Press Release

Financial Centralisation a Way to Achieve Political Centralisation- Professor C P Chandrasekhar

Published on 15.09.2023

The push given by the central government for financial centralisation is primarily to attain political centralisation. Such efforts from the central government will revoke the federal setup enshrined in the Indian constitution and establish a centralised political setup. The result is that state governments’ fiscal and economic policy space is eroded. The fundamental character of the nation, India being a union of states, is challenged under the centralisation policies pursued by the central government, stated Professor C P Chandrasekhar, eminent social scientist, while delivering Professor K K George Memorial Lecture for 2023. His lecture was on the topic “Can the Centre Hold? Engineered Inequality and India’s Development Trajectory”

The Memorial Lecture was jointly organised by the Centre for Socio-economic and Environmental Studies (CSES), Kochi, School of Management Studies (SMS), CUSAT and K N Raj Study Centre for Planning and Centre-State Relations, Mahatma Gandhi University, on September 15 at the Seminar Complex, CUSAT.

Structures created by the Constitution of India to devolution of resources to the state are being weakened. For instance, given the responsibilities allocated to the states that required expenditures in excess of their revenue generating capabilities, the Constitution of India mandated the appointment of Finance Commissions, once every five years, to decide on and devolve a share of resources mobilised by the Centre. But such structures are misused. The Finance Commission itself becomes agencies to push the central government agenda. The autonomous resource mobilisation capacities of the States have been eroded because of the implementation of the GST regime. States now depend on the Centre for nearly half of all their resources and have no control over more than two-thirds of their revenues.

Such measures are leading to political centralisation. States are economically penalised by the Centre to such an extent that they cannot initiate and undertake development activities depending on their priorities. Repeated ideas like ‘One nation, one election’ and ‘single tax system’ are related to political centralisation. The fundamental idea of India being a union of states is continuously challenged. Policies followed by the central government that result in increasing inequalities in the country are the core of political and economic centralisation. During the late 1950s and 1960s, there was a concern that policy was not doing much to reduce wealth and income inequality in India and worsening it. Several reports like The Monopolies Inquire Commission Report, the Industrial Licensing Policy Enquiry Committee Report and the Mahalanobis Committee Report on income distribution and standards of living are evidence of this. Surprisingly, there are no concerns about increasing wealth or income inequality now in official circles.

On the contrary, relaxations given to businesses and corporates become important, and expenditures on social spending like employment generation and food security are considered freebies. In the name of “fiscal reform”, conditions are imposed on state governments that eroded their fiscal autonomy. Even during the Covid pandemic, when states had to shoulder a whole host of expenditures related to the health and overall well being of their populations, extra borrowing was allowed only subject to the implementation of reforms, such as hikes in tariffs on power distributed by state government run distribution companies, that are hugely unpopular and regressive noted, Professor C P Chandrasekhar.

Professor C P ChandrasekharisSenior Research Fellow at the Political Economy Research Institute (PERI), University of Massachusetts, Amherst and former Professor at the Centre for Economic Studies and Planning (CESP), Jawaharlal Nehru University (JNU), New Delhi. Prof. Chandrasekhar received the Malcolm Adiseshaiah Award in 2009 for contributions to economics and development studies. He has extensively worked on the role of finance and industry in development and has experience with fiscal, financial, and industrial policy reform in developing countries.

Professor. P.G. Sankaran (Vice-Chancellor, CUSAT) delivered a presidential address at the event. Mr. Bibin Thambi (Senior Research Officer, CSES) welcomed speakers and the audience to the event. Professor. P K Michael Tharakan (Chairman, Kerala Council for Historical Research), Dr. Jagathy Raj V. P. (Director and Senior Professor, SMS, CUSAT) and Mr Krishnakumar KK (Senior Fellow, CSES), who spoke at the event, recollected academic contributions of Professor K K George and shared their memories of associating with him. Dr. S. Muraleedharan (Vice Chairperson, CSES & Faculty Member, KN Raj Centre, MG University) extended thanks to the speakers and the audience.