Policy Watch: Governance and Development – February 2023

We bring out the monthly Policy Watch on each of these themes sequentially and every sixth issue is a Special Issue, where we carry articles from each theme. The previous issue was on the theme Constitutional Values and Democratic Institutions which covered the Bharat Jodo Yatra, arguable a significant attempt to protect and promote Constitutional Values and Democratic Institutions.

One of these values is the relationship of the Union and the states. The constitutional formulation is the Indian Republic is a union of states, and the states have their own legislature, executive and judiciary. The legislative powers, including taxation powers of the states are provided for in the Seventh Schedule of the Constitution and sharing mechanism of the tax revenue accruing to the Union is provided for under article 280 which talks about the Finance Commission mechanism.
This issue is on the theme, Governance and Development. In our view, Governance covers the Executive functions of the State, which involve execution of constitutional, legislative and at times judicial mandates. Thus matters related to law and order, welfare and development, and specific programmes and their financing through tax revenues are all part of governance. However, in the absence of necessary financial resources, governance is seriously constrained. In the last few years this situation has increasingly arisen for the states.

In this issue, we carry only two articles, one by RGICS Senior Research Associate, Arnab Bose, giving a comprehensive overview of the Fiscal Relations under the overall concept of Federalism in India. This is part 3 of the four part review of Federalism in India by Arnab Bose. The second article, written in 2020, is by Issac Thomas, the former Finance Minister of Kerala. He argues that the expectations of GST have not been realised in terms of revenue buoyancy, ease of doing business and positive impact on growth. He suggests a comprehensive overhaul of the GST regime and gives four important suggestions for it.