Last week, I wrote a column on the recently concluded Stanford Mirror Conference in Patna. One of the papers presented was on ‘Challenges Facing the Indian Economy’, by T.N. Srinivasan, and it deserves closer attention.

The paper considers the important achievements of reforms, as well as steps needed to revive and complete the reform agenda. Much of it is familiar terrain — further tariff reduction, fiscal rectitude, addressing vulnerability arising from contingent liabilities. It also cautions about our urge to imitate China in its SEZ policies. And I agree that cocooning limited areas and providing them fiscal concessions instead of improving overall investment climate through better governance and efficient infrastructure may not be the best way to go.

An equally interesting part of his paper concerns institutional reform, particularly Centre-State relations. Srinivasan argues that the centralised quasi-federal system adopted by the framers of the Indian Constitution in 1950 worked well when there were homogenous single-party governments in almost all the states and the Centre, but the subsequent emergence of heterogeneity, the decline of institutions, and changes in the economy have eroded the rationale for unitary and quasi-federal features of the Constitution.

Srinivasan made four important proposals:

• First, alter the mandate of the Finance Commissions to let them consider the workings of public sector entities which can impact finances at the Centre and the state.

• Second, unify all devolutions by doing away with discretionary transfers and multiple centrally sponsored schemes.

• Third, set up a fiscal policy review council, comprising the prime minister, finance minister, chief ministers, and some experts to examine and enable participative engagement of the Centre and the states, take a macro viewpoint, and allow states to question Central policies.

... contd.