Promoting regionalism

I WAS happy to note that at the recent envoys conference in Islamabad, the subject of international trade received a great deal of attention. According to a report in Dawn (July 28, 2003), most of Pakistan’s ambassadors emphasized the importance of making serious efforts to improve the country’s share in the markets of the nations in which they serve. Developing trade with India was one of the subjects that was apparently discussed at some length. It is not clear from the newspaper accounts whether the diplomats talked about building trade with India on a bilateral basis or within the context of a regional association.

Economic theory is ambivalent about regionalism — an arrangement that provides the members of a regional association preferential access to each other’s markets. The purists have no time for such an approach. They maintain that the only way to promote trade for individual countries is not to worry about how their partners reciprocate if they themselves open their borders. Borders not only in the developing countries but all across the world are blocked with all manner of barriers. They cover the entire gamut of restrictions governments place in the free flow of goods across their frontiers.

These restrictions include tariffs, quantitative restrictions, and a vast variety of non-tariff barriers. The last category covers practices such as health, labour and environmental standards importers impose on the exporters.

Sometimes importers also include the requirement that the products imported by them contain a certain amount of raw material that originates with them. How to dismantle these barriers? According to pure economic theory, unilateralism is the only way to proceed for the advantages of free trade are far greater than the damages they may cause.

However, since that is not the way the world functions, purists are prepared to make room for global trading arrangements such as the one that led to the creation of the World Trade Organization. The WTO is the second best route towards free trade. This is about as far as pure theory is prepared to go in terms of promoting global trade. It has no patience with regional trading arrangements (RTAs).

But there are pragmatists who argue that in an imperfect world regional trading arrangements (RTAs) play an important and productive role. But, argue their proponents, such arrangement must be open, they must not discriminate too much against those who are not included within their purview.

Open regionalism of this type is useful for a number of reasons. To begin with, it locks in a government’s commitment to lower tariffs and to the removal of other constraints against a relatively free movement of goods.

Countries operating on their own can — and often do — change trade regulations in response to pressures by vested interests or to meet resource shortfalls. This has been done very frequently in Pakistan by a device called the SRO, issued from time to time by the Central Board of Revenue. Such unilateral actions are difficult to take when countries surrender some of their rights and bit of their sovereignty to regional trading arrangements.

RTAs also create the environment for attracting foreign direct investment. Foreign investors have the comfort that government policies will not change suddenly. They can also access much larger markets. They can locate their investments in one place and expect to sell their goods in a wider market.

Some RTAs also tie their member countries to follow certain rules in the areas of politics, human rights, governance and the like. Mercosur — an arrangement between Argentina, Brazil, Paraguay and Uruguay — makes it incumbent upon the member countries to design their political systems in line with the basic principles of liberal, representative democracies. Any sharp deviation from this type of governance can lead to expulsion from the arrangement. It was this requirement in the treaty that originally set up Mercosur and also prevented a military take-over in the perpetually troubled Paraguay in the late 1990s.

When we talk about regional cooperation from Pakistan’s perspective, should we talk only about South Asia or should we also look at other possibilities — including regional alliances with the non-Arab countries of the Middle East, the Muslim countries of Central Asia, even bilateral trading and economic arrangements with China, Asia’s largest and most dynamic economy. We should certainly look at all these possibilities. Today, however, I will concentrate on the subject of regional cooperation in South Asia.

Three of South Asia’s largest economies — Bangladesh, India and Pakistan — were once the part of a single political entity — British India. It was, therefore, inevitable that even after partition, there would be considerable inter-country flow of goods and commodities. This happened, but only for a while. In 1948-49, the first full year after partition, 32 per cent of Pakistani imports came from India while India bought 56 per cent of Pakistan’s exports. Fifty two years later, the situation was dramatically different. In 2000-01, India imported only 0.42 per cent of Pakistan’s exports and provided only 0.13 per cent of the latter country’s imports.

In absolute terms, Indian exports to Pakistan in 2000-01 were valued at only $186 million out of a total of $44 billion. In the same year India imported only $65 million worth of goods and commodities from its northern neighbour while its total imports were $50 billion. While politics have obviously interfered in the conduct of trade between India and Pakistan — a subject to which I will return presently — other countries have not done well either. South Asian intra-regional trade declined from 19 per cent in 1948-49 to 12 per cent in the early 1950s to only 2 to 5 per cent in recent years.

These official figures, however, underestimate the real volume of trade between the countries in the region, particularly between India and Pakistan. Estimates of illegal trade between these two countries through smuggling or through third countries (for example Singapore and Dubai) put its value at one billion dollars a year. From being major trading partners at the time of their birth, India and Pakistan now exchange very little of the goods, commodities and services they produce.

Such a profound delinking between the economies of India and Pakistan may not have occurred had the partition of the subcontinent not resulted in such a thorough ethnic cleansing of what is today’s Pakistan and what are today the northwestern states of India. In 1941, the districts that make up today’s province of Punjab in Pakistan, Muslims constituted less than 70 per cent of the population.

The remaining 30 per cent were Sikhs, Hindus and Christian. Today, non-Muslims are estimated to account for only 4 per cent of the province’s population. Much the same transformation happened to today’s Indian state of Punjab, Haryana and Himachal Pradesh and to somewhat lesser extent to Delhi, Uttar Pradesh and Bihar.

Such a large exchange of population with eight million Muslim refugees coming into Pakistan and six million Hindus and Sikhs moving in the opposite direction was bound to have a political dynamic quite separate from the one that led to the partition of the subcontinent in the first place. Had it not taken place, a complete severance in the economic ties between the two countries would have been difficult. But once ethnic cleansing had happened, the two countries could go their separate economic ways. And they did precisely that.

Political problems between India and Pakistan began to take a heavy economic toll right from the beginning. Trouble started even before Kashmir became such a hot issue between the two neighbours. In late 1947, India blocked the return of the “Sterling balances” to Pakistan. This was the amount Britain owed to India and Pakistan for the effort they had made in the war against Germany and Japan while they were still parts of the British empire. It took Mohandas Gandhi’s personal intervention before the amount owed Pakistan was released by New Delhi. There were other developments as well. In 1949, India decided to follow other countries in what was then called the “Sterling area” and devalued its currency with respect to the American dollar. Pakistan refused, resulting in the first of many trade wars between the two countries.

But political quarrel between India and Pakistan is not the only reason why intra-regional trade did so poorly in South Asia. There were several other causes as well, among them the autarkic economic policies followed by all countries in the region, poor communication links among the countries, and lack of complementarity in the products produced by the regional economies. Let me deal with each of these three factors.

The South Asians, under the influence of Fabian socialism bought to the region by Jawaharlal Nehru, India’s first prime minister, and later adopted by Prime Minister Zulfikar Ali Bhutto in Pakistan and Mujibur Rahman, Bangladesh’s first president for his country, gave a large role to the South Asian region. In turn, the governments of the region pursued import substituting policies in both industry and agriculture, de-emphasizing export led growth that brought economic miracles to East Asia.

The South Asians, having taken the decision to delink their economies, made no effort to improve intra-regional communications. This was an incredibly short sighted and economically self-defeating policy to adopt. The British had left a fairly well developed road and railways network that linked all parts of their large empire in India.

The North Western Railway linked Karachi with Delhi and the fabled Grand Trunk Road connected Peshawar through Delhi with Calcutta. The railway and road networks that had developed with the NWR and GT Road as their backbones could have been of considerable economic value had the two countries continued to develop them. That, of course, did not happen.

And in so far as the complementarities among the regional economies are concerned these were not sufficiently pronounced for several decades to warrant the development of strong regional trading ties. It is only in recent years, with the IT sector becoming a leading player in the Indian economy, that Bangladesh, Sri Lanka and Pakistan can begin to take advantage of what India has already achieved.

Even if Pakistan and India have the political will to open their currently closed borders to inter-country trade, it would be better to do it initially in the context of a regional arrangement. Using such an arrangement will reduce the temptation for either country to use trade as a weapon of diplomacy. It has happened on numerous occasions before. The time has come to build these relations on a more robust foundation.

Manufactured clash of civilizations: Orientalism revisited-II

Not accidentally, I indicate that Orientalism and modern anti-Semitism have common roots. Therefore it would seem to be a vital necessity for independent intellectuals always to provide alternative models to the simplifying and confining ones based on mutual hostility that have prevailed in the Middle East and elsewhere for so long.

As a humanist whose field is literature, I am old enough to have been trained forty years ago in the field of comparative literature, whose leading ideas go back to Germany in the late eighteenth and early nineteenth centuries. Before that I must mention the supremely creative contribution of Giambattista Vico, the Neopolitan philosopher and philologist whose ideas anticipate those of German thinkers such as Herder and Wolf, later to be followed by Goethe, Humboldt, Dilthey, Nietzsche, Gadamer, and finally the great 20th Century Romance philologists Erich Auerbach, Leo Spitzer, and Ernst Robert Curtius.

To young people of the current generation the very idea of philology suggests something impossibly antiquarian and musty, but philology in fact is the most basic and creative of the interpretive arts. It is exemplified for me most admirably in Goethe’s interest in Islam generally, and Hafiz in particular.

There is a considerable irony to the realization then that as today’s globalized world draws together in some of the ways I have been talking about here, we may be approaching the kind of standardization and homogeneity that Goethe’s ideas were specifically formulated to prevent. In an essay he published in 1951 entitled “Philologie der Weltliteratur” Erich Auerbach made exactly that point at the outset of the postwar period which was also the beginning of the Cold War.

Positive knowledge of languages and history was necessary, but it was never enough, any more than the mechanical gathering of facts would constitute an adequate method for grasping what an author like Dante, for example, was all about. The main requirement for the kind of philological understanding Auerbach and his predecessors were talking about and tried to practise was one that sympathetically and subjectively entered into the life of a written text as seen from the perspective of its time and its author (einfuhlung).

All this was obviously undermined and destroyed in Germany by National Socialism. After the war, Auerbach notes mournfully, the standardization of ideas, and greater and greater specialization of knowledge gradually narrowed the opportunities for investigative and everlastingly inquiry of philological work that he had represented.

Worse yet, education is threatened by nationalist and religious orthodoxies often disseminated by the mass media as they focus ahistorically and sensationally on the distant electronic wars that give viewers the sense of surgical precision, but in fact obscure the terrible suffering and destruction produced by modern warfare. In the demonization of an unknown enemy for whom the label “terrorist” serves the general purpose of keeping people stirred up and angry, media images command too much attention and can be exploited at times of crisis and insecurity of the kind that the post-9/11 period has produced.

Speaking both as an American and as an Arab I must ask my reader not to underestimate the kind of simplified view of the world that a relative handful of Pentagon civilian elites have formulated for US policy in the entire Arab and Islamic worlds, a view in which terror, pre-emptive war, and unilateral regime change — backed up by the most bloated military budget in history — are the main ideas debated endlessly and impoverishingly by a media that assigns itself the role of producing so-called “experts” who validate the government’s general line.

Reflection, debate, rational argument, moral principle based on a secular notion that human beings must create their own history have been replaced by abstract ideas that celebrate American or Western exceptionalism, denigrate the relevance of context, and regard other cultures with contempt.

Perhaps you will say that I am making too many abrupt transitions between humanistic interpretation on the one hand and foreign policy on the other, and that a modern technological society which along with unprecedented power possesses the internet and F-16 fighter-jets must in the end be commanded by formidable technical-policy experts like Donald Rumsfeld and Richard Perle. But what has really been lost is a sense of the density and interdependence of human life, which can neither be reduced to a formula nor brushed aside as irrelevant.

That is one side of the global debate. In the Arab and Muslim countries the situation is scarcely better. As Roula Khalaf has argued, the region has slipped into an easy anti-Americanism that shows little understanding of what the US is really like as a society. Because the governments are relatively powerless to affect US policy toward them, they turn their energies to repressing and keeping down their own populations, with results in resentment, anger and helpless imprecations that do nothing to open up societies where secular ideas about human history and development have been overtaken by failure and frustration, as well as by an Islamism built out of rote learning and the obliteration of what are perceived to be other, competitive forms of secular knowledge.

The gradual disappearance of the extraordinary tradition of Islamic ijtihad or personal interpretation has been one of the major cultural disasters of our time, with the result that critical thinking and individual wrestling with the problems of the modern world have all but disappeared.

This is not to say that the cultural world has simply regressed on one side to a belligerent neo-Orientalism and on the other to blanket rejectionism. Last year’s United Nations World Summit in Johannesburg, for all its limitations, did in fact reveal a vast area of common global concern that suggests the welcome emergence of a new collective constituency that gives the often facile notion of “one world” a new urgency.

In all this, however, we must admit that no one can possibly know the extraordinarily complex unity of our globalized world, despite the reality that the world does have a real interdependence of parts that leaves no genuine opportunity for isolation.

The terrible conflicts that herd people under falsely unifying rubrics like “America,” “The West” or “Islam” and invent collective identities for large numbers of individuals who are actually quite diverse, cannot remain as potent as they are, and must be opposed. We still have at our disposal the rational interpretive skills that are the legacy of humanistic education, not as a sentimental piety enjoining us to return to traditional values or the classics but as the active practice of worldly secular rational discourse.

The secular world is the world of history as made by human beings. Critical thought does not submit to commands to join in the ranks marching against one or another approved enemy. Rather than the manufactured clash of civilizations, we need to concentrate on the slow working together of cultures that overlap, borrow from each other, and live together in far more interesting ways than any abridged or unauthentic mode of understanding can allow.

Humanism is centred upon the agency of human individuality and subjective intuition, rather than on received ideas and approved authority. Texts have to be read as texts that were produced and live on in the historical realm in all sorts of what I have called worldly ways. But this by no means excludes power, since on the contrary I have tried to show the insinuations, the imbrications of power into even the most recondite of studies.

And lastly, most important, humanism is the only and I would go so far as saying the final resistance we have against the inhuman practices and injustices that disfigure human history. We are today abetted by the enormously encouraging democratic field of cyberspace, open to all users in ways undreamt of by earlier generations either of tyrants or of orthodoxies.

The world-wide protests before the war began in Iraq would not have been possible were it not for the existence of alternative communities all across the world, informed by alternative information, and keenly aware of the environmental, human rights, and libertarian impulses that bind us together in this tiny planet.

—Copyright Edward W. Said.

Concluded

Terrorism’s killing fields

TERRORISM has been called the weapon of the weak. It is also the weapon of the mindless. It does not differentiate between the guilty and the innocent. Nor do those who are fighting terrorism, a point made by an e-mail I received from Canada.

The writer draws on the Iranian conjoined twins and says that “the thought has struck me that the Americans are finding themselves joined head to head with their enemies and getting out of Iraq might be as bloody as the operation the two girls went through.” The war on terror is an endless one and there will be no surrender and there will be no victors.

The car-bomb blast that ripped through the Marriot Hotel and other nearby buildings in Jakarta killed more Indonesians than western foreigners who, presumably, were the target. What was meant to be achieved? What cause was being espoused? What purpose was being served? Every act of terror is counter-productive and it is not the perceived ‘enemy’ who pays the price but the luckless ones who happen to be in with wrong place at the wrong time.

But even more costly is the ‘revenge’ that is extracted against the luckless ones who can end up in cages in Guantanamo Bay as enemy combatants, a condition that is neither fish nor fowl and certainly not human beings. More like Kipling’s “lesser breeds outside the law.”

Without much ado, leave alone investigation the car-bomb blast in Jakarta is being blamed on militant Islamic groups, probably the same ones responsible for the Bali bombings. Terrorism has become synonymous with Islamic militancy and Al Qaeda is the mother-octopus that spreads its tentacles.

Terrorism is nothing new and if the Marriot Hotel was bombed in Jakarta so too was the King David Hotel in Jerusalem by a rampaging terrorist group, the Irgun, and whose assassins became the founders of Israel. No one now says that there is a linkage between Judaism and terrorism and what Israel is doing in Palestine is seen in a secular context even though Ariel Sharon is a hardline, extremist Jewish militant.

Osama bin Laden was someone who had a quarrel with the rulers of his country and because the United States was a stout supporter of the rulers, the friend of the enemy also became the enemy. Though he had once been a friend of the United States as indeed Saddam Hussain had been. But no enmity is so fierce as the enmity between former friends, seen by both as betrayal of trust. None of this excuses such acts as 9/11, the Bali bombing and now this terrible blast in Jakarta. These are horrendous acts. They have to be condemned outright and without reservations and with the sobering thought that any one of us or members of our family could have been one of the victims. Any one of us could have been in the vicinity of the Sheraton Hotel or the US Consulate in Karachi when they were bombed.

Even worse is sectarian terrorism that pits Muslim against Muslim. This serves only to further the cause of those who want to divide the Islamic world. Already we are seeing this in the news coverage of the resistance in Iraq with repeated mentions of a ‘Sunni triangle’ and the recently discovered extremism of Saudi Arabia, something that was never mentioned when business relations were enjoying a honeymoon period.

But we cannot continue to blame others. Even before 9/11 there was considerable prejudice against Muslims and they were viewed with suspicion though not as aggressively. Now the perception has changed and there is an across-the-board profiling, the stereotype of a Muslim as a villain.

For years, the Protestants and Roman Catholics have been at each other’s throat in Northern Ireland but no one has branded this as Christian terrorism. The terrorists who struck at the Marriot Hotel in Jakarta may have had an agenda of their own but it has nothing to do with Islam. Indonesia, after all, has the largest Muslim population in the world.

I am not familiar with the internal politics of Indonesia, a country that has yet to recover from the misdeeds of Suharto and his authoritarian rule. Who knows what lies behind attempts to disturb the stability of Megawati’s government? It intrigues me that so much intelligence about terrorist attacks in Indonesia is being provided by Australia.

John Howard’s government has become an active player in the war against terror and though far from Iraq, it cannot claim that it was threatened by Saddam Hussain’s weapons of mass destruction, it is a key component of the coalition of the willing and has combat troops on the ground in Iraq. Is the world being shared out into spheres of influence?

Indonesia is oil-rich and is it a coincidence that it is countries that are oil-rich that are the world’s trouble-spots? And this includes Venezuela as efforts are being made to topple the government of Chavez. Like Indonesia, I am also not familiar with the politics of Venezuela and have no idea why there are almost daily demonstrations and strikes there. There have, however, been no terrorist strikes.

One thing is abundantly clear. No sense of grievance or historical injustice justifies terrorism because terrorism is an indiscriminate act and the arithmetic is all wrong. Always, more innocent people are killed than those who are perceived targets. No one who died or was seriously wounded in the bombing of the Marriot Hotel in Indonesia could conceivably be considered as an enemy for the terrorists could not have known who would be in the vicinity of the hotel. Random killing serves no cause, no high moral purpose. Instead it sullies the good name of Muslims. Islam is a religion of peace, of enlightenment. If there is some compulsion to kill innocent people, let it not be done in the name of religion.

The evolution of fiscal federalism: Finance commissions-I

THE year was 1946. An interim government had been inducted in New Delhi. Liaquat All Khan, as a representative of the All-India Muslim League, was the finance member of the viceroy’s executive council.

Independence was just round the corner. Whether a constitution was to be framed for one independent country or two constitutions for two successor states, provisions were to be made, therein, for important adjustments in financial relations between the centre and provincial governments, based on the general principle of financial independence for the provinces; and modes of distribution of shared taxes had to be laid down.

The Government of India Act, 1935, did not specifically provide for a machinery like a finance commission for determining the distribution of shared taxes, but it laid down that initially it could be made by an executive order of the Government of India, with a proviso that later on, it would be determined by the central legislature.

However, an Indian expert on public-finance, Prof G. Thimmaiah, in his book, ‘A Critique of the Finance Commission’ (1981) wrote, “... a de facto foundation for the establishment of the Finance Commission was laid by the procedure followed in order to implement that Act ... Just before the implementation of Government of India Act 1935, Sir Otto Niemeyer, who was an Australian, having a fair knowledge of the Commonwealth Grants Commission was invited by the then Government of India, in January 1936, to recommend financial devolution from the Government of India to the then provinces with a view to reducing the vertical federal fiscal imbalance that would arise under the federal fiscal setup contemplated in the 1935 Act”.

In 1946, Liaquat All Khan’s finance department deputed a two-member team comprising B. K. Nehru, a civil servant, and B. P. Adarkar (who had already made his mark as an expert on public finance by publishing the well-known book, ‘The Principles and Problems of Federal Finance’ London, 1933) to Australia to study its federal fiscal system and to recommend its adoption or otherwise after independence.

The observations in their “Report of the Australian System of Federal Finance and its Applicability to Indian Conditions” (Did our Muslim financial wizards see this report or get a copy for the detailed study?) on the operations of Commonwealth Grants Commission in Australia, influenced the framers of the Indian Constitution in making provisions for the establishment of an expert, neutral, and independent body to recommend approach and methodology to be followed for the distribution of the divisible pool of revenues between the Union and the states, and amongst the states.

What are the relevant financial provisions in the Indian Constitution? The pattern of financial relations adopted, in the Indian Constitution, followed broadly the financial provisions of the Government of India Act, l935, and is divided in four categories: (i) the allocation of taxing power and the distribution of tax receipts; (ii) the power of the Union to make grants-in-aid; (iii) the articles regulating borrowings; and (iv) the provisions for the establishment of finance commission.

Both the Government of India Act, 1935, and the Indian Constitution followed a similar pattern in the allocation of bifurcated taxing powers of the two layers of the government — the centre and the states. There is a provision, in both the constitutional enactments, for assignment, in whole or in part of the net proceeds from certain Union taxes, to the states. The introduction of finance commission is a new feature in the Indian Constitution. As stated earlier, there was no such provision under the Government of India Act-l935.

The Indian Constitution provides that the president shall, within two years of the commencement of the Constitution, and later on, “at the expiration of every fifth or at such earlier time, by order, constitute a Finance Commission, which shall consist of Chairman and four other members to be appointed by the President”. It has been further provided that “Parliament may by law determine the qualifications which shall be requisite for appointment as members of the Commission and the manner in which they shall be selected”. The Indian parliament enacted the Finance Commission (Miscellaneous Provision) Act, 1951, (further amended in 1953) to prescribe the qualifications for the chairman and other members of the commission.

Under the Constitution, it shall be the duty of the Finance, Commission to make recommendations to the president as to (i) the distribution between the Union and the states of the net proceeds of taxes which are to be, or may be divided between them, and the allocation between the states of the respective shares of such proceeds; (ii) the principles which should govern the grants-in-aid of the revenues of the states out of the Consolidated Fund of India; and (iii) any other matter referred to the commission by the president in the “interests of sound finance”.

And the Constitution provides several flexible devices for the devolution of revenues / resources from the Union to the states, e.g. (i) assignment of revenues from several taxes; (ii) compulsory and optional sharing of taxes; (iii) grants-in-aid; (iv) discretionary grants; and (v) coordination of public borrowing and central loans to the states.

To carry out such constitutional duties, a neutral and impartial expert body is a sine qua non of fiscal federalism. A body, which is a government agency, would not be able to avoid political pressures. It is only an independent body which could, without any bias, estimate vertical and horizontal final fiscal imbalance, and thereafter, determine the nature and quantum of federal fiscal transfer to the states. A neutral body would be in a position to assess the finances of the federal government, and determine the extent of its surplus revenue which could be used for transfer to the states/provinces to correct fiscal imbalances.

The composition of the Indian finance commission provides for a machinery independent of government to determine the measure of assistance that should be offered to and also the principles on which that assistance should be made available to the states. In the finance commission, there is no central finance minister, no serving officer of the ministry of finance, no finance minister of a state, or no serving officer of the finance department of a state. And the commission is not dependent for anything on the ministry of finance. That ensures the impartiality and independence of the commission.

And the first president of India, Dr Rajendra Prasad saw to it that the first Finance commission, headed by K.C. Neogy, worked as an independent organ, and was not subject to the control of the ministry of finance. As Valmiki Choudhary (who was secretary to the Indian president) writes in his book, ‘President and the Indian Constitution’, the Chairman of the first Commission used to call on the President, Dr Rajendra Prasad, to discuss various issues.

After the first meeting with the Chairman, Rajendra Prasad noted in his diary, “He wants that the Commission should work as an independent organization ... feels that the Commission could not do its work efficiently by becoming a department of the Central Government. He feels that the Commission should be directly under the President, and its office should also not have anything to do with the Finance Department ...” In another meeting, Rajendra Prasad told the chairman “... that the Commission should have complete independence in its work”. As Choudhary writes, “The Chairman continued to inform the President directly about the work of the Commission and the problems it faced and seek his guidance ... Had the Commission not been independent, it would have got involved with the Ministry”.

About the first finance commission, Rajendra Prasad wrote in his diary, “Complaints had been received by the Prime Minister from some States that they were suffering a loss ... They were in financial difficulties as their revenues were insufficient to meet their needs. The Prime Minister wrote to me that I should ask the Chairman of the Commission to give consideration to this matter as well. I called Shri Neogy to sort out the question. We had a discussion on the matter, on the basis of which my office will enter into correspondence with him as well as the government”.

K.V.S. Sastri, in his book, “Federal-State Fiscal Relations in India” (1966) wrote, “One of the greatest advantages of instituting an independent Commission is that thereby the business of regulating the direction and flow of federal fiscal transfers is conducted in as impartial and nonpolitical manner as is legitimately possible”. During the last fifty years, it was not any formula, magical or otherwise, but the composition of all the eleven finance commissions, and their standing that ensured, by and large, acceptance of their recommendations by the central government, and without any protests from the states.

After the second or third finance commission, the Indian government initiated certain actions which compromised the commission’s independence. Previously, the Presidential Order, constituting a finance commission, contained the terms of reference only. Thereafter, a practice was started to lay down certain “guidelines” in the said Order specifying certain factors to be taken into consideration before framing the recommendations. It is felt by a certain group of Indian experts, as opposed to others, that such guidelines amount to an erosion of the independence of the commission.