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BJP: Growing Stronger While Devolving Power

While BJP grows stronger winning elections, Modi is taking steps to devolve power to the states.

BJP: Growing Stronger While Devolving Power

In his Independence Day speech, Prime Minister Narendra Modi highlighted ways he has empowered states to manage their own affairs, alluding to his own time as chief minister of Gujarat as the basis for this push. Yet many people feel that he is instead consolidating power — largely due to the Bharatiya Janata Party’s (BJP) recent string of success in state elections, on top of the party’s striking victory in the 2014 Lok Sabha elections. Both narratives have a great deal of truth: the BJP certainly grows stronger by winning elections, yet Modi has also taken specific steps to devolve power to the states that will outlast his term in office.

Clearly, the BJP is growing stronger, obtaining a higher degree of control over the institutions of power as it wins elections. Today the BJP has single-party control over the Lok Sabha. The BJP now holds the same number of Rajya Sabha seats as the Congress Party — each controlling about 24 percent of seats in the body. And BJP chief ministers lead thirteen states, with the party a minority coalition partner in several others, including Bihar and Jammu & Kashmir.

Yet simultaneously, the Modi government has taken tangible steps to empower state governments.

The twin notions of “cooperative federalism” and “competitive federalism” were articulated as key policy tenets by Prime Minister Modi early in his tenure. There was no shortage of skeptics; the importance of getting states to compete has been acknowledged for decades, with little to show. But bringing Arvind Panagariya into the government as vice chairman of NITI Aayog gave this initiative some real energy. Panagariya is a well-known proponent of giving states space to become “laboratories for reform.” Still, few knew what toolkit to empower states should be adopted to make this concept a reality. Prime Minister Modi has also called meetings of all of India’s state chief secretaries to meet and share best practices.

A little over three years into the Modi government’s tenure, we have seen real changes in the balance of power between the central government and state governments.

It has not all been one-sided. For instance, the much-heralded Goods and Services Tax (GST) replaces state and local taxes with a single nation-wide tax system. Although, even in the case of the GST, the GST Council that guides its functioning is largely controlled by state governments. A majority of the changes have transferred additional power, authority, and tools to state governments.

The 20th meeting of the GST Council, in New Delhi on August 5, 2017. (Photograph: PIB)
The 20th meeting of the GST Council, in New Delhi on August 5, 2017. (Photograph: PIB)

Some of the more important governance shifts that have altered the balance of power between the central government and India’s state governments are included below.

Governance Shifts Taking Power From States

- UDAY: In November 2015 the Modi government announced a new plan to bail out India’s financially-troubled power distribution utilities. The program is called Ujwal DISCOM Assurance Yojana (UDAY). Under this voluntary program, the Ministry of Power and state governments sign contracts under which the state must promise to take certain steps to strengthen its electric power operations in exchange for a range of financial incentives.

- Goods and Services Tax: On July 1, 2017, India rolled out a new national tax regime. The GST absorbs most state taxes into a single system, with increased federal regulation and responsibility for implementation.

- Real Estate (Regulation and Development) Act 2016: Approved by Parliament in March 2016, the Real Estate Act overrides real estate laws previously on the books in several states, and calls for the establishment of state-level tribunals to monitor the sector more closely.

Governance Shifts Giving Power To States

- NITI Aayog: NITI Aayog was established on January 1, 2015, replacing the Planning Commission. Operationally, NITI is more consultative than the Planning Commission, notably through its chief minister-led working groups on topics like digital transactions and federally-funded programs.

- Finance Commission/Taxes: On February 24, 2015, the Fourteenth Finance Commission released its report. Among its recommendations was delivering a higher share of federal tax revenue - 42 percent directly to states, up from 32 percent. The report was accepted by the Central Government, though there are concerns that implementation has been slow.

- DIPP Rankings: In December 2014, the Department of Industrial Policy and Promotion (DIPP) laid out a 98-point Action Plan for the best practices that states can adopt to be more competitive. Then, the DIPP ranked each state based on progress on the Action Plan. Subsequently, the list expanded to 340 points, and then to 405 points for the most recent “Business Reform Action Plan.” For the first time, states have a fairly good idea of how they stack up compared to other states when it comes to attracting business. NITI Aayog is currently undertaking a survey to similarly track state healthcare indicators, allowing a stronger “apples to apples” context in which to judge progress.

- ODA Lending: On April 19, 2017, the union cabinet approved a new policy that will allow states to directly negotiate loans from Official Development Assistance (ODA) organisations. This includes organizations like the U.S. Agency for International Development (USAID), Agence Française de Développement (AFD), and Britain’s Department for International Development (DFID), among others. Initially this change will have very little impact, as Indian state governments are not seen as sufficiently credit-worthy and lenders will still seek a federal guarantee. But over time, this will be significant for the fiscally stronger states — especially those with large infrastructure projects that attract ODA assistance.

- Model Laws: Both NITI Aayog and DIPP have started preparing model laws for states’ consideration. NITI Aayog presented a model Land Lease law, governing landowner-tenant relations, in February 2016. The cabinet approved a model Shops and Establishments Act in June 2016.

- Inter-State Council: The Inter-State Council was convened in July 2016, after a gap of ten years. This is a platform allowing states to discuss key issues directly with the central government, such as the appointment and role of governors; implementation of Aadhaar; and more.

Prime Minister Narendra Modi and BJP President Amit Shah meet the party’s chief ministers and deputy chief ministers in New Delhi, on August 21, 2017. (Photograph: BJP official website)
Prime Minister Narendra Modi and BJP President Amit Shah meet the party’s chief ministers and deputy chief ministers in New Delhi, on August 21, 2017. (Photograph: BJP official website)

Many of the reforms listed involve some level of “give and take” in shaping the balance of power between the central government and states. The DIPP rankings both empower states while also compelling them to act. The 14th Finance Commission Report establishes parameters for states to receive a larger share of funding, such as the percent of forest cover in the state. The Goods and Services Tax removes many state taxes while creating a body to manage the GST that is largely controlled by states. And the UDAY power sector bailout program calls on both sides to give a bit of ground to rehabilitate the broke power sector.

Over the last three years, India’s center-state power dynamics have certainly shifted, and largely in favor of states. Modi’s roots as a chief minister do seem to guide his hand in certain aspects of governance, even while his party grows stronger overall.

Richard Rossow is the Wadhwani Chair in U.S. India Policy Studies at The Center for Strategic and International Studies in Washington D.C.

The views expressed here are those of the author’s and do not necessarily represent the views of BloombergQuint or its editorial team.