Implementing VAT in India :Implications for Federal Polity

Over the last few years, many attempts have been made to implement VAT in India. Initially, all states were to move to VAT system by 2000, but administrative problems and concern over the revenue implications of the change delayed the scheduled implementation. It has been postponed for five times in past five years. In fact, introduction of a full fledged VAT in India seem to present numerous administrative and constitutional difficulties, including the vexed question of union-state relations. In addition to this, implementing VAT in India in context of economic reforms has paradoxical dimensions. On one hand economic reforms have led to more decentralization of expenditure responsibilities which in turn demands more decentralization of revenue raising powers if fiscal accountability is to be maintained. But on the other hand the process of implementation of VAT can lead not only to revenue loss for the states but can also steal away the states’ autonomy indicating more centralization. Thus the need is to develop such a ‘federal friendly model’ of VAT (along with a suitable compensation package) that can be implemented in India without compromising federal principles.VAT; India; Federal Polity; subnational vat; national vat; dual vat

Why Decentralization ? The Puzzle of causation

Most countries especially the developing ones around the world are facing external as well as internal pressures to decentralize and are actually becoming part of the trend which if not universal is nonetheless the dominant trend. General causes include systemic forces like democratization and economic development; specifc causes however are different for different countries. In some countries the policies of opening up of economy and policies devised to deal with the challenges posed by new ‘globalized’ world are interacting with domestic political and economic institutions in such a way so as to create incentives for decentralization. In addition there is external pressure coming from IMF and WB who implicitly and explicitly have declared ‘decentralization’ as their most favoured policy prescription especially for the developing world.Decentralization; Causes; Globalization; IMF; WB

The Federal Approach to FiscalDecentralisation: Conceptual Contours for Policy Makers

Chanchal Kumar Sharma,in his paper demonstrates that in order for fiscal decentralisation to be effective, it must be approached federally. A federal approach is not a decentralised approach but a dynamically balanced approach; one that constantly keeps on adjusting the contrasting forces of centralisation and decentralisation to create a system that can ensure good governance in accordance with the rapidly changing global and local scenario. According to the author, the good governance of the present time has to be federally flexible and dynamically decentralised and institutions of fiscal federalism are crucial for achieving such a dynamic equilibrium. Fiscal decentralisation cannot be detached from the broader principles of fiscal federalism if it is to be successful, irrespective of the fact of whether it is being carried out in a federal or non-federal country. He argues that too much decentralisation or an overly strong central federal government precludes the survival of a constitutional federal state.Federalism; Fiscal Decentralization; centralization

Decentralization Dilemma: Measuring the Degree and Evaluating the Outcomes

Though decentralization for past one and half decade or so has become the most favoured policy priority among the policy makers yet the countries around the world differ dramatically in the degree of decentralization that is accommodated. While diversity in degree of decentralization across the world is a fact yet there is no consensus in the empirical literature over the questions like ‘which country is more decentralized?’ This is because decentralization is defined and measured differently in different studies. In fact, a true assessment of the degree of decentralization in a country can be made only if a comprehensive approach is adopted and rather than trying to simplify the syndrome of characteristics into the single dimension of autonomy, interrelationships of various dimensions of decentralization are taken into account. Thus it is to be realized that there is no simple one dimensional, quantifiable index of degree of decentralization in a given country. As there is wide diversity in the studies on degree of decentralization so is the case with the literature on outcomes of it. Outcome varies not only because decentralization can appear in various forms and combinations across countries but also because different instruments may have very different effects in different ccircumstances. Thus arriving at the precise definition of decentralization and associating it with particular outcomes is neither possible nor desirable for the simple reason that generalization of any kind can create pitfalls that can obscure rather than clarify the facts. What is more important is the need for a strictly contextual yet comprehensive approach while going beyond the blunt measures like expenditure decentralization and taking politics and institutional arrangements of the specific case under investigation also into account.Decentralization; measurement; outcome

When Does decentralization deliver? The Dilemma of Design

Decentralization since early 1990s has become one of the buzzwords of the development paradigms. Among all ingredients of decentralization, the fiscal component of it has a special significance. Not surprisingly the literature unanimously recognizes that it is the regulation of intergovernmental relationships in the fiscal arena that can strike the right balance among different objectives of each level and resolve tensions between them. Thus, the fiscal decentralization is in vogue. The trend that began in 90s has only gained momentum at the turn of the century. Yet the outcome of adopting similar policies has not been uniform across the globe. Some have succeeded, some are stumbling and some others have failed. In fact, the success of decentralization depends on its design. The paper looks into various questions associated with the dilemma of designing decentralization instruments for the success of fiscal decentralization These include the question of designing the right mix of policies, the questions of sequencing and synchronization, the question of pace and that of balancing the contrasting forces of centralization and decentralization. The paper offers the insight to the policymakersthat while designing fiscal decentralization they should not try to replicate any ‘idealtype’ solution. Though the ideal types can be powerful analytical tools, yet they do not lead to solutions for specific situations Real world fiscal arrangements rarely follow the idealized model; they are loaded with historical developments and political ad hocsolutions. It is simply not realistic to start from tabula rasa. The paper emphasizes that there is no “one size fits all” type answer to decentralization question. All systems will have to work out their own style of going about decentralization and restructuring of intergovernmental relations depending on the context and conditions peculiar to their own situation. The paper also argues that any attempt towards fiscal decentralization must be firmly grounded in the basic principles of fiscal federalism, irrespective of the fact whether the country in question is an officially declared federal state or not. Thus while implementing decentralization policies, the need isto ‘bring the federal back in’.Decentralization; Centralization; Design; Sequence; Instuments; Federalism

Multilevel Fiscal Governance in a Balanced Policy Environment

The most desirable system of allocations should avoid effi ciency losses, resulting from either fi nancial dependency, or subnational fi scal operations by striking a balance between fi scal autonomy and reliance on federal transfers of SNGs.fiscal federalism; intergovernmental relations; tax policy; fiscal governance.

A Discursive Dominance Theory of Economic Reform Sustainability: The Case of India

This article hypothesizes that economic reforms become sustainable when the discursive conditions prevailing in society tip against the existing paradigm under exceptional circumstances. Thus, unless the pro-liberalization constituencies dominate the development discourse, economic reforms, initiated under the exigencies of crisis and conditionalities, or carried out by a convinced executive with or without the stimulus of a crisis, will be reversed. The discursive conditions are determined based on eight factors: the dominant view of international intellectuals, illustrative country cases, executive orientations, political will, the degree and the perceived causes of economic crisis, attitudes on the part of donor agencies, and the perceived outcomes of economic reforms. The paper seeks to prove this “discursive dominance” hypothesis for the Indian case through a cross-temporal, comparative review of the evolution of economic policy in India over six different phases.India; Economic reforms; discursive conditions; discursive dominance;

Tourism policy innovations of an Indian state (Haryana)and their implications

Haryana was established in 1966 by getting carved out from the heart of the Indo-Gigantic plains. Roughly the size of Belgium, Haryana has a track record of innovative tourism policies.Way back in '70s it was the first state to pioneer highway tourism. It went on to experiment with cultural and pilgrimage tourism in 80s and adventure and golf tourism in 90s and then farmhouse tourism at the turn of the century. While an emphasis on expanding markets for tourism is a praiseworthy move, devising strategies for promoting and protecting local culture, values, heritage, lifestyles and local natural resources and environments is also critical for sustenance of tourism. The paper looks at the socio-cultural dimensions of various tourism strategies adopted by the state of Haryana, in order to underline the importance of ensuring effective planning and management for guaranteeing protection and preservation of cultural heritage, values, local environments and social well-being. It is thus a call for a mature response on part of the government for ensuring sustainable development of tourism. There is a need to develop a strategic framework involving coherent partnership between all the stakeholders, ensuring generation of foreign exchange without creating socio cultural and environmental problems and without having to exhaust assets which cannot be replaced.tourism policy; highway tourism; adventure and golf tourism; farm house tourism; Haryana; India

Beyond Gaps and Imbalances: Re-Structuring the Debate on Intergovernmental Fiscal Relations

How do we know whether a country suffers from vertical fiscal imbalance (VFI)? What should be done about it? Academic appreciation of these issues in general, and the nature of political behaviour in particular, both have major implications for the way federations are fiscally structured. While the latter clearly is a problem of political negotiations, our focus is on the former, i.e., conceptual clarity, which precedes meaningful negotiations. Thus, the paper aims to clarify the multiple usages of the symbolically loaded terms VFI and VFG (Vertical Fiscal Gap) by critically engaging the fundamental assumptions and premises underlying these ostensibly similar notions. It proposes an alternative conceptual framework and introduces the concepts of Vertical Fiscal Asymmetry (VFA) and Vertical Fiscal Difference (VFD) that have the potential to better structure public debate on issues of vertical fiscal relations and stimulate a sensible appreciation of the problem and possible remedies.fiscal federalism; intergovernmental relations; vertical fiscal imbalance; vertical fiscal gap; vertical fiscal gap

Federalism in Times of Crisis: Insights from India's COVID-19 Response

The COVID-19 pandemic has underscored the significance of empowering local authorities to respond to health emergencies. This policy brief, drawing on a comparative analysis of four Indian states, shows that a successful pandemic response depends on factors such as local governance, community engagement, and decisive leadership. As India's federal system has demonstrated, an undue centralisation of authority combined with a decentralisation of responsibility without adequate resources can undermine the efficacy of a crisis response. Political polarisation can be a formidable obstacle, obstructing coordination and exacerbating the inefficiency of crisis response. Kerala's and Odisha's crisis management during the COVID-19 pandemic has been commendable, with dedicated leadership, coordinated efforts between the respective state and local administrations, and active public engagement contributing to their success. Despite having a weaker healthcare system, Odisha's response to the crisis was comparable to Kerala's, while Uttar Pradesh's was hindered by uncommitted leadership and polarisation along political and communal lines. Karnataka, with a stronger healthcare infrastructure than Odisha and Uttar Pradesh, performed only marginally better than Uttar Pradesh, primarily due to a lack of committed leadership, cooperation, and trust across government agencies. Decision-makers in federal systems worldwide, and in the European Union in particular, can benefit from studying India's COVID-19 response. To achieve a successful response, policymakers should prioritise horizontal and vertical coordination and encourage subnational innovation. India's state-level experiences suggest the importance of leveraging networks between different levels of government and civil society. Key factors for success include strong infrastructure, committed leadership, collaboration across government departments, empowerment of grassroots initiatives, and active community engagement