By Nageshwar Patnaik in Bhubaneswar, December 27, 2018: As the day of reckoning is drawing near, the major issues of political and economic significance will be revved up. Odisha chief minister Naveen Patnaik has exactly done that when he revived his legendary father late Biju Patnaik’s demand for financial autonomy for the state.

The states in India are still not as fiscally autonomous as they were a decade back. Incidentally, the recommendation of the 14th Finance Commission to transfer 42% of Union taxes to states has been projected by the Narendra Modi government as a big boost to fiscal autonomy of states, marking a historical shift in the financial relations between the Centre and states.

Modi called the decision his first step towards realizing his popular and desirable slogan of “cooperative federalism”. True, there has been a sharp jump in the ratio of unconditional transfers to states; it still falls short of what it was a decade ago, analysts have pointed out.

“……but I am not sure that its invocation of “cooperative federalism” has substance or clarity, and the idea of using Finance Commission awards to reward good behaviour is an old one that had limited success. My own analysis suggests that giving the states more fiscal autonomy, making their budget constraints certain and clear, and pushing them to do better in the basics of public finance accounting, will achieve better outcomes”, Professor of Economics, University of California, Nirvikar Singh recently wrote in a newspaper analyzing a report titled “An economic strategy for India; here is what government must look into”.

In the Indian federal system the states should be given appropriate authority to develop their states rather than being made a victim of the excessive power and authority of the centre, late Biju Patnaik had said making it clear that this has given rise to strong fissiparious tendencies.

Biju believed that unless the states become strong, India can never be a strong nation. That is why when he fought for Odisha’s development, it was not by reason of any narrow consideration but to make India stronger as a whole. He realized that true federalism will result in strengthening India’s unity in diversity and will hasten the pace of progress of our nation as a whole.

Now that his son, Naveen has raised the demand for financial autonomy, it is bound to force national political parties take a clear stand and include fiscal autonomy in the manifestoes in the run up to the 2019 General Elections, political analysts said.

Equitable regional development and development of underdeveloped states is still a far cry largely due to the neglect and lopsided policies by the central government. For instance, control of industries, which was a subject in the concurrent list in the Government of Indian Act, 1935, was transferred to the Union List. The Union government in 1952 introduced the freight equalization policy that damaged many Indian states, including Odisha, West Bengal, Bihar (including present-day Jharkhand) and Madhya Pradesh (including present-day Chhattisgarh). These states lost their competitive advantage of holding mineral resources, as factories could now operate anywhere in India.

This was not the case in the pre-independence era when business houses such as the Tatas and the Dalmias set up industries in these states, and most of the engineering industry was located in West Bengal. Following the end of the policy in the early 1990s, these states did not catch up with more industrialized states. And the removal of the freight equalization and licensing policies cannot compensate for the ill that has already been done.

“By raising the issue of financial independence of the states, Naveen Patnaik has virtually brought the regional parties in different state to Centre stage. Late lamented Biju Baboo raised the issue of reexamining centre-state ties in the context of fiscal imbalance meted out to the states and they were bad economy unable to deliver service to the people”, says political analyst Prof Surya Narayan Mishra.

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