FDI, coal, oil: Is centre ceding economic control to states?

India, it seems, is going to become more federal by accident rather than design. Especially when it comes to economic decisions, and control of natural resources.

When the UPA government wanted to allow foreign direct investment (FDI) in multi-brand retailing, in order to pacify coalition allies, it allowed each state to decide whether it wanted FDI or not. This, even though allowing or disallowing foreign investment is a central decision.


Given the weak state of the centre in a coalition era, federalism is going to come by stealth. Reuters

A few days ago, the Supreme Court dropped a bombshell when it suggested that allocation of coal blocks could not be something for the centre to decide since coal mines are the properties of states. As Firstpost noted a few days ago, the real Coalgate scam is not only about the misallocation of blocks for free to all and sundry, but that the centre may have been on shaky legal ground handing our resources owned by states.

"Allocation of coal blocks, prima facie, does not seem to be backed by any statutory provision and that surprises us. The situation raises a few fundamental legal questions right away regarding your (Centre's) authority. If there have been no amendments in the Act (the Mines and Minerals Regulation and Development Act), it is doubtful that you can do it through executive decisions,"a report in The Indian Express quoted Justice RM Lodha as saying at a PIL hearing last week,

"The problem is that there is absolutely no power given to the Central government under the MMDR Act," the court said. If this observation is finally held up as law, coal will soon be something states will decide fully on how to allocate.

Now, The Economic Times reports that the Nagaland government has gone ahead and invited expressions of interest for oil exploration in 11 blocks in the state.

The petroleum ministry has gone blue in the face wondering how the state had the temerity to do this on its own. The newspaper quotes Director General of Hydrocarbon RN Choubey as saying that "this action of the state government of Nagaland is ultra vires of the Constitution."

However, the Nagaland government, it seems, has wangled some special provisions that allows it to do things on its own. The newspaper says about two years ago, the then Minister of State of Petroleum and Natural Gas RPN Singh had confirmed that Nagaland had some special constitutional privileges on this score. It seems Nagaland has the power under article 371A to frame its own laws on ownership and transfer of land resources, including oil.

The oil ministry is, however, not giving up, and is planning to raise the issue with the home ministry, which deals with Nagaland and is in talks with many Naga groups for a final peace settlement in this troubled north-eastern state.

But the matter is unlikely to rest there. If the Nagas can control their own natural resources, why not every other Indian state? Currently states get a measly royalty on oil produced in their states or offshore regions. Andhra Pradesh under YSR had been vociferous in demanding it should have a larger share of Krishna-Godavari gas. And Tamil Nadu has been demanding a higher share of the power produced from the Kudankulam nuclear power plant.

Given the weak state of the centre in a coalition era, federalism is going to come by stealth.

Updated Date: Dec 20, 2014 15:32 PM

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