost their autonomy due to the schemes

• Various committees have recommended reducing the number of Centrally Sponsored Schemes (CSS). However, these have been clubbed under broad umbrella heads (currently 28).

• Moreover, the States’ share in the number of CSS also increased in the year 2015. This has burdened the states further. It is also highlighted that most of the CSS are operated for subjects included in the State list.

• The Sub-Committee of Chief Ministers (appointed by NITI Aayog) also recommended the introduction of optional schemes and a reduction in the number of existing schemes. These recommendations yet remain to be acted upon.

• The three farm laws of 2020 (repealed now) were enacted under Entry 33 of the Concurrent List (trade and commerce) despite being agricultural law (subject in the State list). According to the author, their enactment was against the spirit of the Constitution as states were not consulted before introducing these bills.

Road Ahead

• Several instances have been highlighted where the spirit of cooperative federalism and states’ autonomy has been undermined. The NITI Aayog should take responsibility to strengthen cooperative federalism and make states equal partners in nation-building.

• Finance commission is balancing wheel of fiscal federalism. Share of states in central taxes may have increased but cess and surcharges have also increased. Off budget borrowing on states can lifted provided should reduce the unnecessary freebies in the state budget.