The approach and process of reforms are extremely important in countries that have a federal structure. There are some measures that can be implemented unilaterally with ease by the Centre such as those relating to, say, financial reforms or delicensing or foreign trade. These are ‘national’ in level and do not prima facie affect any of the sub-nationals such as state or local governments. However, when reforms involve the ‘power’ or ‘finances’ of the sub-nationals, there is an inherent conflict of interest, which makes the reforms process more challenging because it is necessary to ensure that there is responsibility and accountability at each and every level for the system to succeed. In fact, invariably, reforms are always targeted at the national level to begin before moving over to the second level, where alternative approaches have to be used to assure compliance before being implemented.
Howes and Rao, authors of the book, Federal Reform Strategies, study in great detail the structures that exist and the success attained in countries like India and Australia, while there are also contributions on China and Indonesia. While they do not attempt to come up with a prescription, they do create theories on how things could work, based on experiences in these countries. The conclusions drawn by them are engaging. In a federal set-up, reforms related to economic integration, or natural resource or environment management, cannot be made effective without the active participation of sub-national governments. They look at the issue more on how central governments can motivate, influence and ensure the coordination of sub-national policies. The authors believe that there are certain structural pre-requisites that are needed for success. First, there needs to be a hierarchy of governments in any country, which are clearly laid out, preferably by statute. Second, sub-nationals should have priority in their own regions or territory so that they are responsible for the same. Third, the national should be allowed to police the sub-nationals or else it will get chaotic. Fourth, all of them should have budgets and work under this constraint so that they have something to look forward to from the central government. Last, there has to be allocation of responsibility across each levels, which can be done institutionally, like, say, the Constitution for India.Studying the way federal systems operate, the authors interestingly conclude that there are basically five strategies, which, though similar in nature, are used to make federalism work. Cooperative federalism is probably the best option where tax reforms are concerned as the Centre works with the sub-nationals to garner and allocate resources. There can be conditional federalism, wherein states are provided benefits subject to certain conditions being met. A variant is programme federalism where the linkage is with a specific programme such as, say, an education or health scheme that has to be implemented from above. Parallel or centralised federalism is where the Centre changes policies for the states, which becomes imperative if the other systems do not work, while in case of competitive federalism, the state which does better based on certain performance parameters is allowed to go ahead with Centre’s support. Their own observations are that most reforms fall within these categories of federalism. In Australia, they have used cooperative approach for taxes, conditional recipe for reforms, programmed structures for transfers, centralised solution where there are disputes such as in case of the use of water and competitive strategy to provide more funds to the state of Victoria where the state had spent a lot on health facilities relative to others. In India, we have a federal structure where the Constitution lays down the structure of devolution of power, while the finance commission addresses issues of allocation of funds. Of late, however, there has been a case of the polity becoming complex with regional parties dominating in states and the Centre being run by coalitions. Federal reforms become necessary for further progress. With the abolition of, say, licensing, investment will automatically go where the environment is the best, which should lead to competitive federalism. Gujarat has been a beneficiary here. The states have also agreed to follow VAT which is an achievement though the GST has gotten stuck with states wanting compensation for potential revenue loss on account of this system. The pictures of China and Indonesia are also interesting. Both countries have grown from starting off as controlled economies but the challenges have been significant. Indonesia has had to provide incentives to states for protecting forests as they were a state subject and there was revenue to be foregone if deforestation was stopped. To ensure that this was curtailed an incentive programme had to be launched. China faces problems in controlling the emission of carbon. While the Centre is keen and aggressive, once it goes to the states, there is little will to do the same. But given that the powers exercised are higher for the Centre and the parties in power similar at both levels, the task became easier in case of China. Do they have preferences for any form of federalism? The Indian system faces challenges while adopting their models. The authors show how the centralised model has been followed by imposing rules through the department of personnel for, say, the arbitrary transfer of IAS officers by state governments especially when the parties change. In Uttarakhand, there had to be intervention from the Centre to ensure that the environment was protected even as the state was keen on leveraging on the hydro-electricity potential. States are trying to get competitive and the best examples are Bihar and Gujarat where higher governance levels have delivered success. In fact, they feel that structures based on ‘conditions’ may not work. This was seen in India, too, where grants were linked to certain conditions being satisfied. But they were not attractive enough to prompt any action. Centralised solutions are required when all else fails, especially in issues relating to environment or water. But still strains remain when the parties in power are different at the two levels in which case there has to be cooperation. But the important message they leave behind is that the Centre has to take the lead any which way to ensure that the goals are met. For this to be successful, it has to be proved that the measures to be implemented have an impact on the target goals. Further, the incentives provided to the states must be strong to make them act irrespective of their political affiliations. It would work then. This volume of collection of articles would be more useful for policy makers, especially in India where such conflicts have arisen on a number of occasions leading to an impasse quite often. While it is not unequivocal that a single system works, we need to have a combination of all these models depending on the situation to ensure that policies can be made to work through the appropriate federal reform module.
Howes and Rao, authors of the book, Federal Reform Strategies, study in great detail the structures that exist and the success attained in countries like India and Australia, while there are also contributions on China and Indonesia. While they do not attempt to come up with a prescription, they do create theories on how things could work, based on experiences in these countries. The conclusions drawn by them are engaging. In a federal set-up, reforms related to economic integration, or natural resource or environment management, cannot be made effective without the active participation of sub-national governments. They look at the issue more on how central governments can motivate, influence and ensure the coordination of sub-national policies. The authors believe that there are certain structural pre-requisites that are needed for success. First, there needs to be a hierarchy of governments in any country, which are clearly laid out, preferably by statute. Second, sub-nationals should have priority in their own regions or territory so that they are responsible for the same. Third, the national should be allowed to police the sub-nationals or else it will get chaotic. Fourth, all of them should have budgets and work under this constraint so that they have something to look forward to from the central government. Last, there has to be allocation of responsibility across each levels, which can be done institutionally, like, say, the Constitution for India.Studying the way federal systems operate, the authors interestingly conclude that there are basically five strategies, which, though similar in nature, are used to make federalism work. Cooperative federalism is probably the best option where tax reforms are concerned as the Centre works with the sub-nationals to garner and allocate resources. There can be conditional federalism, wherein states are provided benefits subject to certain conditions being met. A variant is programme federalism where the linkage is with a specific programme such as, say, an education or health scheme that has to be implemented from above. Parallel or centralised federalism is where the Centre changes policies for the states, which becomes imperative if the other systems do not work, while in case of competitive federalism, the state which does better based on certain performance parameters is allowed to go ahead with Centre’s support. Their own observations are that most reforms fall within these categories of federalism. In Australia, they have used cooperative approach for taxes, conditional recipe for reforms, programmed structures for transfers, centralised solution where there are disputes such as in case of the use of water and competitive strategy to provide more funds to the state of Victoria where the state had spent a lot on health facilities relative to others. In India, we have a federal structure where the Constitution lays down the structure of devolution of power, while the finance commission addresses issues of allocation of funds. Of late, however, there has been a case of the polity becoming complex with regional parties dominating in states and the Centre being run by coalitions. Federal reforms become necessary for further progress. With the abolition of, say, licensing, investment will automatically go where the environment is the best, which should lead to competitive federalism. Gujarat has been a beneficiary here. The states have also agreed to follow VAT which is an achievement though the GST has gotten stuck with states wanting compensation for potential revenue loss on account of this system. The pictures of China and Indonesia are also interesting. Both countries have grown from starting off as controlled economies but the challenges have been significant. Indonesia has had to provide incentives to states for protecting forests as they were a state subject and there was revenue to be foregone if deforestation was stopped. To ensure that this was curtailed an incentive programme had to be launched. China faces problems in controlling the emission of carbon. While the Centre is keen and aggressive, once it goes to the states, there is little will to do the same. But given that the powers exercised are higher for the Centre and the parties in power similar at both levels, the task became easier in case of China. Do they have preferences for any form of federalism? The Indian system faces challenges while adopting their models. The authors show how the centralised model has been followed by imposing rules through the department of personnel for, say, the arbitrary transfer of IAS officers by state governments especially when the parties change. In Uttarakhand, there had to be intervention from the Centre to ensure that the environment was protected even as the state was keen on leveraging on the hydro-electricity potential. States are trying to get competitive and the best examples are Bihar and Gujarat where higher governance levels have delivered success. In fact, they feel that structures based on ‘conditions’ may not work. This was seen in India, too, where grants were linked to certain conditions being satisfied. But they were not attractive enough to prompt any action. Centralised solutions are required when all else fails, especially in issues relating to environment or water. But still strains remain when the parties in power are different at the two levels in which case there has to be cooperation. But the important message they leave behind is that the Centre has to take the lead any which way to ensure that the goals are met. For this to be successful, it has to be proved that the measures to be implemented have an impact on the target goals. Further, the incentives provided to the states must be strong to make them act irrespective of their political affiliations. It would work then. This volume of collection of articles would be more useful for policy makers, especially in India where such conflicts have arisen on a number of occasions leading to an impasse quite often. While it is not unequivocal that a single system works, we need to have a combination of all these models depending on the situation to ensure that policies can be made to work through the appropriate federal reform module.
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