The Regional Roundtable, Kochi, third in the series of Roundtables was held as a precursor to the 4th International Conference on Federalism on 26 - 27 July, 2007. The objective of the Roundtable was to identify cases and Case Presenters for the Work Sessions in the main Conference to be held between 5 - 7 November, 2007. The Roundtable was attended by civil servants and policy-makers from Departments of Finance, Home, Panchayati Raj, Rural Development, Water Resources and Urban Development from the four southern States of Andhra Pradesh, Karnataka, Kerala and Tamil Nadu, and experts and academicians.

·   Diversity and plurality are among our greatest strengths, notwithstanding the sporadic expression of concerns regarding its potential for fueling fissiparous tendencies on part of some quarters. The political, cultural and linguistic diversity constitutes the very DNA of Indian way of life, thus stated Mr. Amitabha Pande, Secretary, Inter-State Council (ISC) in his Welcome Address. He said that the Council is mandated to play a pivotal role in consensus-building on policy aspects, notably and more significantly, prior to policy formulation. The Council does so by undertaking high-quality and peer-reviewed research papers. He shared Gandhi’s vision of autonomous villages constituting part of the one big whole.
 

·   Dr. N. R. Madhava Menon, Member, Centre-State Relation Commission in his Keynote Address lauded the wisdom and far-sighted vision of the framers of the Constitution of India who while providing for a strong Centre ensured that the States are not rendered weak. It provides for, what Birch calls, an example of ‘cooperative federalism’. He said that Entry I of Schedule I of the Constitution deals with areas where Centre can frame laws. The provisions of the Constitution as also their judicial interpretation by the highest Court have upheld the legitimacy of Centre’s intervention in event of internal disturbance and external aggression. The phenomenon of terrorism has been interpreted as a subject fit to be handled under Entry I of Schedule I. The discussion on Police Reforms assumes seminal significance in this background.

·    A brief record of viewpoints expressed during different Sessions is presented below:

Session 1 :- Role of the States in the light of the increasing emphasis on Police Reforms.

·   Mr. Prakash Singh, ex-DG, BSF apprised of the current status of the directions given by the Supreme Court in a writ petition filed by him for implementation of Police Reforms. While 9 States have implemented the directions of the Court, others are at various stages. He also made a plea for a clear definition of terms like ‘federal crime’ and ‘breakdown of Constitution’
 

·   Mr. Ved Marwah, ex-DGP noted that Constitution uses the word ‘Union’ and not ‘Centre’. Hence, interventions which tend to be viewed as infringements of States’ powers are examples of malperception. He rued the increasing collapse of control and command, and diminishing accountability of police force and said that it was not sufficient to have only the trappings of democratic structures but it was very vital to have the real substance in these structures. Systems and mechanisms need to be firmly laid to reduce politicization.
 

·   Both Ms. Anita Chaudhary, Additional Secretary, MHA and Mr. UNB Rao, IPS (retd.) and Consultant, MHA presented the latest status of MHA’s stand on police reforms. The proposal for a federal law and order agency to deal with specific crimes in Union Territories is under consideration of the Cabinet. Mr. Jacob Punnoose, DGP, Kerala spoke of the rising inter-State crimes whose jurisdiction lies within Central Acts, namely, in matters relating to Income Tax and Customs. Mr. R.N. Sawani Addl. DGP, Tamil Nadu said that the State is examining the draft Police Act circulated by the Centre. He further said that it is not only the police reforms, the entire criminal justice system merits to be revisited for reforms. Mr. Sudhir Tripathy, Principal Secretary, Home, Jharkhand spoke of disconnect between level of responsibility and quality of governance. The Supreme Court has given two directions regarding selection of DGP: one to have one of the three senior most police officers as the DGP, and second to have him selected by the UPSC. While the State of Jharkhand is agreeable to the first direction, it is not so to the second. Mr. Amitabha Pande, Secretary, ISCS favoured decentralization of police powers in favour of the lowest units and their being made accountable to the Associations of Local Residents. Mr. K. Jairaj, Principal Secretary, Panchayati Raj, Karnataka underlined the need for development of human resource and capacity building. Dr. Prodipto Ghosh, Distinguished Fellow, TERI and former Secretary, Ministry of Environment and Forests expressed the view that the judiciary should function within the limits laid for it viz. directing the framing of laws as against their framing the laws themselves. Prof. M. P. Singh, HoD, Political Science, DU underlined the need for striking a balance between excessive centralization and excessive devolution.

Session 2: Role that the Inter-State Council can play in policy making /strategy planning in a federal system and in improving intergovernmental interactions.

Mr. Amitabha Pande, Secretary ISCS, observed that the facts of the Prime Minister being the Chairman of the Council, and of the Council owing its existence to constitution’s Article 263 are strong enough testimony to the important role that the Council is intended to play. Mr. Suresh Keswani, Chairman, National Linguistic Minorities Commission of India, and Member, Consultative Group, ISCS, flagged the need for strengthening democratic institutions, and effecting the resultant amendments in the Constitution, if necessary. Prof. Balveer Arora, JNU and Member of Consultative Group, ISCS, suggested that the ISCS should engage more in formulating policy alternatives, benchmarking of best practices, and undertake research studies and brainstorming sessions towards this end. There should also be an organic link between the ISCS and Central State Relations Commission. Dr. Rekha Saxena, Centre for Federal Studies, Jamia Hamdard, Member of Consultative Group, proposed merger of ISCS with NDC or vice versa. Mr. Ramakrishna Iyer, former Secretary, MoWR, favoured greater independence of ISCS, and its being placed in the Cabinet Secretariat or PMO. Mr. Laxminarayanan, former Secretary, ISCS disfavoured the merger as suggested by one of the speakers. Prof. V. N. Alok, IIPA, also endorsed the view that ISCS needs to be made more effective and its neutrality reinforced. Article 307 of Constitution provides for a vaster scope for its functioning.

Session 3: Challenging and complexities of Governance of Megacities in Federal Systems.

·   Mr. M Ramachandran Secretary, Ministry of Urban Development said that the 74th amendment in the constitution provides for de-centralization and devolution of powers for governance of urban areas. Major governance reforms have been initiated under JNN URM, the major flagship scheme. The thrust will be on improvement in urban transportation, provision of basic infrastructure for amenities, rehabilitation of slum-dwellers, and reduction in taxes on urban properties. He said that the governance of urban areas and working of Urban Local Bodies is not part of TOR for Centre State Relations Commission (CSRC) while that of functioning of Rural Local bodies is. He acknowledged the need for strengthening the third tier of urban governance through various means, more particularly by going beyond legislative changes. State Govt. of West Bengal has listed 28 activities for urban local bodies. Dr. Prodipto Ghosh, Distinguished Fellow, TERI, and former Secretary, Ministry of Environment and Forests flagged the critical contemporary issues in terms of spatial vs. vertical development; market imperfections leading to undervaluation of agricultural land; fragmented as against coordinated approach due to multiplicity of agencies; irrationality in tariff structures; excessive centralization; exclusive nature of urban growth and development, characterized by denial of amenities to the poor and deprived; across-the-board subsidization; and element of adhocism in planning. Both the political and administrative functionaries are governed by the approach of NIMTO (Not In My Tenure In Office). There is a case for rationalized taxation, and larger role for public-private partnerships and for increasing role for Community-Based Organisations and Resident Welfare Associations. Dr. Ghosh observed that the ISC could take up issues of pricing, policy formulation and regulatory regimes related to urban governance.

1. Mr. K. Jairaj, Principal Secretary, Panchayati Raj, State Government of Karnataka spoke about the expanding territories of metro cities and their swelling population; limited human resource capacity in various technical financial accounting and IT skills; adversarial relationship among various stake-holders viz civil servants, corporators, legislators, members of Parliament; limited fund flow from State Governments to local bodies, with main source of income being property tax only (40% of the total sales tax of Karnataka is collected in Bangalore nothing flows back to Municipal Corporation, Bangalore); public apathy to violation of zoning regulation; thwarting of building and zoning regulation by obtaining the Stay Orders; and lack of execution abilities. He suggested major revamping of civic services; massive drive to build capacities; corporatization of ULBs; and initiation of legislative changes for ensuring these and other changes.

Session 4: Functioning of Local Governments and their relationship with upper level of Governments.

·   Ms. Meenakshi Dutta Ghosh, Secretary, Ministry of Panchayati Raj, GOI highlighted the vast divergence between countries like China and Brazil on one hand and India on the other in terms of percentage share in the Consolidated Public Expenditure through Panchayats (China’s being 51% and India’s 3%), and as percentage expenditure of GDP through local bodies (China’s being 10.8%, and India’s 0.75%). She spoke of the reluctance on part of both Centre and States in empowerment of Panchayats. She said that the 73rd Amendment in the Constitution leaves the entire process of devolution to the States. Thus, the greater responsibility may, therefore, vest with the States. However, the Centre also has its obligation to discharge. Following the Xth Finance Commission’s recommendations, the States are expected to pay a penal interest of 6% to rural local bodies (RLBs) for delay in release of funds due to them. However, the quantum of allocation under Central Sector and Centrally Sponsored Schemes which continues to be as high as Rs. 81,000 crores has no such stipulation. Much of it should go to the State Sector and RLBs and delay in release should invite payment of penal interest to RLBs by the Centre / States, as the case may be. Mr. Raghunandan, Joint Secretary, PRI observed that Article 243(N) of Constitution provides for empowerment for Panchayats but its implementation has been over-looked. He stressed the need for activity-mapping in terms of tasks that can be taken up by local bodies under each Central and State level scheme. This will also need to be accompanied by smooth flow of funds to the local bodies and enlargement of the ambit of taxation by them. Mr. Vijayanand, Principal Secretary, Deptt. of PRI, Kerala dilated on the good practices followed by the State Government of Kerala in empowerment of rural local bodies and designation of the better performing Panchayats as Beacon Panchayats.

1. Principal Secretary, PRI, Jharkhand observed that another source that sometimes comes in the way of empowerment of RLBs is the Judiciary that grants Stay Orders on flimsy grounds and stalls the process of elections to RLBs. There is clearly a need for amendment in the Constitution to make it mandatory for the States to hold elections to the Panchayati Raj Institutions. Continuing further he said that the fund flow under the MPLAD Scheme is not consistent with the avowed empowerment of Panchayati Raj Institutions. There are a number of instances when funds under MPLADs have been used for personal aggrandizement. Flow of funds to PRIs is a much more egalitarian usage of funds. Principal Secretary, Panchayati Raj, Karnataka pointed out that both MPs and MLAs in his States are opposed to devolution of powers in favour of Panchayati Raj Institutions. The inter-relationship among these Institutions has witnessed a great deal of flip-flop; it was only the pressure exerted by the civil society that led to the Governor’s returning the Bill which had proposed truncating of the powers of PRIs.

Session 5: Problems and issues in sharing of River Waters and possible interlinking of Peninsular River.

·    Mr. Suresh Prabhu, MP and former Minister of Power and Chairman of the Committee on Interlinking of Rivers initiated the discussion by observing that as against India housing 16.8% of the world’s population, it possesses only 4% of the water resources. The day may not be far when India may have to import water just as Singapore does from Malaysia. The finite nature of the water as resource is likely to be a cause for much tussle and tension in years to come.

1. Mr. Ramaswamy R. Iyer, former Secretary, Ministry of Water Resources expressed the view that project on Interlinking of Rivers (ILR) is seriously flawed in so far as it is environmentally adverse, and socially and economically disruptive. Its techno economic viability is also doubtful. The remedy lies in restraining the use of water i.e. recourse to a more prudent use of water in intra-basin area rather than inter-basin transfer of water. There is need for focus on rain water harvesting and watershed management. He presented the issue within the framework of Constitutional provision. The subject of water figures at Entry 17 of List II i.e. State List and the subject to the provisions of Entry 56 of List I i.e. the Union List.. Article 131 provides for settlement of inter-state disputes and Article 262 provides for adjudication on water disputes. The relative lack of precision and clarity about the role of various agencies viz-a-viz the resource of water has only got accentuated due to the infrequent periodicity of the meetings of the National Water Council and its consequential ineffectiveness, and rather brief and generalized enunciation of the National Water Policy of 1987. A school of thought favours putting the subject of water in Concurrent List , though giving effect to such a proposal is highly improbable. Considering the limitations of adjudication under Article 262 of the Constitution, a section of thinkers favours putting inter-state river water disputes within the jurisdiction of Supreme Court, and repealing of the Inter-State Water Disputes Act (ISWDA). Although under the existing provisions of the Constitution, the Supreme Court is not expected to entertain issues involving resolution of water disputes, it has done so in the case of Cauvery dispute under Article 136 which actually relates to the Supreme Court’s discretion to grant special leave to appeal. The flawed situation of the Supreme Court having crippled the jurisdiction of the Tribunal has occurred due to the absence of effective advocacy on this issue.
 

2. Dr. Hari Ram, Vice Chairman, Cauvery Technical Cell, Government of Tamil Nadu held a brief for interlinking peninsular rivers. Mr. A. D. Bhardwaj, representing the Ministry of Water Resources observed that there was gross mismatch between the gravity of the acute shortage of water and depleting ground water levels on one hand, and extremely slow process of agreements and negotiations with States. He made out a case for an approach which favoured both inter-basin water transfer, and intra-basin water harvesting. Dr. Prodipto Ghosh, former Secretary, Environment & Forests underlined the need for taking a well-considered call on the subject of reconciliation between environmental and developmental issues, taking into account the cost benefit aspects of the project. Mr. S. Vardhachari, former Additional Chief Secretary, Kerala, argued in favour of subsidizing production of millet, barley and pulses vis-à-vis water intensive crops like rice and wheat. Mr. Suresh Prabhu, Chairman of the Session suggested that Inter-State Council may act as a forum for completing the studies initiated by the Committee on Interlinking of Rivers. The ILR Committee is guided by the idea of benefit-sharing among all stakeholders. As for the impact of the proposed interlinking of rivers on environment, he spoke about the trade-off between the envisaged costs and benefits. While acknowledging the need for rain water harvesting, a more effective regulatory regime, tariff rationalization and crop-shift for a more prudent use of water, he endorsed a strategy that favoured both intra-basin and inter-basin measures.

Session 6: How does the economy move towards a harmonized goods and services tax without impacting on State autonomy and sensitivity to diversity?

And

Session 7: Maintenance of economic stability and state autonomy within Constitution framework, and potential for conflict in fiscal arrangements at policy and administrative levels.

·   Mr. Thomas Isaac, Finance Minister, State Government of Kerala, chairman of the two sessions remarked about the need for increase in States autonomy to decide the tax rates, keeping in view the social sector needs of a given State. The vertical imbalance in distribution of resources between Centre and States needs to be corrected. The introduction of Generalized Service Tax (GST) should lead to availability of greater resources for States. The fiscal federalism warrants freedom and flexibility to decide the rate of tax. 65% of Kerala’s tax revenue flows from service sector. A larger share in the GST will provide the much needed increase in resources. Mr. Narayan Valluri broadly agreed with the viewpoint expressed by Mr. Isaac. The State Governments derive revenue from four main taxes namely, excise on liquor and medicines, stamp duty ,VAT and service tax. He did not see much merit in the school of thought that believes that autonomy in matters of expenditure is good enough and that there is less need for autonomy in revenue generation and mobilization. Following the FM’s Statement on GST in the Budget Speech, a clear picture providing detailed contours is yet to emerge. Based on the interpretation provided by eminent economist like Mr. Vijay Kelkar, it appears there would be only three taxes namely Income Tax, GST and Property Tax. It would lead one to believe that GST will subsume Sales Tax/VAT and Service Tax. In this context the States worry to have an adequate compensatory substitute of Sales Tax is well-founded. Ms. R. Jeejabai Mane, Deputy Commissioner, Commercial Taxes, Karnataka observed that dual GST could be a possible model as practised in Brazil and Quebec (Canada).

1. Mr. Jose Cyriac, Principal Secretary, Finance, Government of Kerala and Mr. Paul Antony, Commissioner, Commercial Taxes, Government of Kerala made a joint presentation and drew attention to the decline in the weightage from 3.20% to 2.66% for determining Kerala’s share in Central revenue. The Central Government have been given the power to levy Service Tax since 1988 - 89. The State of Kerala is most unhappy with the Centre’s exercise of increasing control over Service Tax and its widening net which includes services like banking, telephone services, insurance and many other auxiliary services. The Centre now proposes to reach the minimum retail level. Apart from being unfair, it was impractical as the Centre has no machinery to collect Service Tax upto retail level. Continuing further, he said that it would not be desirable to distribute specific services and goods between Centre and the States, for the Centre, in that situation, is likely to retain the more remunerative areas and assign the less profitable ones to the States. The concept of concurrent taxation would be a preferred proposition. Mr. Suresh Prabhu, former Power Minister also observed that traditionally and historically Finance Commissions have penalized better-performing States.
 

2. Mr. Yogender Tripathi, Principal Secretary (Finance), Karnataka expressed the view that a dual GST would be more equitous than a single GST. Mr. V. N. Alok from Indian Institute of Public Administration said that there was a strong case for harmonization between Goods and Services Tax system. He expressed the view that there could be a floor rate of taxation fixed by Centre, with the freedom being given to the States to decide the rate of taxation above the floor level. Historically the economy has placed higher reliance on indirect taxation unlike the Scandinavian countries where greater share of revenue flows from direct taxes. The citizenry is fine with higher rate of direct tax if it is assured of its proper usage. Mr. Thomas Isaac, State Finance Minister, Kerala referred to the perpetuation of inequities by the Centre during the last 50 years and made a plea for their being set right. Let there be a dual tier of GST, and let the States be given the right to decide the chargeable rate of taxation. From 90s onwards the State expenditure has been on the rise and the revenue devolution has fallen from 5 to 3 as a percentage of GDP, leading to States being caught in a situation of debt trap. The Financial Rules-based Management System (FRBMS) imposed by the Centre does not flow from the constitutional provisions. The State Finance Minister, Kerala expressed dissatisfaction with the pattern and quantum of fund flow under Centrally Sponsored Schemes, Additional Central Assistance and Special Assistance as also with the recommendations of Finance Commissions from time to time. The decentralization is more in theory than in actual practice, going by the extent of direct flows to Panchayati Raj Institutions.
 

3. Prof. Vinod Vyasulu, Centre for Policy Studies, Bangalore proposed that the ISC / CSRC may undertake the exercise to calculate the revenue needs of the Centre. Mr. S. Vardachari, former Additional Chief Secretary, Kerala expressed the view that there was a vast scope for cutting down the numbers of Ministries and Departments in the Central Government. Broadly 90% of the expenditure incurred by the Central Government is on subjects that should be dealt with at the State level. Dr. Prodipto Ghosh, former Secretary, Ministry of Environment & Forests and at present Distinguished Fellow, TERI said that in a scenario marked by divergent development trajectories, the incidence of direct taxation will not diminish. The Central Government should provide funds for the backward States subject to certain benchmark for the performance being observed. On the question of increase in the fund flow to local bodies form the State level and the plea made by Mrs. Meenakshi Dutta Ghosh, Secretary, Ministry of Panchayati Raj in favour of 5 Fs for the rural local bodies namely, Finance, Functions, Functionaries, Freedom and Fraternity, the State Finance Minister of Kerala said that the State of Kerala passes on 40% of the funds for development work to rural local bodies, and does not visualize conceding more space to local bodies. He said that he would write to the Inter-State Council to reflect his State’s concerns in the Terms of Reference for the XIIIth Finance Commission.

The Regional Roundtable, Kochi ended with a vote of thanks to the Chair