Pallavi Kamat

The recent comments @nikhilkamathcio made with respect to fiscal federalism are quite disingenuous. Federalism by definition divides power constitutionally between a central national authority and constituent regional units (states in India's case). The constituents each have protected spheres of autonomy, while they remain part of a single sovereign country. Hence, in such administrative and governance systems, the movement of resources from higher-income regions to lower-income regions is a core design feature of national unity. This is not a flaw or an “extractive activity”. Citizens of the country share a common currency, defence, external borders, legal framework and citizenship rights. The regional differences that exist especially in resource endowment are not a result of local efforts. Of course, industrial development is an area where the states can make a huge difference. But each state does not get the same input - geography, history, natural endowment, natural resources - and hence both the starting point as well as ambition and achievement are bound to vary. Fiscal distribution or even equalization as is the case in many countries, serves as a form and expression of national insurance and solidarity. Residents of poorer or resource-poor regions can still aspire to and eventually access broadly comparable public services which the central government provides. But this can be done without facing radically different tax burdens solely because of geography or history-induced requirements. This is the system not just in federal structures, but also in unitary countries, which have to take care of their underdeveloped regions. Without such mechanisms, large disparities tend to fuel political resentment or worse, separatist demands, which would undermine the very idea of a single political community. The fiscal federalism model is very much an expression of the social contract that makes a federal country or for that matter any large, diverse nation viable. Additionally, the fiscal federalism debate of equity vs. efficiency has other dimensions too. Will outline both the issues in more detail: distribution / redistribution structures in other countries including China and why the administration of federal structure / unitary countries with disparate geographies goes beyond such simplistic ideas. Finally, you don't import the governance model of any country wholesale without importing its political and social model. Another point of debate and discussion.