Brief Overview of Center-State Power

Why does the Center have so much power in India? Why doesn’t the country have a more federal (more power to the states) structure? Nilakantan RS goes into that question in South vs North. If you expect all blame to fall on the two most powerful PM’s of India – Indira Gandhi and Narendra Modi – you will be disappointed. But if you want to understand a complex topic, read on.

 

The idea of more power to the Center comes from our colonial masters, the British. After all, they wanted to extract maximum benefit from the unit called India – they weren’t trying to administer each region best. Back then, when Bengal was given maximum powers as the Center, the states like Madras Presidency and Bombay Presidency protested. To little avail.

 

Ok, but why didn’t we change that at the time of independence? As independence approached, states did ask for greater power. Jinnah was one of its supporters – he was hedging his bets. If a separate country would not be created for the Muslims, power to the states would address part of his concern. Ironically, it was Jinnah’s support for greater power to the states that drove Nehru to want more power at the Center. If all states thought of themselves as practically independent entities, Nehru feared, India as a country would collapse. Besides, the country as a whole needed to be industrialized, felt Nehru. That could only happen with a strong Center. And so, independent India started with more power at the Center.

 

How does the Center use its power? While people get worked up about specific topics, most of the Center’s power is wielded by controlling the flow of finances from Center to the states.

 

 Nilakantan explains there are two broad principles used to decide how much money goes from Center to the states. This, by the way, is common across most large countries across the world.

 

The first principle is vertical, i.e., the more a state contributes to the Center’s finances, the more it should receive from the Center. This principle makes obvious sense, so I won’t expand on it.

 

The second principle is horizontal. The idea is that the entire nation should rise in its economic status – think of it as a kind of socialism among states. The horizontal principle, then, is an attempt to equalize outcomes across states.

 

The devil, as Nilkantan says, is in the formulas and politics that goes into deciding exact amounts via the vertical and horizontal principles. Some aspects of these formulas are problematic, by definition, even without bad intentions. Logically speaking, the amount that should go to a state based on the horizontal principle should factor in for its population. But that very reasonable point leads to a new problem when the most populous states are the worst-off states.

 

Which brings us to a uniquely Indian problem, says Nilakantan. In most other countries, the most populous states are the richer states (think California or New York or Texas in the US). Therefore, the formulas result in horizontal transfer to the poorer states that are less populous. Since the formulas involve population counts, the amounts are smaller and can be absorbed by the richer states. Not so in India, as Nilakantan rightly says. Here, the poorest states are often the most populous states which make the horizontal transfer feel excessive to the richer states. If the southern states had to only fund the North East, he says, they wouldn’t be so angry.

 

Following a Western model may then be part of the problem here. But figuring a better model, and then convincing the recipient states to accept that new model which would give them less money than before, well, that is going to very hard.

 

While there’s no solution (yet), the book does an excellent job of explaining the topic.