The second financial stimulus package announced by Prime Minister Narendra Modi again fails to allocate funds to the states to defray their fiscal deficit caused by the Union-imposed lockdown. The previous package too had mainly bolstered the Union-sponsored schemes by accelerating planned budgeted outlays. As I’ve argued in The Wire earlier, the Constitution vests the pith and substance of the lockdown powers in the hands of the states, but the Union has been driving it from the backseat. This leaves the states in a lurch: they’re to follow New Delhi’s diktats, but at their own cost. Kerala’s State Planning Board expects its Q1 shortfall of gross value addition at Rs 80,000 crore. Other states are earning around 5% (Telangana) to 12% (Punjab) of their respective regular revenues.
Pushing states into a debt trap
Banking, currency and the Reserve Bank of India (RBI) are legislative domains of the Union. Article 293 of the Constitution permits states to borrow funds from within India. Under the Financial Responsibility and Budget Management Act (FRMB), 2003, states cannot borrow more than 3% of their GDP. During the previous two financial years, the states met this target, however as per the RBI’s annual report, this has, “been achieved by sharp retrenchment in expenditures, in particular, capital expenditure”.
This observation is remarkable. The intended economic purpose of the FRBM was to induce governments to pay-as-you-go for revenue expenditure (such as payment of salaries or interest payments) and finance capital expenditure (such as the construction of roads or recovery of loans). But in 2018, Arun Jaitley amended the FRBM to no longer require governments to apportion revenue deficit from fiscal deficit. The amendment denuded the FRBM of its underlying moral principle of intergenerational equity which behooves the current generation to desist from outspending its earnings, except on capital expenses that the future generations would use. That allows a moral justification for this generation to borrow from the future earnings of their unborn children.
In Australia, the Budget Honesty Act, 1998 requires the treasurer to publish an Intergenerational Report at least once every five years to evaluate the government’s fiscal policies on long-term sustainability. A national debt clock in Manhattan, New York displays the current US gross national debt and each American family’s share of it. India’s public debt per person as a percentage of the GDP is already three times that of China’s.
Pushing the states to borrow more to defray their COVID-19-induced deficits would be pushing them in a debt trap which would be economically hazardous and morally indefensible. The right solution should be for the Union to reapportion its existing budgeted outlays by slashing aspirational expenditures (Central Vista comes to mind) and to monetise debt in consultation with the RBI. The Union should then redistribute unmoored funds to the states (using powers under Article 275 Constitution) in proportion of their respective allotments as recommended by the Finance Commission. This would enable the states to fight COVID-19 and make infrastructural allotments to public health, without being forced to fund deficits at astronomical costs as Kerala (the state receiving global acclaim for how it fought COVID-19) recently did at nearly 9%, when in global money markets, interest is trading at negative. This arbitrage is unconscionable.
The Union’s missing electoral accountability
Few scholars have left more of a mark on the field of development economics than Amartya Sen. He advances the theory that lack of democracy and famines are interrelated. Citing the example of the Bengal famine of 1943, he propounded in Development as Freedom that “no famine has ever taken place in the history of the world in a functioning democracy”. This, he explained, is because democratic governments ”have to win elections and face public criticism and have strong incentive to undertake measures to avert famines and other catastrophes.”
Harish Salve, senior advocate, and the solicitor general during Atal Bihari Vajpayee’s premiership, has more recently cited electoral accountability as one of the key arguments why Indian courts must not restrict executive from taking decisions in “wartime like COVID-19”. He argues, “The elected executive at the helm of affairs is accountable to Parliament and will be held to account in due course”.
The next general elections are about four years away. What electoral compulsions would guide the Union to act diligently and impartially with the singular intent of welfare of those who need the state’s help the most? Surely not the Bihar elections. The abject and continuing neglect of the migrant workers is a striking case in point. Electoral answerability alone is not sufficient dissuasion for executive neglect, especially when the Constitution enjoins a specific ongoing duty that is decoupled from any election whatsoever. Politicking is an arbiter of policies beyond the realm of what the Constitution guarantees. Where the Constitution is specific, politics has to give way, and courts are duty-bound to hold it as such.
Constitutional morality in fiscal context
Superior courts in India have historically been reticent in adjudicating upon the executive’s fiscal wisdom. It didn’t stop Mayawati’s prodigality of building statutes of herself, and applying an even hand, the courts refused to stay a near equal expense on Modi-driven Statue of Unity. On the revenue side, the judiciary has refused to adjudicate the fairness of tax rates, even when they were nearly confiscatory. The restraint on the fiscal policy side has been compensated by the court’s alacrity in adjudicating matters of fiscal impropriety. Requiring candidates to disclose financial assets in election affidavits, and the setting up of SITs to probe black money abroad, are two conspicuous cases in point.
Corruption is not the only point of distinction between fiscal policy and fiscal impropriety. For a poor nation like ours, fiscal neglect that haemorrhages fundamental rights of citizens and denies the states their rightful dues so they can discharge their fundamental duties towards their residents, too is fiscal impropriety. The question is not of capacity, but neglect when there’s a duty of care. In the past, Courts have ordered governments to pay compensation for failing in their constitutional duties. Bilkis Bano judgment is a case in point, where the Supreme Court ordered the Gujarat government to pay her Rs 50 Lakh as compensation for the 2002 riots.
Article 142 of the Constitution allows the Supreme Court to “make such order as is necessary for doing complete justice to any cause or matter pending before it”. What constitutes “complete justice” is a subject of evolving debate, so is how the spirit of the Constitution (constitutional morality) should guide courts to do complete justice to a matter. Allowing the entry of women into Sabrimala temple was the court’s latest exposition of it. The attorney general of India had condemned constitutional morality in the Sabrimala context as a “dangerous weapon” but about a year later, the court used the same powers to order the construction of a Ram temple in Ayodhya. Archivers of constitutional laws of India would perhaps record in the future that Sabrimala opened the doors through which Ayodhya walked through.
In John Locke’s idea of social contract, religion and politics should not mix. Thomas Jefferson, one of the founding fathers of the US Constitution, gave a similar treatise through the 1786 Virginia Statute for Religious Freedom. In democratic constitutions around the world, including our own (Articles 25, 26 & 27) that iron curtain between the Church and the State is provided and well-enforced. But for varying reasons, some justified some not, both governments and courts in India have swung the curtain and lurked to the other side.
The need for courts to delve into and uphold constitutional morality under Article 142 is far from otiose. With every executive excess or neglect (seemingly customary with majoritarian governments globally), its necessity only appreciates. By all measures, the pandemic is an exceptional incident. Its exceptionality is not exclusive to the executive branch alone; legislatures and the judiciary, as coordinate branches of the government, too are beseeched to act in consonance thereof, and make such exceptions as would enable them to do complete justice in the welfare of citizens and the states.
Power implies responsibility
It is incontrovertible that the finances of the states are in a pitiable condition. The Unionʼs failure to come through on its GST commitments to the states on a timely basis only exacerbates their funds problem. The Constitution envisages the Union to be the centrifugal force of the states, which is why the Constitution provides “Bharat shall be a Union of States”, and not “States of Union”. This distinction is remarkable. It engrafts onto the Union certain special powers (such as those of declaration of emergency in case the constitutional machinery in a state fails) but it equally enjoins duties upon the Union to protect the states. In fact, the Constituent Assembly debates reveal that the duty enjoined upon the Union (Article 355) was deliberately made a precursor for the emergency powers (Article 356). Dr B.R. Ambedkar explained that “if the Centre is to interfere in the administration of provincial affairs, as we propose to authorise the Centre by virtue of draft Arts. 278 and 278-A (presently Art. 356), it must be by and under some obligation which the Constitution imposes upon the Centre”. He went on to add that similar duties on their respective Unions are explicit in the constitutions of the US and Australia.
The Union’s constitutional primacy in fiscal matters enjoins upon it the duty to alleviate the states out of their financial quagmire, to the ends of the welfare of the people who being residents of different states are all equal citizens of India. The Constitution cannot be a mute spectator to the wailing cries of state governments, not especially because the decision to indiscriminately lockdown all states was of the Union alone. Apart from denuding the states of their rightful dignity as “Co-Equals of the Union” (in Ambedkar’s words), the Union’s tiptoeing is tantamount to denying the citizens of their most basic fundamental rights, to which the courts cannot turn a Nelson’s Eye. We’re owed a higher duty of care.
Kabeer Shrivastava is an advocate at the Delhi high court.