Daily News Analysis:-

GS2: Federalism

Context: Kerala government is marching towards Felhi to protest against central government due to restrictions imposed by the center on states fiscal powers.

Fiscal federalism: Power for both central and state governments to mobilize financial resources of their own and frame policies accordingly.

Fiscal federalism is at threat: Constitutional angle

1. Center imposing restrictions on states borrowing power. Article 293
2. Net borrowing ceiling NBLC) on states. States cannot borrow from any sources.
3. According to Kerala, article 293 is being violated. It empowers states to borrow by pledging their consolidated fund of states.
4. How is NBC calculated? Center has calculated the limits by considering public accounts of the state (loans borrowed through savings schemes are deposited here) and borrowings of the public sector undertakings.
5. Thus, Kerala has agitated for including extra-budgetary borrowings in deciding NBL.
6. Public debt of the state is a state subject under the 7th schedule.
7. Center making law on states public debt is violating 7th schedule of the constitution.
8. Article 266(2) indicates money collected which does not pertains to the consolidated fund of state, can be brought under public accounts.
9. Public Accounts includes small savings, pension funds, reserve funds, treasury deposits, provident funds. Hence it is solely under the domain of states.
10. Center has now power to include withdrawals from public accounts within the NBC.
11. Fiscal responsibility and discipline of state governments is determined by its legislatures not the center.
12. Kerala has its own fiscal responsibility and budgetary management act. As per this act Kerala has to reduce its fiscal deficit to 3% by 2025-26. Its fiscal deficit is below 3%.
13. Article 202 tasks the state government to determine its revenue, expenditure and deficit through budgets placed before legislatures.
14. Thus, under the veil of deficit management, the center cannot intervene in state’s executive and legislative territories, which goes against federalism.
15. Paradox of Center’s subdued responsibility versus states restricted autonomy.
16. On the one hand center is reducing its fiscal transfer to states and on the other it is restricting states to borrow when scarcity of resources occurs due to reduced expenditure.

Thus, by restricting state’s fiscal autonomy the nature of federalism is moving from cooperative to annihilative and destructive.