The government must now unleash measures to boost growth
Faced with slowing GDP growth and encouraged by benign inflationary trends, the Reserve Bank of India (RBI) has delivered a Goldilocks cut of 35 basis points in the benchmark repo rate. Though a rate cut was a foregone conclusion ahead of the monetary policy announcement, the expectation was of either a 25 or 50 basis points one. Given the extent of the slowdown in the economy, the Monetary Policy Committee (MPC) deemed the former as too low but taking into account factors such as the turbulence in the global financial markets and the rupee’s fall in the last few days, the latter was seen as too high. In the event, the MPC settled on a median and unconventional 35 basis point cut, which keeps the powder dry for further cuts this financial year. With this, the RBI has cut rates in four consecutive policy announcements beginning February this year, aggregating to a total of 110 basis points.
But the transmission by banks to lenders has not been even a third of this. The central bank says that banks have passed on just 29 basis points which is poor indeed. One factor inhibiting transmission was the tight liquidity conditions until June when the RBI flooded the market — in fact, the last two months the central bank has had to absorb excess liquidity floating around. There is, therefore, reason to hope that transmission from hereon would be quicker.
The repo rate at 5.40% is now at a nine-year low and is headed lower in the next few months and could well settle at 5% or very close to that by the time this rate cutting cycle plays out. Supporting this theory is the fact that inflation is projected to be benign for the next one year.
Growth, on the other hand, is expected to be weak and the MPC has revised downwards the projected GDP growth rate for this fiscal to 6.9% from 7% earlier, with downside risks. Even this appears optimistic given the current impulses in the economy and it is very likely that GDP growth this fiscal will be closer to 6.5%. With the latest cut, the RBI has signified that it is willing to do the heavy lifting. But this alone will not suffice as cost of capital is just one aspect that determines investment. The government has to play its part too in boosting growth. Arguably, the space for fiscal concessions is limited given the overall revenue scenario, but the government can certainly push for further reforms to incentivize investment without impacting its fiscal arithmetic. The slowdown now is part cyclical — which can be addressed by a rate cut — and part structural, for which reforms are an absolute necessity. Therefore, unless the government responds with its own measures, the RBI’s efforts to support growth may go in vain.
The abrogation of Article 370 has exposed ambiguities that have long been evident in India’s federal system.
Asymmetric agreements have been negotiated in settlement of a number of regional conflicts in India. Kashmir’s autonomous status was the oldest and — in original conception — the most farreaching of these provisions. But in practice, there has been a contingency to autonomy provisions, leaving them open to revision by popular majorities at the all-India level.
An altered trajectory
The regionalization of India’s party system between 1989-2014 contributed to the appearance that deeper federalism and growing regional autonomy vis-à-vis the Central government was an almost inexorable process. However, the rise of the Bharatiya Janata Party (BJP) to national political dominance has altered that trajectory. By abrogating Article 370 and bifurcating Jammu and Kashmir State to create two Union Territories, the BJP has demonstrated the possibility of using the inherent flexibility in the federal order to centralise power and reshape the size, powers and stature of a constituent unit of the Indian Union — the only unit with a Muslim majority population.
The constitutionality of the abrogation of Article 370 will be carefully picked over in the months and years to come. But the government’s ability to table and pass legislation with such important consequences for the fabric of federalism — while the elected assembly of Jammu and Kashmir is in abeyance — exposes the fragile set of compromises on which India’s asymmetric federal system rests.
Asymmetric federalism involves the granting of differential rights to certain federal subunits, often in recognition of their distinctive ethnic identity.
In the case of Jammu and Kashmir, the negotiation of Article 370 was a transitional and contingent constitutional arrangement agreed in the midst of a continuing conflict while the Indian Constitution was being finalized. Over time, this ‘transitional’ clause had become a semi-permanent institutional compromise, although this was ever an uneasy compromise. Kashmir’s autonomy arrangements had been eroded under successive governments as tensions grew between the desire of Prime Ministers from Jawaharlal Nehru onwards to integrate the State more closely into the Indian Union and the desire of many Kashmiris to preserve a special status for their State. Since 1954, as many as 94 of 97 entries in the Union List and two thirds of constitutional articles have been extended to the State. This process has happened with the approval of the Supreme Court.
Subsequent asymmetric agreements were reached with the Nagas and the Mizos, which are enshrined in Article 371 in the Constitution.
When the small State of Sikkim joined the Indian Union in the early 1970s, Article 371F was added to the Constitution. Article 371F allowed for laws that were in place before Sikkim’s accession to remain in place unless amended or repealed by the legislature. Article 371 also contains measures that were intended to promote intraState equity in Andhra Pradesh, Telangana, Maharashtra, Gujarat and Karnataka.
Asymmetric constitutional provisions are a common feature of federalism in diverse societies. Many have argued that India sets an international example for how asymmetric features can help dampen secessionist conflicts by recognizing multiple modes of belonging within the Union. Rather than encouraging secessionism, proponents of asymmetric arrangements argue that it is the denial of autonomy that can provide ground for secessionist claims to grow.
However, asymmetric arrangements are often contested by majority national communities and by other regions without special arrangements. The annulment of Article 370 has long been a cause célèbre for Hindu nationalism, but it was striking that it also received wide support from many regional parties in Parliament.
The rationale set out by the BJP this week drew on all the textbook critiques of asymmetric arrangements to attract the support of many regional parties to pass the legislation in the Rajya Sabha. These include the argument that asymmetric provisions are discriminatory, for instance, by placing prescriptions on who can own property in particular regions, or because they privilege certain kinds of ‘special’ identities over others. A Telugu Desam Party MP, from India’s first linguistic State Andhra Pradesh, welcomed the fact that India would now be ‘one nation with one flag and one constitution.’ Alternatively, asymmetric status is presented as contributing to secessionist claims, hence the argument that Article 370 is the ‘root cause of terrorism’.
Autonomy arrangements are also presented as anti-egalitarian because they prevent the extension of rights in force elsewhere in a country. This last argument underscores the significance of the simultaneous emphasis on extending reservations for Scheduled Castes and Scheduled Tribes in the new Union Territories alongside the abrogation of Article 370. As the Home Minister, Amit Shah, said in the Lok Sabha: “Those who support Article 370 are antiDalit, anti-tribal, anti-women.”
A deliberate flexibility
By design, India’s federal institutions place relatively weak checks on the power of a government with a parliamentary majority. As the political scientist, Alfred Stepan, identified, federal systems can be more or less ‘demos constraining’. In those at the more ‘demos constraining’ end of the spectrum, federalism serves to undermine the consolidation of power by national majorities. For instance, the American theorist, William Riker, saw American federalism as a counter-weight to national populism since ‘the populist ideal requires that rulers move swiftly and surely to embody in law the popular decision on an electoral platform’. By contrast, other federal systems, such as India’s, are more ‘demos-enabling’. This means that the design of federalism places fewer checks on the power of national majorities. For instance, the composition of the Rajya Sabha mirrors the composition of the Lok Sabha, rather than providing equal representation to States regardless of size, and the Rajya Sabha has weaker powers than the Lower House. Fewer powers are constitutionally allocated to federal subunits exclusively compared to more demos-constraining federations.
Placing this kind of flexibility in the hands of the Central government was deliberate and designed to enable decisive Central action to protect national integrity in the aftermath of Partition. In the Constituent Assembly, B.R. Ambedkar highlighted the difference between the ‘tight mould’ of other federal systems and the flexibility hard-wired into India’s which would enable it to be both ‘unitary as well as federal’ according to the requirements of time and circumstances.
This constitutional permissiveness has been used to do things that have deepened federalism in the past under both Congress and BJP-led governments, such as the creation of new States in response to regional demands from the linguistic reorganization of States in the 1950s onwards.
By granting the Central government the power to create new States or alter State boundaries under Article 3, and not giving State governments a veto over bifurcation, the Constitution enabled the Central government to accommodate linguistic and ethnic diversities in a way that would have been much harder in a more rigid federal system.
It also enabled the Central government to adopt asymmetrical measures in the first place without facing a backlash from other regions that might have resented the ‘special’ treatment of minority regions. Until the 2000s, most of these changes were done based on a slow process of consensus building within the regions concerned.
By abrogating Article 370, bifurcating Jammu and Kashmir and downgrading the status of the successor units to Union Territories, the government has used the flexibility of the federal provisions of the Constitution to other ends. This is not the first time that a Central government has used its powers to bifurcate a State in the absence of local consensus. This was also seen with the creation of Telangana in 2014. As in the case of Telangana, the creation of the Union Territory of Ladakh does respond to a long-run demand in this region with a substantial Buddhist population. However, the decision to transform the remainder of J&K State into a Union Territory, at the same time as annulling Article 370, is a departure with profound and as yet unknown consequences in Kashmir, and wider implications for Indian federalism.
The Indian government’s decision to revoke the special status of Jammu and Kashmir (J&K) raises many constitutional questions. One important question is whether the President had the powers to make all the provisions of India’s Constitution apply to the State. Another is whether the Indian government was authorized to do this in the face of its own obligations to J&K under Article 370. Even assuming for a moment that these questions did not arise, a further question that does crop up is: Did Parliament have the authority to bifurcate J&K into two Union Territories (UTs)?
The last question assumes importance because the conversion of a State governed by an elected legislature into a UT/UTs adversely affects a people who had earlier enjoyed the freedom of full democratic participation. In the case of J&K, the centrally appointed administrator — called the Lieutenant Governor — will now have the power to make a wide range of decisions, as opposed to a regular State Governor, who must act typically on the aid and advice of the State’s Council of Ministers.
Moreover, while the legislature of the UT of J&K — which the reorganization law states will be akin to Puducherry’s — will have the power to enact laws on matters in the State List and the Concurrent List of the Constitution, Parliament will retain the power to enact overriding laws. Consequently, the arenas open to decision-making by elected representatives will be diminished.
The Delhi parallel
The total reorganization of a full-fledged State into two UTs is historically unprecedented in India. However, one example here that can be cited is that of Delhi.
When the Constitution of India was adopted, Delhi was a ‘Part C’ State administered by the President acting through a Chief Commissioner or Lieutenant Governor. From 1952 to 1956, Delhi had a Legislative Assembly empowered to make laws on all matters in the State List excepting law and order; constitution and powers of municipal corporations and local authorities; and land and buildings in possession of the Central government situated in Delhi. However, in 1956, Delhi and all the other Part C States were divested of their legislative powers and converted into UTs that would now be administered by the President acting through an administrator appointed by her.
Within some years, the other UTs were given legislatures, and by 1987, the UTs of Himachal Pradesh, Manipur, Tripura and Goa were even made into States. Only the restoration of a Legislative Assembly in Delhi was stalled, out of concern that Delhi holding legislative powers over matters in the State List would compromise the Union government’s ability to discharge its functions towards the nation in the national capital.
Even when Delhi received partial Statehood in 1992, with full legislative powers on subjects in the State List — except public order, police and land — the elected government in Delhi found its hands tied by the powers of a centrally appointed Lieutenant Governor. This tussle for democratic power in Delhi finally culminated in 2018, when the Supreme Court recognized that the Constitution has sought to create a democratic and representative form of government in Delhi. Only in the exceptional case that the elected government and the Lieutenant Governor differ on matters fundamental to Delhi’s governance could the latter’s decision override democratic will.
Accession after Independence
However, J&K’s entry into the Indian Dominion is not comparable with Delhi’s beginning as a ‘Part C’ State. Delhi was an integral part of the India during Independence and later, when the Constitution came into force. J&K on the other hand was a sovereign Princely State at the time of India’s Independence and acceded to the Indian Dominion in 1947 on terms recorded in a treaty — the Instrument of Accession. Article 370 of the Indian Constitution, which accorded a special status to J&K in comparison with other States, was an embodiment of the treaty’s terms.
However, J&K’s special status was not a claim to sovereignty. This is apparent from Section 3 of the Constitution of the State of J&K, 1956, which recognizes it as an integral part of India.
The special status merely meant that provisions of the Indian Constitution (other than Article 1 defining India as a Union of States; and Article 370 itself) were permitted to be applied to J&K differently from the way they applied to regular States. Such a modified application allowed J&K a higher degree of autonomy.
For instance, while Parliament had exclusive powers to make laws pertaining to States, on all matters not in the State and Concurrent Lists, the residuary power rested with the State legislature in the case of J&K. With this autonomy, the people of J&K on paper had an even larger arena than regular States for enacting laws through democratic participation. Therefore, J&K’s reorganization into a UT amounts to a more severe curtailment of democratic rights than that of Delhi in 1956.
Not a constitutional amendment
Further, Delhi’s conversion into a UT and the subsequent restoration of its Legislative Assembly were both carried out through constitutional amendments, which cannot easily be amended further. J&K’s conversion into a UT, on the other hand, was effected through a regular law of Parliament, which can easily be amended at the behest of a majoritarian consensus from time to time.
Special status for States is not extraordinary in the Indian Constitution. Several States in India enjoy differential rights in their relationship to the Union by constitutional design, depending on their unique cultural, ethnic and geopolitical compositions. The thinking underlying this arrangement is that the interests of States with stronger intra-group ties or ethnic bases — like Tripura, Arunachal Pradesh, Manipur and Nagaland — are better represented in the Constitution and the structure of the government, if we account for their subjective contexts.
The Constitution of India’s chosen federal principle was to honour these subjective contexts to hold together the diverse Indian States in the Union, as B.R. Ambedkar stated in the Constituent Assembly. Therefore, the evisceration of the right to full democratic participation of an entire section of people, as happened earlier this week in the case of J&K, should make us all wonder: what if more such laws are enacted, disregarding the subjective contexts of our other States and downgrading the States into Union Territories?
What is Article 371?
Articles 370 and 371 were part of the Constitution at the time of its commencement on January 26, 1950; Articles 371A through 371J were incorporated subsequently.
Home Minister Amit Shah told Lok Sabha Tuesday that the government had no intention of removing Article 371 of the Constitution, which includes “special provisions” for 11 states, including six states of the Northeast. His assurance came after Congress leaders expressed apprehension that having rendered Article 370 irrelevant, the government might unilaterally move to abrogate or modify Article 371.
Articles 369 through 392 (including some that have been removed) appear in Part XXI of the Constitution, titled ‘Temporary, Transitional and Special Provisions’. Article 370 deals with ‘Temporary Provisions with respect to the State of Jammu and Kashmir’; Articles 371, 371A, 371B, 371C, 371D, 371E, 371F, 371G, 371H, and 371J define special provisions with regard to another state (or states).
Article 371I deals with Goa, but it does not include any provision that can be deemed ‘special’.
Article 371, Maharashtra and Gujarat: Governor has “special responsibility” to establish “separate development boards” for “Vidarbha, Marathwada, and the rest of Maharashtra”, and Saurashtra and Kutch in Gujarat; ensure “equitable allocation of funds for developmental expenditure over the said areas”, and “equitable arrangement providing adequate facilities for technical education and vocational training, and adequate opportunities for employment” under the state government.
Article 371A (13th Amendment Act, 1962), Nagaland: This provision was inserted after a 16-point agreement between the Centre and the Naga People’s Convention in 1960, which led to the creation of Nagaland in 1963. Parliament cannot legislate in matters of Naga religion or social practices, Naga customary law and procedure, administration of civil and criminal justice involving decisions according to Naga customary law, and ownership and transfer of land without concurrence of the state Assembly.
Article 371B (22nd Amendment Act, 1969), Assam: The President may provide for the constitution and functions of a committee of the Assembly consisting of members elected from the state’s tribal areas.
Article 371C (27th Amendment Act, 1971), Manipur: The President may provide for the constitution of a committee of elected members from the Hill areas in the Assembly, and entrust “special responsibility” to the Governor to ensure its proper functioning.
Article 371D (32nd Amendment Act, 1973; substituted by The Andhra Pradesh Reorganisation Act, 2014), Andhra Pradesh and Telangana: President must ensure “equitable opportunities and facilities” in “public employment and education to people from different parts of the state”. He may require the state government to organize “any class or classes of posts in a civil service of, or any class or classes of civil posts under, the State into different local cadres for different parts of the State”. He has similar powers vis-à-vis admissions in educational institutions.
Article 371E: Allows for the establishment of a university in Andhra Pradesh by a law of Parliament. But this is not a “special provision” in the sense of the others in this part.
Article 371F (36th Amendment Act, 1975), Sikkim: The members of the Legislative Assembly of Sikkim shall elect the representative of Sikkim in the House of the People. To protect the rights and interests of various sections of the population of Sikkim, Parliament may provide for the number of seats in the Assembly, which may be filled only by candidates from those sections.
Article 371G (53rd Amendment Act, 1986), Mizoram: Parliament cannot make laws on “religious or social practices of the Mizos, Mizo customary law and procedure, administration of civil and criminal justice involving decisions according to Mizo customary law, ownership and transfer of land… unless the Assembly… so decides”.
Article 371H (55th Amendment Act, 1986), Arunachal Pradesh: The Governor has a special responsibility with regard to law and order, and “he shall, after consulting the Council of Ministers, exercise his individual judgment as to the action to be taken”.
Article 371J (98th Amendment Act, 2012), Karnataka: There is a provision for a separate development board for the Hyderabad-Karnataka region. There shall be “equitable allocation of funds for developmental expenditure over the said region”, and “equitable opportunities and facilities” for people of this region in government jobs and education. A proportion of seats in educational institutions and state government jobs in Hyderabad-Karnataka can be reserved for individuals from that region.