PSIR Optional (Emphasising on Concepts of Indian Politics) by Viraj C. Rane

Model Answer

Question #1. Critically analyse the constitutional and other implications of quota for locals in employment.

Approach:

• Introduction: Importance of social justice and the criteria which are considered. 
• Body: Current status of the issue, why quotas are created and the constitutional challenge. 
• Conclusion: Empowering human capital and exploring ideas like Universal Basic income.

Hints:

 State and social justice are exclusively linked to each other in a country like India. As reflected in the preamble to the Indian constitution, Indian state also aspire to ensure social justice to its citizens. The real purpose of reservation policy is to address historical injustices, exclusion and give representation to the excluded community in education, position of power and administration. But quota system based on domicile has been a contentious issue. In place of traditional metrics like social backwardness and the recent economic backwardness (105th Constitutional amendment), place of birth/residence is given consideration here. This rekindles the ‘sons of soil’ and localism issue

Current status: 

• The Haryana government’s State Employment of Local Candidates Bill 2020 reserves 75 per cent of new jobs in private establishments under a compensation threshold of Rs 50,000 for Haryana residents. This is part of a growing pattern of domicile-based preferential policy. 
• Even Andhra Pradesh has mandated 75 per cent reservation for locals; Karnataka is deliberating with the idea of reserving all blue-collar jobs for locals. The last time there was such a contagion of domicile-based preferences was in the 1970s, when states such as Maharashtra, Tamil Nadu, Andhra Pradesh issued circulars directing employers to hire local residents.

Constitutionally feasibility: 

• The Constitution prohibits discrimination based on place of birth. The right to move freely in the country and reside and settle in any part of it, the right to carry out any trade or profession, are all established rights.
• Article 16(3) does, in principle, enable Parliament to provide for domicile-based preferential treatment in public employment. But the right to enact this exception has been given to Parliament, not to the states. Providing quotas based on domicile is also in contravention to federalism.
• It is also argued that creation of quotas for locals by one state can result in retaliatory actions by other states, which not only affects the federal spirit but also creates animosity among the people. 
• Imposing reservation would not just interfere with freedom of trade and business, it might also be a form of expropriation as political parties can bring formal and informal pressure to bear on industries and enterprises.
• Mahavir Tyagi, a member of the constituent assembly advocated for residential qualifications as the bedrock of a strong federalism. He argued that if there were no residential qualifications, provinces would not be able to enjoy “self-government” and it would “go against the real spirit of Swaraj.” But this was not accepted 

The constitutionality of domicile-based employment preferences (unlike preferences in education) has never been frontally tested. But almost all the existing case law that impinges on the matter clearly indicates such laws are unconstitutional. In the Charu Khurana v Union of India case, the Supreme Court has declared as unconstitutional all restrictions on employment based on place of residence. The Quota Bills have ramifications beyond constitutionality. It said that this is an exercise in political cynicism: the government knows it will be struck down but nevertheless legislates on it to show to the people that it has done its job

Why such quotas are created: 

• Inability of the state governments to create employment, the nature of work becoming less labour intensive and the investors bringing in capital also tend to favour their own people (people from his/her state of birth or origin) because of nativity issue.
• It is also argued that hiring local people may lead to formation of unions which can further result in higher wages and demands for labour rights. 
• Political thinker Pratap Bhanu Mehta says that states provide quotas for locals to cover for governance failure in terms of pricing, employment and economic development. According to him invoking identity politics in a negative sense will in the long run, put hurdles in free movement of labour, which is integral to economic growth.
• Some political observers have pointed out that the provisions of quota laws: ‘exemption criteria’ (where private firms can seek exemption on certain grounds); filing of quarterly compliance reports, penalty if not confirming and inspection by officers brings back the era of license raj

Conclusion: 

The governments should facilitate employment generation through better investment policies and empower the human capital through better education and skilling so that they are employed. Employment through fiat in the private sector will disincentivise further investments which will further aggravate the problem of unemployment and growth. Governments should also explore the ideas universal basic income and unemployment benefits to address the issue of unemployment

Supplementary Information: 

Apart from constitutional impropriety, another major problem with such employment quotas for locals: 

• it discourages migration, either for education or employment, which is usually associated with development, as it facilitates reallocation of labour across occupations, sectors and regions to usher in a more efficient allocation of resources between different productive uses. And more importantly, hurdles to migration also especially hurt disadvantaged groups, as migration is a useful livelihood strategy for poor households, caught in the vortex of feudal and caste chauvinism of their home states, and provides positive benefits to both sending and receiving regions as in the case of international migration.
• Scholars point the fact that this recent surge in demand for local employment quotas is also surprising as migration levels in India are still fairly low. Low migration rates in India have been attributed to various factors, including language and caste barriers, large distances and logistical hurdles and the inability of migrants to access domicile-based education and employment opportunities and other welfare schemes provided by state governments.
• A closer analysis reveals that rather than just economic, it is political factors that play a more crucial role

Question #2. The third tier of government makes the Indian federal structure “fully federal”. Discuss the role played by the Finance Commission in empowering the third tier. 

Approach: 

• Introduction: Decentralization as the role of 73rd and 74th CAA. 
• Body: The financial constraints and the role played by financial commission to augment the finances. 
• Conclusion: Apart from the finance commission, political will is important. 

Hints: 

The spirit of federalism lies in democratic decentralisation of powers. The basic idea behind decentralisation is putting up a system whereby decisions are taken at the level of government that is closest to the people, as they have better knowledge of the problems. In India, the passing of 73rdand 74th amendment in 1992, that gave constitutional status to third tier of govt, was a crucial step in institutionalising democratic decentralisation and making the federal structure “fully federal”. But devolution has not been fully successful. According to Prof.Raja Chelliah, everyone wants decentralisation, but only until their level.

Local Bodies and financial constraints: 

• They provide critical civic amenities such as roads, water and sanitation, and primary education and health. 
• According to NITI Aayog report, the transformation of Indian cities faces several structural constraints: weak or outdated urban management practices, including planning systems and service delivery models. 
• It is also pertinent to mention that lack of adequate finances has been a critical problem. This was due to lack of devolution of finances, lack of mobilization of finances by the ULBs. 
• The success of schemes like JNNURM and AMRUT can be attributed to the dedicated financial allocation for those schemes

Allocation of finances:

• The allocation of resources by the state and central finance commissions has been the main source of funds. The rest of the required funds would have to come from local resource: property taxes, user fee and issuance of municipal bonds. But raising sufficient resources has not proved easy. 
• The 73rd and 74th Constitutional Amendment Acts leaves it to the discretion of state legislatures to devolve finances. 
• The Economic Survey 2017-18 point out that Some states have not even allowed the municipalities to levy property taxes. Moreover, even when powers have been devolved, exercising them has proved difficult. It is difficult for the gram panchayat to collect taxes due to close relation with the residents

According to Ashok Kumar Lahiri, member, Fifteenth Finance Commission and a former Chief Economic Advisor, the efficiency, smooth functioning and accountability of local bodies have been plagued by lack of readily accessible and timely audited accounts, absence of timely recommendations of State Finance Commissions Finance Commissions have drawn pointed attention to these issues and have created certain pre-conditions for devolution of funds in an attempt to reform the local governance.

• FC-XI listed the core civic services: primary education, health, drinking water, street lighting and sanitation. It indicated that the funds released should be earmarked for operation and maintenance of these functions. 
• The XIV FC incentivised increase forest cover with higher devolution. 
• Concept of tied/untied grants was used by XV FC. Untied grants can be utilised for location specific needs except for payment of salary and incurring other establishment expenditure. And tied funds for strengthening the delivery of basic services; sanitation and solid waste management.
• Publication of audited annual accounts and notification of floor rates for property tax was taken as a parameter by XV FC. These two entry conditions lay strong foundations for financial accountability of municipalities and own revenue enhancement respectively.

Conclusion: 

Constitutional bodies such as the finance commission cannot be seen as principal actors in driving transformational change in our cities. They can, at best, prepare the ground and provide incentives and disincentives. According to Prof Raja Chelliah the Finance Commissions faces a dilemma whether to take cognizance and allocate even more resources to local bodies or whether to respect the sovereignty of states and hope that they will themselves be forthcoming in decentralizing down –fiscally and governance wise – commensurate with the needs of urbanisation. It ultimately boils down to the political will of the central and state governments.

Supplementary information:

• The Finance Commission is required to make recommendations on the measures needed to augment the Consolidated Fund of a State to supplement the resources of the Panchayats and Municipalities in the State.
• There has been considerable progress in the empowerment of Panchayati Raj Institutions (PRIs) and municipalities since the Tenth Finance Commission (FC-X) first made a provision for explicitly supporting local bodies through grants.
• FC-XI recommended a grant of Rs. 8000 crores for PRIs and Rs. 2000 crore for ULBs for the fiveyear period starting 2000-01. 
• The Fourteenth Finance Commission (FFC) grant to ULBs for 2015-2020 is Rs 2,87,436 crore almost 277 per cent higher than the grant recommended by its predecessor. 
• The Fifteenth Finance Commission (FFC) has recommended grants of Rs 4,36,361 crore from the Union government to local governments for 2021-26. This is an increase of 52 per cent over the corresponding grant of by its predecessor.

Urbanisation will define the trajectory of Indian development. The migration into the cities over the coming decades will pose tremendous challenges for government, particularly the municipalities who will be primarily responsible for providing the services that the new migrants – and established residents – will need. Competition between states is becoming a powerful dynamic of change and progress, and that dynamic must extend to competition between states and cities and between cities. Cities that are entrusted with responsibilities, empowered with resources, and encumbered by accountability can become effective vehicles for competitive federalism and, indeed, competitive sub-federalism to be unleashed.