COOPERATIVE FEDERALISM
5.1 Planning Commission is committed to advance the principles of political, administrative and economic federalism so that, the energies of the people are pooled in the task of nation-building and ameliorating the poverty of masses. Planning by its very nature is a participative process in which governments at different levels, Panchayati Raj Institutions, Non-Governmental Institutions, Voluntary Action Groups and most. of all, the people at large, have to participate.
Union-State 'Relations in the Sphere of Planning 5.2 Over the years, some problems have surfaced in the Union-State relations in the sphere of planning. various commissions like Administrative Reforms Commission in the 1960's and Sarkaria Commission have examined the issues involved and made various recommendations. Some steps have been taken from time to time to resolve the problems but further improvement is necessary. The underlying issues are both substantive as well as procedural. The procedural issues mainly relate to the formulation of State Plans as also the system of monitoring and appraisal. The substantive issues include the role of Central Government in areas where responsibility for implementation is mainly of State Governments and the flow of Central assistance to the States.
5.3 As regards formulation of State Plans, various problems have been articulated at different fora. These include inadequate consultation with the State Governments in formulation of plans, detailed scrutiny of plan schemes by the Planning Commission and earmarking of outlays which leaves little discretion with the State Governments to decide their own priorities.
5.4 The formulation of State Plans comprises the following elements :
i) Determining the Plan size;
ii) Working out sectoral. and sub-sectoral outlays;
iii) Earmarking of outlays in important sectors/schemes.
Some changes were brought about during the course of Eighth Five Year Plan regarding the formulation of State Plans. Starting from 1993-94, the meetings between the Deputy chairman, Planning Commission and State Chief Ministers started to be organised right at the beginning of the exercise to fix a plan size for the State, keeping in view the likely resource availability. The States were required
105
to send their detailed Plan documents consisting of sectoral/sub- sectoral allocations subsequent to these meetings. This was an improvement over the earlier procedure under which sectoral and sub- sectoral requirements were worked out in the meetings of Working Groups set up in the Planning Commission and a Plan size was accordingly projected keeping in view the needs of various sectors. Since the resources available were invariably much lower than the needs, cuts were made in the sectoral/sub-sectoral allocations at a later. stage keeping in view the resource availability. Though the present procedure obviates the need for such cuts, the main problem of the Plan sizes turning out to be unrealistic continues. This is mainly because the estimates of the States, own resources, particularly the commitments regarding Additional Resource Mobilisation. (ARM) by the States do not often materialise. A look at the figures for the first four years of the Eighth Plan for the States' commitments regarding Additional Resource Mobilisation would indicate that actuals have fallen far short of projections. Another weakness of the present system. is that the packed schedule of annual State Plan discussions leaves little time for thorough analyses. There is no built-in discipline in the current system to ensure performance and accountability and in many cases year after year unrealistically large plan sizes get approved.
5.5 The present system of monitoring, review and appraisal of State plan schemes and projects is also riot entirely satisfactory. on the one hand, there is the perception of the States that there is too detailed a Secrutiny by the Planning Commission arid other organisations of State Plan proposals while on the other, there is a view that the Process of Central monitoring is weak. The Sectoral Working Groups' discussions take place once in a year at the time of Annual Plan discussions, and each working Group does riot get more than a few hours for its work. These discussions more often than riot are confined to reviewing broadly the physical and financial progress of the sector, and a qualitative analysis is limited.
5.6 Another problem is the practice of excessive earmarking of outlays. The practice was started in 1969 with the objective of protecting the outlays for important schemes and projects after the System of giving central assistance for specific schemes was done away with and a System of block loans and block grants was Started. Under the present guidelines, the earmarking is restricted to 50 per cent of the total outlay for Non-Special Category States and may be higher for Special Category States. Even though earmarking for important schemes/projects is done in consultation with the State officials, there is a perception that earmarking of outlays does affect maneuverability of the State Governments and encroaches on their autonomy and freedom to decide sectoral/sub-sectoral outlays suiting their needs.
106
5.7 Among the substantive issues in the sphere of planning, the most important issue is the financial crunch which is faced both by the Central as well as State Governments. The share of States in the total public sector outlay has come down and is likely to be around 36 per cent during the Eighth Plan. The States' perception is that this situation is the result of an imbalance between the Centre and the States in respect of both access to resources as well as sharing of resources. The Centre not only has access to more buoyant resources but also has an unduly large share in these resources. Demands have also been made to increase the grant component of Central assistance keeping in view the debt position of the States. The dissatisfaction of the States also pertains to the ever increasing number of Centrally Sponsored Schemes, which according to them, have made deep inroads into States, activities and have affected their initiatives and priorities. It has also been suggested that there is rigidity in implementation of these schemes which does not take into account the wide diversity prevalent in different States.
5.8 Dissatisfaction has also been aired regarding the allocation of Central assistance as per the Gadgil Formula. While some argue that the formula does not take care of the needs of backward States, as a result of which regional imbalances have increased, others feel that the formula does not reward good performance adequately.
Ninth Plan Approach : 5.9 The above issues which have a reflection on ressource availability for the States need careful analysis and public discussion. The Sarkaria Commission had looked into the issue of financial relations between the Union and States and had made some recommendations. The matter has been considered by the Inter-State Council recently wherein it was decided that its Standing Committee would review and update the recommendations of Sarkaria Commission.
5.10 Essentially, the problem of resource availability, which affects both the Centre and States, can be overcome only if there are greater efforts to tap the resource potential both at the level of Central Government as well as State Governments. Unless the resource availability improves, it may not be possible to channelise larger quantum of Central assistance or to increase the grant component to the States. The formula for allocations for Central assistance among different States had been approved by the National Development Council (NDC) in 1991. It is obvious that no formula can satisfy all the States. The matter would have to be discussed in the NDC. Planning Commission has, however, given consideration to the question of promoting balanced regional development and meeting the
107
basic necessities of life of the masses. Starting from 1996-97, additional allocations have been made to the States for seven Basic Minimum Services. Greater attention would need to be paid during the Ninth Five Year Plan to remove the gaps in the provision of Basic Minimum Services, in the levels of development of rural-agricultural hinterland and in the development of infrastructure so that no region/subregion and no group or groups of people remain deprived of the benefits of development. It would call for larger allocations to the States to meet these objectives and inter-state allocations would be determined on the basis of identified gaps in different States.
Centrally Sponsored Schemes 5.11 As regards Centrally Sponsored Schemes (CSS), there is no doubt that there has been a proliferation of such schemes over the years. Efforts have been made from time to time to transfer schemes to the States alongwith resources but such efforts have been of a very limited nature. The result is that in 1995-96 there were 182 CSS with a total outlay of the order of Rs. 16,000 crore. Many of these schemes relate to subjects falling squarely within the competence of the State Governments. In principle, Centrally Sponsored Schemes should be confined to schemes of an inter-State character; matters impinging on national security; selected national priorities where Central supervision is essential for effective implementation; and multi-State externally financed projects where Central coordination is necessary for operational reasons. Except for such schemes, all other schemes should be transferred to States alongwith corresponding funds. The exact details Of the schemes which can be so transferred would have to be worked out in consultation with the Central as well as State Governments so as not to cause any disruption in the field.
5.12 For meeting certain national development priorities as well as for tackling urgent socio-economic problems, the approach adopted in respect of seven Basic Minimum Services, introduced in 1996-97, has much to commend itself. This approach was adopted unanimously by all the Chief Ministers at a conference convened by the Centre. The modalities of this approach were also worked out in consultation with a group of Chief Ministers. It is, however, significant that additional funds are being provided as part of States, Plan and there is sufficient flexibility available to States to meet pre-defined objectives in areas of high social priority. A similar approach has been adopted in respect of the recently announced scheme for improving conditions in our slums. It is proposed that the model adopted in respect of these schemes should also be replicated in other important areas such as Hill Development, anti-poverty programmes, agricultural development or mega-city problems. Funds for tackling the specific problems of high priority should be
108
earmarked for achievement of pre-specified goals. However, such schemes should be implemented as part of State Plans and sufficient flexibility should be given to States for designing the programmes and for implementing them. Central ministries should be involved in monitoring and in disseminating information and analysis regarding "best practices" in respect of areas covered under such schemes. The main responsibility for managing the programme should be that of States, and not that of the Centre.
5.13 In a modified form a similar approach should be followed in certain important sectors/projects, viz., power, Selected major and medium irrigation projects, critical communication and agricultural development infrastructure, critical Science & Technology, programmes, national statistics and environmental standards. Detailed five year sectoral plans will be prepared for each of these sectors. The policy perspective for private sector participation will he detailed and investment expected outlined. Funds for these sectors both from Central Plan and in State Plan will need to be detailed and dovetailed and will have to be provided for. These will be monitored at the Central level. For remaining projects/plans a more decentralized procedure will be followed.
5.14 Another area which would need attention in the wake of greater autonomy to the States is the likely competition among States for location of industrial and other activities, which may lead to giving more concessions on taxes and subsidies. Populist measures have a tendency to spread because it becomes politically difficult for a State not to adopt such measures if neighbouring States have adopted them. It is necessary to move away from this type of competitive federalism to Cooperative Federalism. Planning Commission will work out a suitable framework of Cooperative Federalism and try to reach a consensus among States for much a framework on issues like harmonisation of tax structure, minimum tariff for certain services, cap on the level of subsidies and facilitation of inter-State trade flows etc.
Formulation of State Plans 5.15 Annual State Plans are operational documents to give effect to the five year plan priorities during the particular year and, therefore, the Planning Commission's link with the process of formulation of Annual State Plans would have to be maintained. However, the States would be free to decide the annual phasing of sectoral/sub-sectoral allocations, keeping in view the approved Five Year Plan outlay, national priorities and their own needs. There would be no need for a detailed examination of these allocations by the Working Groups set up in the Planning Commission. The Annual Plan documents prepared by States would be examined in the Planning Commission only to ensure their broad adherence to the Five Year Plans. Earmarking of
109
outlays would be restricted to the minimum extent necessary to meet the objectives outlined above. As regards the State's Plan size, Central Government's responsibility is to provide the central assistance and the State Government has to mobilise its own resources including Additional Resource Mobilisation. States would, therefore, be free to decide their Plan size taking into account the Central assistance and seek legislative approval for both the Plan outlay as well as the additional measures for resource mobilisation; there would be no need to obtain the approval of Planning Commission on the size of the State's Plan. This system will encourage better accountability and commitment of the State Governments to achieve the Plan size as decided by them. Some changes regarding categorisation of various sources of finance under State's own resources and Central support would also be effected during the Ninth Plan. Items like SLR based borrowings of the States as well as negotiated loans from institutions like LIC, GIC etc. would no longer be categorised as part of Central support.
5.16 Steps have already been initiated to improve the involvement of States in the planning process. The occasion of Annual Plan discussions for 1996-97 was used to take cognizance of States' perceptions regarding the priorities, approaches and strategy for the Ninth Plan and States were also requested to send their detailed views in this regard separately. These views have been taken into account while preparing the Approach Paper to the Ninth Plan.
5.17 As regards review and monitoring, this will be made more intensive and detailed in the Ninth Plan but would he undertaken as a participatory exercise with the State Governments once or twice during the five year plan period in as many State capitals as possible. Detailed formats for such reviews would be worked out so as to make the whole process more meaningful and fruitful. Such detailed meetings would enable. better interaction and sharing of experiences between the State Government officials and Planning Commission and enable Planning Commission to see the ground realities in a much more effective way. Efforts are being made to make Planning Commission a repository of best practices and models in development keeping in view the experiences of different States/ organisations. meetings at State capitals would provide an opportunity to the Planning commission to discuss such models for adoption and implementation in other States also.
Panchayati Raj and Decentralised Planning 5.18 The process of decentralisation and qrant of autonomy does not stop at the State level but has to be carried further by the State Governments to the regional and sub-regional levels. Democratic decentralisation through the Panchayati Raj system was adopted in the 1950s in some States. However after the mid-1960s the functions of these
110
institutions declined. Efforts were made to revive these institutions several times in the 1970s and 1980s, with little success. However, with the enactment of the Constitution Amendment Act (1992), Panchayati Raj Institutions (PRIs) have been revitalised and a process of democratic decentralisation has been ushered in.
5.19 Consequent to the 73rd Constitutional Amendment Act, State Governments have enacted enabling legislations providing for elected bodies at the village, intermediate and district levels, with adequate representation from the weaker sections and women. All the States have constituted State Finance Commissions and State Election Commissions as stipulated. Almost all the States have constituted Panchayati Raj bodies, with the exception of Bihar, Orissa, Lakshadweep, Pondicherry and the hill district of UP. In Manipur and Goa, Zilla Parishads have to be constituted.
5.20 The State Governments are further required to endow the Panchayats with power and authority necessary to enable them to function as institutions of self-government with the responsibility of preparing plans for economic development and social justice and implementing them. In the Ninth Plan, it is expected that the 29 subjects identified in the Eleventh Schedule would be transferred to Panchayati Raj institutions. Correspondingly, transfer of resources would have to be effected. In addition they would require personnel and administrative support. Staff engaged in particular works/ departments should be transferred along With the work, to the Panchayati Raj Institutions. In other words, there would be a need to redeploy the existing staff in various government departments rather than engaging new workers.
5.21 In addition to the grants out of the Consolidated Fund of the States and allocations received from Central Government for implementation of Centrally Sponsored Schemes, the Panchayats would have to be given revenueraising powers of their own. By and large Gram Panchayats nave relied largely on the grants of the States, as they have had very limited revenue-raising powers. The financial position of Panchayat Samities and Zilla Parishads has been even more precarious, as Panchayat Acts in many States have not specified any taxation powers for them. Therefore, it is necessary that specific responsibilities and resources are vested with the local bodies. In fact in the case of Centrally Sponsored Schemes, it is proposed that during the Ninth PI-an the flow of funds would be directly tied to the Panchayati Raj Institutions. Also, Annual Plans of the States would have to indicate the PRI component of their total plan. However, transfer of State resource would not meet the objective of Panchayati Raj. The Panchayati Raj Institutions must mobilise local resources and the State Acts must empower them to levy taxes and cesses at different tevels. This will be an important priority of 'the Ninth