PM Narendra Modi hails Centre-state ‘bhagidari’ during Covid

Prime Minister Narendra Modi has said an innovative approach to policy making tempered by Centre-state partnership during the Covid pandemic helped the states raise an extra Rs 1.06 Lakh Crore in 2020-21 which is being spent on four key reforms aimed at improving Ease of Living of the poor, the weaker sections and the middle class.In a blog posting “Reforms by conviction and incentives” on a social media site, the Prime Minister said these funds were raised by states through additional borrowings. The four reforms were “one nation-one ration card” in which the card was seeded with Aadhar; automatic and online renewal of business-related licenses under seven Acts through mere payment of fees; notifying property tax, water and sewerage charges by states; and direct benefit transfer. Even as the world was reeling under a financial crunch, the Indian states were able to raise Rs 1.06 lakh crore in 2020-21 and this was made possible by the Centre-State bhagidari (partnership), the Prime Minister said. A one size fits all model will not work in a federal set-up, the government felt during policy formulation, and hence the Centre should not look for policy instruments that would promote reforms in states. The Centre had faith in the robustness of the federal polity.

So, in May 2020, as part of the Aatmanirbhar Bharat package, the centre announced that states would be allowed enhanced borrowing for 2020-21. An extra 2% of GSDP was allowed, of which 1% was made conditional on the implementation of certain economic reforms.“This nudge for reform is rare in Indian public finance. This was a nudge, incentivising the states to adopt progressive policies to avail additional funds. The results of this exercise are not only encouraging but also run contrary to the notion that there are limited takers for sound economic policies,” the Prime Minister said.Additional borrowings by the states were linked to four reforms with 0.25% of GDP tied to each one. Every reform was aimed at improving the Ease of Living of the people, especially the poor, the weaker sections and the middle class. These reforms also promoted fiscal sustainability.The first reform under the ‘One Nation One Ration Card’ policy required states to ensure that all ration cards in the state under the National Food Security Act (NFSA) were seeded with the Aadhaar number of all family members and that all Fair Price Shops had Electronic Point of Sale devices. The main benefit from this is that migrant workers can draw their food ration from anywhere in the country. It also eliminated bogus cards and duplicate members. 17 states completed this reform and were granted additional borrowings amounting to Rs. 37,600 Cr.The second reform, aimed at improving ease of doing business, required states to ensure that renewal of business-related licences under seven Acts is made automatic, online and non-discretionary on mere payment of fees.Another requirement was implementation of a computerized random inspection system and prior notice of inspection to reduce harassment and corruption under a further 12 Acts. This reform (covering 19 laws) is of particular help to micro and small enterprises and helps promote investment. 20 states completed this reform and were allowed additional borrowing of Rs. 39,521 Cr.The third reform required states to notify floor rates of property tax and of water & sewerage charges, in consonance with stamp duty guideline values for property transactions and current costs respectively, in urban areas. 11 states completed these reforms and were granted additional borrowing of Rs. 15,957 Cr. The fourth reform was the introduction of Direct Benefit Transfer (DBT) in lieu of free electricity supply to farmers. 13 states implemented at least one component, while 6 states implemented the DBT component. As a result, Rs. 13,201 Cr of additional borrowings was permitted. Overall, 23 states availed of additional borrowings of Rs. 1.06 lakh crores out of a potential of Rs. 2.14 lakh crores. As a result, the aggregate borrowing permission granted to states for 2020-21 (conditional and unconditional) was 4.5% of the initially estimated GSDP.