States await the Budget

Prime Minister Narendra Modi has given wings to his idea of cooperative federalism with his wholehearted acceptance of the recommendations of the 14th Finance Commission, whose key recommendation was an increase of 10 per cent in the share of the Centre’s tax collection to the states. This would give the states more flexibility to chart their own development agenda. After 68 years of Independence, the states are being recognised as mature entities with their own needs.

They have been subjected to the irrational “one size fits all” philosophy, to which they had always objected, but it required the statesmanship of Mr Modi to free them. And as one leader from Odisha said, planning from Bhubaneswar will be more effective than sitting in Delhi. This will also encourage competition between the states, as envisaged by Mr Modi, so that the states can contribute more effectively to development. The states are being treated as equals as the new Niti Aayog also envisages more say for the states in the planning process.

The states have received this development with some caution and are waiting for the Union Budget to see whether the government cuts their share of allocation. Interestingly, the Finance Commission has also said the states should create a municipal bond market for creating urban infrastructure to augment their funds for development activities. Exciting times lie ahead for the new equations in the Centre-state relationship.