In our first part of this series on money, we looked at how state and union governments collect money—and why the Centre is gobbling up greater shares of the tax revenue pie. As we will see in part two, this imbalance of fiscal power fuels the almighty juggernaut of ‘double engine sarkar’—and the Modi mystique.
Editor’s note: Unlike many other election specials, these special deep dives don’t focus on everyday party politics—who is ahead and why etc. Our aim is to help you understand how the system works—so you can understand where it is broken or working well.
First, an important recap
In part one, we laid out how revenue is collected by the union and state governments. And we explained why Opposition—ruled states are unhappy with how the Centre distributes that revenue among the states.
First: We noted that there is an inherent imbalance between the union and state governments. The union government collects the lion's share of the revenues, but the states are responsible for the greater part of the expenditure on services. The split looked like this in 2019:
Next, we looked at the three key reasons why states like Karnataka, Tamil Nadu and Kerala are bitterly complaining about “economic injustice.
One: A great part of the tax revenue collected by the union government—GST, income tax etc.—is put into something called a ‘divisible pool’. This pool is supposed to be split between the states and the union government. Successive Finance Commissions (explained here) have increased the share of states from 32% for the period 2010-15 to 41% for 2021-26.
Yay! Except the Centre has only given 38.1% to the states. That outstanding amount is a whopping Rs 3.69 trillion (3.69 lakh crore) during the current 15th Finance Commission period.
Two: The union government has also used a sly trick to decrease the total amount due to the states—by slapping on cesses and surcharges. These are all the extra taxes you see on your bill—example: Swachh Bharat, Health and Education cess etc. They are added to everything from income tax to excise and service tax.
The bit most of us don’t know: everything we pay in cesses etc. goes straight in the pocket of the union government. So it reduces the total amount of taxes that has to be shared with the states—i.e what ends up in the divisible pool. That amount—kept by the government—rose dizzyingly from Rs 705.6 billion (70,559 crore) in 2009-10 to Rs 5.1 trillion (5.1 lakh crore) in 2023-24.
Three: Finally, the government has tweaked the criteria used to decide how much each state gets from this ‘divisible pool’. Population—the number of people in a given state—is a key determinant. Until 2015, the Finance Commission used the 1971 census to decide who gets how much. Now, it uses the 2011 census to do the same. This is one example of the growing gap in the population between states in the south and the north. Enuf said.
The fallout: Thanks to this change, there is an even greater disparity between more and less populous states. Uttar Pradesh (17.94%) and Bihar (10.06%) got a huge slice—compared to southern states like Tamil Nadu (4.08%), Karnataka (3.65%), and Kerala(1.92%). The shares of Karnataka and Kerala actually fell when the 2011 census became a criterion—while Bihar and Maharashtra (6.32%) saw their shares rise. Hence, Karnataka CM Siddaramiah’s outrage!
The Vishwakarma magic: How money wins elections
Who has more money: For all the reasons listed above, the Centre controls a greater share of the revenue pie. This means it has more money to spend. So how does any union government spend?
Where does this money go: According to The Hindu’s analysis of the latest budget, it spends the most on interest on its various loans (20%) and the states’ share of the divisible pool (20%). But it also gives money to states in two other ways. One: Central sector schemes—which are fully paid by New Delhi. That’s a whopping 16% of the pie. Two: Centrally sponsored schemes (8%)–which require states to contribute their share.
Examples of centrally sponsored schemes are MGNREGA, PM Awas Yojna, Jal Jeevan Mission, and National Health Mission. Central sector schemes include PM Kisan, Crop Insurance Scheme, Regional Connectivity Scheme, and Production Linked Incentives.
Data point to note: Of all the money transferred by New Delhi to states in 2022/23– their mandated share of taxes was only 51%. Most of the rest was discretionary transfers by the union government.
How this money wins elections: So we now have a situation where states are losing their share of the divisible pool—as in tax revenue. This means they are more dependent on centrally sponsored schemes—to deliver welfare benefits to their people. And the Centre has more money to spend. Now add in the fact that welfare schemes win votes—a fact so well-known that it barely warrants mention.
The PM blah blah yojana: In 2022, an Economic Times analysis showed that welfare schemes played a huge role in BJP’s victory in Uttar Pradesh. There were 150 million ‘labarthis’—or beneficiaries—of central sector schemes in the state alone—many of them from women and marginalised castes. They had received Rs 300,000 over the past five years. In 2017, the BJP’s victory was all about gas cylinders. All these were benefits from schemes directly and fully funded by the union government—and attributed to the Prime Minister.
UP’s other bounty: The money it receives from the union government to spend on infrastructure and welfare programs. The amount jumped by 47.3% when the BJP ruled both in New Delhi and the state—from Rs 1.36 trillion (1.36 lakh crore) received in 2012-17 to Rs 2.01 trillion (2.01 lakh crore) in 2017-2022 period. Yogi Adityanath’s victory in 2017 proved to be a windfall for Uttar Pradesh.
Welfare super-special for 2024: The Prime Minister Vishwakarma Samman Yojana—aimed at blacksmiths, goldsmiths, potters, carpenters and cobblers. That’s around 3 million beneficiaries/voters who belong to a mix of marginalised communities across the nation:
A total of 140 castes are covered under the Vishwakarma Scheme. The artisans and craftsmen primarily belong to the Most Backward Castes (lower strata of OBC). All these professions have historically been related to specific castes. In the years after globalisation, other castes too have joined these professions. Some work designated for MBCs in the past are also done by many Dalits. For example, the Dalit community works as masons and tailors. The BJP wants to take advantage of the MBC castes by formally associating them with their newly launched scheme.
Multilevel electioneering: The scheme works on multiple levels. One: It deploys the Centre’s revenue booty for excellent PR for Modi. Two: The scheme also helps create a new caste identity called ‘Vishwakarma’:
The Modi government has recently given the new identity of Vishwakarma Sathi to skilled artisans and craftsmen. This new identity is derived from the Hindu deity Vishwakarma. The Modi government will officially recognise these workers as Vishwakarma Sathi by issuing them PM Vishwakarma certificates and identity cards. This move by the BJP has wider implications as it incorporates these castes within their Hindutva ideology across caste and religious lines. The beneficiaries of this scheme will be from any caste and religion.
Three: It potentially helps split the Muslim vote. The Vishwakarma Scheme targets not just Hindu voters, but also Pasmanda Muslims—most of whom are artisans.
Main takeaway: When the Centre grabs and controls the greater part of the revenue pie, it can be deployed in powerful ways to win elections. A great part of Modi magic relies on this big tax bounty.
A super-duper infra goodie bag: Just this year—right before the Lok Sabha elections—the government has announced road building projects worth Rs 33 billion (3300 crore) in UP. In Maharashtra, Modi unveiled the Rs 178.4 billion (17,840 crores) Atal Setu bridge—plus another Rs 127 billion (12,700 crore) in “world class infrastructure.” In February, he was in Gujarat—touting Rs 600 billion (60,000 crore) in funding for everything from road and rail to energy, health and urban development.
Big point to note: The lopsided distribution of welfare bounty between states is often justified in the name of equity. Poorer states like Uttar Pradesh simply need more. But, but, but: There is no evidence that all this Centre-given moolah has actually resulted in development:
Though the UP government’s focus on infrastructure projects like building multiple expressways, the Defence Industrial Corridor and electronics manufacturing clusters has resulted in improved performance in some sectors, the overall GDP growth, growth in per capita income, as well as industrial and agricultural sectors have continued to lag behind the national average.
In fact, some experts argue that this “competitive populism” results in less investment in programs that result in long-term growth.
The ‘double engine sarkar’ problem
The BJP definition: The BJP uses the phrase to signify the benefits of Centre-state coordination. When both are ruled by the same party, everything works better:
In a nutshell, the imagery of two rail engines racing (not chugging, please) on parallel tracks denoted an essential prerequisite—the turbines would have to be powered by the same party at the Centre and the states to guarantee an unbroken run. A discrepancy between the ruling parties would derail the movement and cause the engine to fall off the rails.
But the ‘double engine’ is not a BJP invention—its roots lie in the 1960s—when Congress lost its hegemony.
A quick look back: In one sense, the ‘double engine sarkar’ was the norm for decades after Independence. The Congress party dominated almost every state and the Centre: “The Nehruvian period is therefore the heyday of the double-engine sarkar – so hegemonic that it didn’t even require a name. It was simply the standard model for Indian politics.”
But it was not always to the state’s benefit. West Bengal’s industrial output, for example, fell from 47% before 1947 to 17% in 1961. In fact, much of liberal energy has been expended in proving the lack of any benefit to this form of one-party dominance. But the problem runs deeper.
The true birth of ‘double engine’: As CP Chandrashekhar points out, the very premise of the ‘double engine’ argument dates back to the 1960s—when Congress began to lose ground in the states:
This triggered a tendency to try and influence from above, through Central intervention, the political environment in states. There have been concerted efforts to restrain the ability of opposition-ruled states to adopt economic policy measures and initiatives that win parties ruling in those states a degree of political legitimacy. Capital expenditures that build state infrastructure and social expenditures, especially subsidised food provision, a modicum of social protection, and employment guarantee schemes, do contribute to the party in power in a state winning a degree of political legitimacy.
And that’s the darker impetus of the ‘double engine’ strategy. Yes, the Centre can control a state’s access to resources to reward its government–and also undermine it.
Hence, the criticism: Opposition-ruled governments—and a number of experts–view the ‘double engine’ pitch as an open form of blackmail:
This political agenda, in which the Centre is at liberty to spend and states are fiscally shackled, has recently been weaponised. The open declaration now is that citizens of a particular state will be privileged in Central spending if they vote for and elect a BJP-led government at the state level. The right to development has been subordinated to electoral behaviour that ensures a “double-engine sarkar”, or a state-level government that is politically aligned to the one at the Centre and is, therefore, favoured by the latter.
That imbalance in the distribution of revenue between Centre and state has become a form of punishment–meted out to wayward states.
A flurry of examples: The many complaints of Opposition-ruled parties reflect this dark side:
West Bengal: Mamata Banerjee has complained for over two years that the Centre has not released funds for critical rural welfare funds like the MGNREGA (employment), Pradhan Mantri Awas Yojana (housing) and others:
According to the state government, around Rs.1.16 lakh crore is due from the Centre for various schemes; of which the MGNREGA dues amount to around Rs.6,911 crore… The state government also claimed that the Centre had not released funds for 11,01,731 houses sanctioned under the PMAY “in spite of the state’s special initiative for identifying deserving households”
OTOH, New Delhi claims that it turned off the tap due to corruption on the ground.
Point to remember: The government has total discretion over these central sector schemes. It doesn’t really have to offer a reason.
Karnataka: The government can also wreck a welfare benefit offered by a state government—to claim sole credit. Last June, the Centre refused to supply rice to Karnataka for its flagship Anna Bhagya scheme. The reason: It was a core election promise made by the newly elected Congress government—but the scheme would compete with the Centre-funded Pradhan Mantri Garib Kalyan Ann Yojana program that also supplies 5 kg rice to poorer Indians.
Point to note: Last month, Karnataka CM Siddaramaiah staged a dharna in Delhi–claiming the Centre was withholding funds for water projects critical for the state. This month, the state BJP is staging protests against the shortage of drinking water in Bangalore.
Kerala: is furious about centrally sponsored schemes—which requires the state to share the expenses of a scheme:
The Centre has also withheld more than Rs.5,000 crore… citing the state’s refusal to add branding such as Central department logos and Prime Minister Modi’s image. This has put in limbo projects under the Pradhan Mantri Awas Yojana, Swachh Bharat Mission, Ayushman Bharat, National Health Mission, and Poshan Abhiyaan. The state government has questioned the rationale of displaying only Central government branding, stating that it shares the costs of these projects.
The killer move: Due to liberalisation-era reforms—and stricter RBI rules—the ability of states to borrow money has been severely limited. And the union government can now withhold funds if it decides that a state government has been “fiscally irresponsible.”
This sets a virtuous cycle for the BJP. The cash-strapped states take loans to raise money for welfare programs—which the Centre attacks as shameless bribes. But it allocates the money to the same kinds of schemes—in order to claim credit:
The attack on the fiscal capacity of state governments helps limit such expenditures, even while Central claims on expanding infrastructural investments and social sector spending are advanced, with an increase in “Central” schemes, especially those attributed to the patronage of the highest authority, the Prime Minister. Even to the extent that state governments manage to outlay resources for welfare measures, Central spokespersons have attacked these as “populist” measures reflective of a revdi (sweet gifts) culture that seeks to win political legitimacy at the expense of much-needed fiscal consolidation.
Key point to note: A lot of the PM Yojana schemes intrude on areas that are assigned to the states by the Constitution. Examples: health, rural development, agriculture, urban development, irrigation etc. And here’s why:
Since areas which directly affect the lives of the people (who are the voters) generally are the domain of the state, the Centre tries to launch schemes in these sectors while naming several of these as ‘Prime Minister Yojana’. This clearly indicates that the Centre is responsible and should be given credit for benefits enjoyed by citizens under the scheme.
Mission accomplished: A 2019 study shows that voters increasingly give the union government credit for welfare schemes—and those that do are also more likely to vote for the BJP.
The bottomline: India cannot be a “union of states” when the pursestrings are controlled almost entirely by the union government. But here’s what really upsets Karnataka, Kerala etc: Ever greater amounts of the money in the Centre’s purse is collected from their states.
Reading list
A number of the good reads on the subject are in Frontline—which offers a limited number of free articles. We recommend: CP Chandrashekhar’s two analyses—here and here—on how fiscal federalism is falling apart. Krishna Mohan Lal’s analysis in The News Minute of the Vishwakarma scheme—and its implications for Dravidian vote banks–is fascinating. Hindustan Times has more on the link between welfare schemes and voting behaviour. The Wire explains why it’s important to give states more control on how they spend money. The Print lays out evidence that more funds from the Centre does not result in greater development. The Hindu has some interesting data on popular views of ‘double engine sarkars’. The most thought-provoking read: This Economic and Political Weekly piece that argues giving credit to Modi for all welfare schemes hurts BJP Chief Ministers. Scroll has the history of the double engine sarkar—dating back to the Nehru days—and why it doesn’t help.
