Centripetal Bias in the Federal Fiscal Relations in India, Growing Regional Disparity and Feeling of Discrimination: A Case Study of West Bengal

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Abstract

Die Republik Indien ist ein Bundesstaat, doch ihr Föderalismus hat einen stark unitarischen Charakter. Dies kommt auch in den finanziellen Beziehungen zwischen Bund und Ländern sehr deutlich zum Ausdruck. Es gibt hierzu bereits eine sehr reichhaltige Literatur. Viele Kommissionen haben sich mit diesem Problem beschäftigt. Die Regierungen der Bundesländer haben ihren Protest gegen die als ungerecht empfundenen Maßnahmen der Bundesregierung auf verschiedene Weise artikuliert. Bisherige Untersuchungen haben meist die Staatsfinanzen Indiens insgesamt unter solchen Gesichtspunkten behandelt. Es fehlt jedoch an Untersuchungen, die die föderalen Finanzbeziehungen aus der Perspektive eines Bundeslandes betrachten. West-Bengalen bietet hier einen besonders interessanten Fall. Bengalen war eine der reichsten Provinzen Britisch-Indiens. Aber ein Diversifizierung der bengalischen Industrie unterblieb, und das Bundesland war nach wie vor auf die metallverarbeitende Industrie angewiesen, die von Rezessionen besonders betroffen wurde. Die Unzufriedenheit der bengalischen Wählerschaft, in der Arbeiter und Angestellte eine bedeutende Rolle spielten, führte zu einer zunehmenden politischen Radikalisierung. Seit 1977 wird West Bengalen ununterbrochen von einer Landesregierung beherrscht, in der die Kommunisten den Ton angeben. Da diese Landesregierung stets in Opposition zu den Parteien stand, die die Bundesregierung bildeten, fühlte sie sich von der Bundesregierung benachteiligt und artikulierte daher die zum Teil sehr berechtigte Kritik am föderalen Finanzsystem auf besonders scharfe Weise. Anschuldigungen einer politisch motivierten stiefmütterlichen Behandlung durch die Bundesregierung eigneten sich auch dazu, von eigenem Versagen abzulenken.

Translation of abstract (English)

The centripetal bias of federal fiscal transfers (institutional as well as budgetary) in India tends to accentuate vertical imbalance i.e., the imbalance of fiscal power between the sub-national governments (States) and the national government (Centre) as well as horizontal imbalance i.e., among the States favouring richer States than poorer. States in India not only suffer from direct effect of Central resource transfers between the Centre and the States and the States inter se but also indirect effect i.e., vertical fiscal overlapping functions between two level of governments on the one hand and disharmony in the Indian tax system in general and sales tax system (which is one of major and buoyant sources of revenue of the States) in particular on the other. That, coupled with pre-exiting inequality in the level of development among the States/regions have adverse impact on the fiscal capacity of the States, mainly poorer States, widening regional imbalance. Eventually, such regional disparity in the Indian federation gives rise to the feeling of being disfavoured or being discriminated against. During the pre-Left Front (1977) era in West Bengal, although, the accusation of being deprived in Centre-State resource devolution was levelled first by the Congress government of the State, any demand for a radical re-structuring of the existing federal system of India through amendment to the Constitution was never considered as an option. Style of bargain underwent a sea change soon after the United Front government (1967-69) (CPI (M) being the major partner) government came to power. During their short tenure they laid the foundation of seeking radical change of the Indian federal structure to be further consolidated by the Left Front government ever since 1977. There was, however, a considerable shift over time from the earlier radical position of the CPI(M)-led Left Front government to a more accommodating position. Taking off as a voice against a basic structural lacuna of the Indian federalism and seeking far reaching structural change of the Indian Constitution and of the existing class relations, the party led the Left Front government slowly to shift its centre of gravity more towards the operational aspects of federal fiscal relations since the mid-1980s. This is how they started accommodating themselves with the existing federal system of India dumping altogether the demand for basic structural change of the Indian federation. During the 1990s such shift experienced further qualitative and dramatic turn. The party ended up with accepting the very structure during 1990s on the plea of making the best use of the existing limited autonomy available to the States in the area of industrialisation in the milieu of neo-liberalism. Side by side with this trend, the whole movement against the Centre since the mid-1980s in West Bengal was also constructed on the basis of a rather emotive slogan of being discriminated against by the Centre. This was considered time-specific, State specific and politically motivated discrimination (due to the presence of CPI (M)-led government) against West Bengal while singling out the State of West Bengal not only from the rest of the Indian States but also from the historical, cultural and economic reality of the State and had become the main weapon of anti-Centre struggle of the party, especially during the whole 1980s and until the mid-1990s lacked integrated approach and proper perspective. In pursuance of the study of politics of discrimination in the Indian federal structure an integrated approach needs to be pursued. Each State in the Indian federation is subject to four main types of constraints. Firstly, Indian federation has a long centripetal bias and imbalance of fiscal power between the States and the Centre, that, however, tends to affect all States in general and a concerned State in particular regardless of their/it’s stage of development. Secondly, the State belonging to a less developed group has added disadvantage of being discriminated against while rich income States are favoured. Thirdly, the State belonging to a poor region namely eastern region has other typical handicaps resulting both from historical development and the post-Independence development of this region. And finally, there are some State-specific constraints that are also partly the legacy of the pre-Independence period and partly the outcome of the post-Independence development. Such State-specific factors also seem to play an important role in determining the course of development of a State and the benefit which can accrue to the State. Without having such integrated approach of addressing the perception of discrimination of a particular region or the State, either one would be confined into the macro perspective of inter-State imbalance of the Indian federation and would miss the State specific particular problem or one would be pre-occupied with the State specific problem and consequent feeling of being discriminated against, that would obviously lack broader perspective.