Home Governance IMPACT OF COVID-19 ON FEDERAL STRUCTURE OF COUNTRY

IMPACT OF COVID-19 ON FEDERAL STRUCTURE OF COUNTRY

Federalism means the sharing of power between union and states. India is not purely a federal country. Therefore, there is no use of the word federal in the Indian constitution, it rather uses the term ‘union of states’. Many scholars therefore, term it a quasi-federal structure where centre is more powerful than the states. The power is divided between the centre and states. The subjects are divided as mentioned in three lists provided under Schedule VII of the Constitution i.e. The Union List, The State List and The Concurrent List.

The matters of public health and sanitation come under the state list and therefore, it is the power of the state to formulate laws and policies regarding it. So, during this pandemic, the states are required to take the lead role by establishing proper health infrastructure and its access to everyone. It is the responsibility of the state governments to check at the ground level whether the equipment’s requirement like PPE kit is met, the treatment of COVID-19 patients at a reasonable price, or even free for the marginalized section of the society, is done.

Along with this, the state governments need to make sure that the maternity benefits to the mothers, salary to the hospital staff, and many others are duly provided in time. For making sure that all these steps are taken, the coffers of state government must have adequate funds.

This pandemic has hardly hit the revenue collecting sources of the state government like the ban on the sale of liquor for some time during lock-down. Due to this lock-down, fewer vehicles can be seen on roads therefore, reducing the demand for petroleum products and thus reducing the collection of sales tax on the same.

PM CARES Fund: Diverging the Collection of states

Prime Minister’s Citizen Assistance and Relief in Emergency Situations Fund (PM CARES Fund) is constituted by the central government to combat this COVID-19 pandemic. The PM is the ex-officio chairman of the fund and the Finance Minister, the Home Minister and the Defence Minister are its ex-officio Trustees. Three more people can be appointed to this Board of Trustees by the PM.

The government claims that this fund will lead to the consolidation of resources and its better allocation. On reading the objectives of establishing the PM CARES Fund, one gets a clear message of an attempt to concentrate power at the center. It is exempted from the Income Tax Act, 1961, Foreign Contribution (Regulation) Act, 2010, meaning thereby that foreign contributions can be made.

It is also not allowed to be audited by Comptroller and Auditor General (CAG). Independent auditors are appointed for this fund management.  It is also said that this fund is consistent with Prime Minister National Relief Fund (PMNRF). So, there was no need to establish this new fund, when the PMNRF was already in place.

Moreover, its objectives are the same as that of the PMNRF and the states also have the Chief Minister Relief Fund for such emergencies and disasters. The PM CARES web page is opaque regarding the amount of money collected, names of donors and the expenditure done so far. The PM CARES Fund does not look like helping the state government but the central government simply filling its own pockets with this to be called black money.

Contribution to PM CARES Fund: A CSR

As per Section 135 of the Companies Act 2013, every company with a net worth of Rs. 500 crore or more, or a turnover of over Rs. 1,000 crores or more, or a net profit exceeding Rs. 5 crore during the immediately preceding financial year is required to spend at least 2% of its average net profits (made during the three immediately preceding financial years) in pursuance of its Corporate Social Responsibility (CSR).  Schedule VII of the Act provides some activities where the spending can be done by companies for fulfilling their CSR.

The Ministry of Corporate Affairs announced that the contributions made to PM CARES Fund will be counted as CSR. It does not qualify the contribution to State Relief fund as CSR which in turn puts the state coffers at risk. The companies obviously will prefer to contribute to PM CARES Fund instead of the Chief Minister’s Relief Fund.

This in turn will adversely affect the revenue of state governments and it would become very difficult for the government to take proper measures for containing the spread of the virus. The states, having no other choice will have to ask the central government for monetary help which is under its jurisdiction making federalism just a piece of paper.

Pending GST Compensation:

The GST mechanism has severely harmed state abilities to raise their own finances. GST Collection has seen a dip during the pandemic and lock-down due to the relaxation in return filing and this has severely affected the state revenue. Under the GST law, states are guaranteed full compensation for any revenue loss for the first five years after the introduction of the goods and services tax (GST) in July 2017. GST compensation of Rs. 36,500 Crore for December 2019 to February 2020 was released only on June 4.

The state governments will be required to be paid a whopping Rs 80,000 crore more as compensation for their State Goods and Service Tax (S-GST) shortfall in the March-May period, going by the formula of 14% assured annual revenue growth. The state governments at this time of urgency are demanding compensation from the central government, making the state government to work at the mercy of the central government.

Suspension of MPLAD Scheme:

MPLADS (Member of Parliament Local Area Development Scheme) has been suspended for two years for the reason that the fund now will be contributed to PM CARES Fund. Under the scheme, each Member of Parliament has the choice to suggest to the District Collector for works of up to 5 crores per annum to be taken up in his/her constituency. At this time, when the fund could be used in containing the spread of this disease in every constituency is rather being diverted to the PM CARES Fund.

Cooperative Federalism:

It is the administrative cooperation between centre and state and among states. The constitution of PM CARES Fund, GST, all is done in the name of Cooperative Federalism. Cooperative federalism is not just a concept, the central government is required to take the state with it. It has to make proper allocation to the states and should not make the states to function at its mercy.

Federalism is a basic structure of Indian constitution as held in Kesavananda Bharati v. State of Kerala. The central government should take necessary steps to retain it. The Parliament can also not amend the basic structure of the constitution.

While deciding on any issue, especially where the state has an impact of the decision, the state government should be consulted. Every step taken should have transparency and the concentration of power should not be done under the garb of cooperative federalism.

Here is our article on the impact of COVID-19 on fundamental rights

This article is written by Rawal Shweta and edited by Rupreet Kaur Dhariwal.

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