The problem of special packages

The problem of special packages

Context

Coalition politics has re-emerged prominently at the Union level in India. The Bharatiya Janata Party (BJP) now depends on the Janata Dal (United) of Bihar and the Telugu Desam Party of Andhra Pradesh for its parliamentary majority.

  • This is a marked shift from the single-party dominance seen in the 2014 and 2019 elections.
  • With the return of coalition politics, there is renewed discussion about State-specific discretionary grants or ‘special packages.’

Relevance:

GS-03 (Economy)

Dimensions of the Article:

  • Need for Special Packages
  • Key Constitutional Articles
  • Advantages of Special Packages
  • Disadvantages of Special Packages
  • How It Affects the Country’s Fiscal Conditions

Need for Special Packages

  • Political Bargaining Power: Coalition politics often leads to demands for special packages from State-level parties that hold sway over the parliamentary majority. These packages are seen as a way to secure political support and ensure stability at the Union level.
  • Addressing State-Specific Needs: Special packages are justified as they cater to the unique needs of different States. States with specific economic or social challenges argue for additional support to address these issues effectively.
  • Historical and Cultural Asymmetries: India’s linguistic, cultural, and economic diversity necessitates a certain level of asymmetry in fiscal support. Special packages can address historical and regional disparities, promoting balanced development across the country.
  • Emergency and Unforeseen Situations: In times of natural disasters or economic crises, special packages provide immediate relief and support to affected States. This flexibility is crucial for addressing unforeseen challenges promptly.
  • Developmental Push: Special packages can act as a catalyst for development in backward regions. They can fund infrastructure projects, social programs, and economic initiatives that might not receive adequate support through regular channels.
  • Strengthening Political Alliances: For the ruling party, special packages are a tool to strengthen alliances with regional parties. This ensures smoother governance and reduces the risk of political instability due to coalition disagreements.

Key Constitutional Articles

Article 280: Finance Commission

  • Establishes a Finance Commission by the President every five years.
  • Functions:
    • Recommends the distribution of tax revenues between the Union and the States, and among the States.
    • Determines principles for grants-in-aid of state revenues from the Consolidated Fund of India.
    • Addresses other finance-related matters referred by the President.

Article 275: Grants from the Union to Certain States

  • Allows Parliament to determine grants-in-aid from the Union to States in need of assistance, chargeable to the Consolidated Fund of India.

Article 282: Expenditure Defrayable by the Union or a State out of its Revenues

  • Permits the Union or a State to make grants for any public purpose, even if outside their legislative competence.
  • Usage: Often used for discretionary purposes, like special packages.

Articles 371A to J: Special Provisions for Specific States

  • Article 371A: Nagaland – Safeguards religious and social practices, customary laws, and administration of justice.
  • Article 371B: Assam – Ensures equitable distribution of legislative and executive powers.
  • Article 371C: Manipur – Ensures autonomy over land and resource administration.
  • Article 371D: Andhra Pradesh – Provides equitable opportunities in education and public employment.
  • Article 371E: Sikkim – Protects land ownership rights and cultural identity.
  • Article 371F: Mizoram – Safeguards religious and social practices, customary laws, and administration of justice.
  • Article 371G: Arunachal Pradesh – Safeguards religious and social practices, customary laws, and administration of justice.
  • Article 371H: Goa – Ensures equitable opportunities in education and public employment, and protects Konkani language and culture.
  • Article 371I: Maharashtra and Gujarat – Provides equitable opportunities in education and public employment for certain regions.
  • Article 371J: Karnataka – Ensures equitable opportunities in education and public employment for certain regions.

Advantages of Special Packages

  • Targeted Assistance: Special packages allow for targeted assistance to States with specific needs, ensuring that resources are allocated where they are most needed.
  • Quick Response to Crises: In the event of natural disasters or economic downturns, special packages provide a mechanism for the Union government to offer swift and substantial support to affected States.
  • Promotes Regional Development: By addressing regional disparities, special packages help promote balanced development, reducing the economic gap between different regions of the country.
  • Political Stability: These packages can help maintain political stability by satisfying the demands of coalition partners and ensuring their continued support for the Union government.

Disadvantages of Special Packages

  • Lack of Transparency and Objectivity: Special packages are often seen as discretionary and politically motivated, lacking the transparency and objectivity required for fair distribution of national resources.
  • Undermines Fiscal Federalism: The allocation of special packages based on political bargaining rather than need undermines the principles of fiscal federalism. This can lead to inefficient and inequitable distribution of resources.
  • Dependence on Political Climate: The flow of special packages is often influenced by the political climate, leading to a situation where States with strong political leverage receive more support, irrespective of their actual needs.
  • Diminished Role of Finance Commission: The Finance Commission, established to ensure a fair distribution of taxes and grants, is sidelined by the discretionary nature of special packages, weakening its role in maintaining fiscal discipline.

How It Affects the Country’s Fiscal Conditions

  • Distorted Resource Allocation: Special packages can distort the allocation of national resources, diverting funds from other States that may have pressing needs but lack political leverage.
  • Fiscal Imbalance: The discretionary nature of special packages can create fiscal imbalances, as funds are not distributed based on objective criteria but on political considerations.
  • Undermining Fiscal Discipline: The ad-hoc nature of special packages undermines fiscal discipline, as it bypasses established mechanisms like the Finance Commission designed to ensure prudent fiscal management.
  • Increased Fiscal Burden: Special packages often entail substantial financial outlays, increasing the fiscal burden on the Union government and potentially leading to higher deficits and debt levels.

Way Forward

  • Enhance the role of the Finance Commission to ensure transparent and objective allocation of funds. The Commission should be empowered to address regional disparities through a systematic and equitable approach.
  • Introduce legal and constitutional provisions to regulate the allocation of special packages, ensuring that they are based on need and merit rather than political considerations.
  • Foster a spirit of cooperative federalism where the Union and State governments work together to address regional disparities and promote balanced development.
  • Establish transparent mechanisms for the allocation of special packages, with clear criteria and accountability to prevent misuse and ensure fair distribution of resources.
  • Focus on Long-Term Development: Shift the focus from short-term political gains to long-term developmental goals. Special packages should be designed to promote sustainable development and address the root causes of regional disparities.
  • Ensure inclusive policy-making processes that involve stakeholders from all regions. This will help address the concerns of all States and promote a more balanced approach to fiscal federalism.