Modi 3.0: The return of the coalition. And maybe the Planning Commission?

Since this involves personalities, it has drawn attention. Less noticed has been the reports of demand for additional central support from Bihar and possibly Andhra Pradesh including those for special status. It is likely that other National Democratic Alliance (NDA) partners from various states will follow suit, including those where the BJP has gained power for the first time, such as Odisha.

Regardless of who raises these demands, it is clear that central-state financial relations may need to be redrawn. This is not entirely surprising, given the ongoing tussles over these issues. Tamil Nadu has led the campaign for the concerns of southern states for over a year now, and more states are expected to join in.

The difference now is that the BJP lacks the political mandate to push back. Consequently, the central government may have no option but to listen to the states on these matters carefully. However, it lacks the institutional framework to conduct constructive dialogue with them.

Prime Minister Narendra Modi’s Union Cabinet scrapped the Planning Commission, established by Jawaharlal Nehru, replacing it with the Niti Aayog, which functions as a think tank.  

States have reasons to be dissatisfied with the Finance Commission, as the Centre has been subverting tax-devolution awards by collecting more taxes through cesses and surcharges, revenues from which it is not obliged to devolve to them.

The Inter-State Council, which did good work earlier, has languished under Modi’s first two terms. 

Currently, the only operational interface between the central and state treasuries is the finance ministry. It is not surprising, therefore, that both Andhra Pradesh chief minister-designate N. Chandrababu Naidu and Bihar chief minister Nitish Kumar have demanded that a minister of state from their respective parties be accommodated in the finance ministry.

Even if these demands are accepted, the two states may not succeed in influencing the finance ministry, as it is not a platform for equal negotiations between states and the Centre. The ministry also lacks the technical capacity to vet states’ development needs and respond with the necessary budget transfers.

The absence of the Planning Commission, which acted as an intermediary between the states and the ministry, is a serious weakness Modi will have to contend with in his third term. The states have rediscovered their political bargaining power after the general elections, while the Centre lacks the technical knowhow and operational tools to deliver outcomes in health, skilling, education, and agriculture—all areas requiring active state government engagement. This goes beyond funds, involving the formulation of blueprints necessary for effective governance.

The tooth-less Niti Aayog is ill-equipped for this role.  It examines policy issues referred to by the different ministries or engages in suo moto in the manner of a research-oriented think tank. Its mandate does not allow it to engage in Centre-state financial issues. It does not write out any cheques, nor does it monitor spending by any government agency much less a state government. Those roles are diffused among the various central government ministries. As a result, if the states have to engage with the Centre, their options are heavily limited in the post-Planning Commission decade.

Clearly this cannot continue. The political leadership of the states will now demand that the Centre listens to them on an equal platform, not just through bureaucrats. The prime minister will need to establish a suitable platform for these dialogues. 

Modi may have gotten through his two terms with the current Niti Aayog, he now needs an organization similar to the Planning Commission in his third term.