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Federalism in India - Federal Features of Indian Constitution [UPSC Indian Polity Notes]

Federalism is a system of government in which powers have been divided between the centre and its constituent parts such as states or provinces. It is an institutional mechanism to accommodate two sets of politics, one at the central or national level and the second at the regional or provincial level. It makes an important part of Indian Polity syllabus of the IAS Exam . This article will introduce you to Federalism in India notes.

The topic of federalism is an important one concerning Indian polity. It is also in the news nowadays, especially with respect to the spats between the central and the state governments. Hence, the topic of federalism is extremely crucial for the IAS exam.

Federalism Latest in News

In the context of the Supreme Court’s upholding of the government’s abrogation of Article 370, the concept of federalism in India is under discussion once again. According to some critics, the Court’s assertion that the President holds unbridled power to abrogate Article 370 contradicts the principles of federalism and constitutional democracy. Read more about this in CNA dated Dec 14, 2023 .

Federalism in India – UPSC Indian Polity Notes Download PDF Here

Federal System – Two Types of Federations

In a federation system, there are two seats of power that are autonomous in their own spheres. A federal system is different from a unitary system in that sovereignty is constitutionally split between two territorial levels so that each level can act independently of each other in some areas.

There are two kinds of federations:

• Holding Together Federation – In this type, powers are shared between various constituent parts to accommodate the diversity in the whole entity. Here, powers are generally tilted towards the central authority. Example: India, Spain, Belgium.
• Coming Together Federation – In this type, independent states come together to form a larger unit. Here, states enjoy more autonomy as compared to the holding together kind of federation. Example: USA, Australia, Switzerland.

Read the difference between Indian and the US government in the linked article.

Aspirants reading the topic, ‘Federalism in India,’ are also suggested to read the following topics related to Indian Polity syllabus:

Features of the Federal System of India

• Dual government polity
• Division of powers between various levels
• Rigidity of constitution
• Independence judiciary
• Bicameralism

All federations might not have all the above features. Some of them may be incorporated depending on what type of federation it is.

Federalism in India

India is a federal system but with more tilt towards a unitary system of government. It is sometimes considered a quasi-federal system as it has features of both a federal and a unitary system. Article 1 of the Indian Constitution states, ‘India, that is Bharat, shall be a union of states ’. The word federation is not mentioned in the constitution.

Elements of federalism were introduced into modern India by the Government of India Act of 1919 which separated powers between the centre and the provincial legislatures.

Read about Constituent Assembly debates on Federalism in the linked article.

Federal Features of the Indian Union

• Governments at two levels – centre and states
• Concurrent List
• Supremacy of the constitution – the basic structure of the constitution is indestructible as laid out by the judiciary. The constitution is the supreme law in India.
• Independent judiciary – the constitution provides for an independent and integrated judiciary. The lower and district courts are at the bottom levels, the high courts are at the state levels and at the topmost position is the Supreme Court of India . All courts are subordinate to the Supreme Court.

Also, read the RSTV’s Big Picture’s discussion on challenges to the Federal Structure in the linked article.

Unitary Features of the Indian Union

• The flexibility of the Constitution – the Constitution is a blend of flexibility and rigidity. Certain provisions of the Constitution can be easily amended. In case the amendments seek to change aspects of federalism in India, the provision to bring about such amendments is not easy. (Read about types of majorities in Indian Parliament using which amendments or certain other provisions are introduced.)
• More power vests with the Centre – the constitution guarantees more powers with the Union List. On the Concurrent List subjects, the parliament can make laws that can override the laws made by a state legislature on some matters. The parliament can also make laws regarding certain subjects in the State List.
• Unequal representation of states in the Rajya Sabha – the representation of the states in the upper house is based on the states’ populations. For example, Uttar Pradesh has 31 seats and Goa, 1 in the Rajya Sabha. In an ideal federal system, all the states should have equal representation.
• The executive is a part of the legislature – in India, the executive in both the centre and the states is a part of the legislature. This goes against the principle of division of powers between the different organs of the government.
• Lok Sabha is more powerful than the Rajya Sabha – in our system, the Lok Sabha is more powerful than the upper house and unequal powers to two houses is against the principle of federalism.
• Emergency powers – the centre is provided with emergency powers. When an emergency is imposed, the centre has increased control over states. This undermines the autonomy of the states. (You may also read about President’s rule – Article 356 in the linked article.)
• Integrated judiciary – the judiciary in India is integrated. There is no separate judiciary at the centre and the state levels. (Gain more information about Indian Judiciary from the notes mentioned in the linked article.)
• Single citizenship – in India, only single citizenship is available to citizens. They cannot be citizens of the state as well. This helps in increasing the feeling of nationality as it forges unity amidst regional and cultural differences. It also augments fundamental rights such as the freedom of movement and residence in any part of the nation.
• Governor’s appointment – the governor of a state acts as the centre’s representative in the state. The state government does not appoint the governor, the centre does.
• New states formation – the parliament has the power to alter the territory of a state by increasing or reducing the area of the state. It can also change the name of a state.
• All India Services – through the All India Services such as the IAS, IPS, etc. the centre interferes in the executive powers of the states. These services also offer uniformity in administration throughout the nation.
• Integrated election machinery – the Election Commission of India is responsible for conducting free and fair elections at both the centre and the state levels in India. The members of the EC is appointed by the president.
• Veto over states bills – The governor of a state can reserve certain kinds of bills for the president’s consideration. The president enjoys absolute veto on these bills. He can even reject the bill at the second instance that is when the bill is sent after reconsideration by the state legislature. This provision is a departure from the principles of federalism. (Read in detail about veto power in the linked article.)
• Integrated audit machinery – the president of the country appoints the CAG who audits accounts of both the centre and the states.
• Power to remove key officials – the state government or state legislature does not have the authority to remove certain key government officials even at the state level like the election commissioner of a state, judges of the high courts , or the chairman of the state public service commissions.

Federalism is an important principle and federalism in India is especially relevant for the UPSC exam. It comes under polity and governance in general studies paper II in UPSC Syllabus 2024 .

FAQ about Federalism in India

What are the main features/characteristics of indian federalism, which type of federalism is practised in india, what are the three list of indian federalism, what is the main purpose of federalism, how many types of federations are there.

There are two types of federations:

• Holding Together Federation  – In this type, powers are shared between various constituent parts to accommodate the diversity in the whole entity. Here, powers are generally tilted towards the central authority. Example: India, Spain, Belgium.
• Coming Together Federation  – In this type, independent states come together to form a larger unit. Here, states enjoy more autonomy as compared to the holding together kind of federation. Example: USA, Australia, Switzerland.

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Federal System

Federal System: Power distribution between union and states, compartmentalization of polity, quasi-federal structure in India and its differences from the unitary form of government.

Table of Content

Introduction to federalism.

Federalism can be defined as a system of government where the powers are divided equally between the Centre and its various parts, including provinces and states. Federalism is an institutional mechanism for accommodating two different sets of politics: First, at the national level the Centre and secondly, at the provincial and regional levels. While studying for UPSC, the federal system is a crucial part of the syllabus; therefore, a thorough understanding of each concept is important. This article will introduce you to the federal system in India.

Federal System in India

While talking about the federation system, there are two seats that are in absolute power in their own space. A unitary system and the federal system are different from one another. Note there are two different kinds of federations. These include-

Holding Together Federation

• The first one is the holding together federation, where powers are shared between several constituent parts
• In this type of federation, the powers are mostly in the hands of central authority
• Countries like Belgium, India, and Spain are some examples of holding together a federation

Coming Together Federation

• The second is the coming together federation, where independent states are most likely to come together in order to develop a larger unit
• Here, states have larger autonomy
• Countries like Australia, Switzerland and the USA are examples of coming together
• Political scientists have classified governments into federal and unitary systems based on relations between the national government and the regional governments

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India’s Federal System of Government

• As per the Indian Constitution, India has a federal system of government in the country
• The framers of the Constitution adopted federalism in government for two primary reasons– the country’s socio-cultural diversity and the country’s large size
• They thought that the federal system ensures competent governance and establishes national unity
• However, the term ‘federation’ has nowhere been mentioned in the Constitution
• Inspired by the Canadian model of the federal system, the Indian federal system has a powerful centre

Features of the Federal System of India

• Division of powers at various levels: This refers to the separation of powers between the executive, legislative, and judicial branches of government
• Independent judiciary: Courts uphold the law and resolve disputes regardless of the parties’ power or inclinations
• Dual government polity: Existence of two governments, Central and State
• The rigidity of the Constitution: Indian Constitution is partly rigid and partly flexible
• Bicameralism: A form of government in which the legislature is divided into two houses, the Upper House and Lower House

Note, it might be possible that all federal systems do not have the same features as their features may vary from one another based on the federation adopted.

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Federal Features of the Indian Constitution

• India has both states as well as the central government
• Written Constitution: The Indian Constitution is the longest in the world
• It designates state and central governments’ organisation, structure, functions, and power
• According to the 7th schedule of the Constitution of India, the powers are divided between the state and central government through a state and central list
• Constitution Supremacy: Supreme Court is termed the Guardian of the Indian Constitution and is responsible for maintaining its supremacy
• Independent Judiciary: It has fixed service conditions and security of tenure to ensure the Constitution’s supremacy
• Rigid Constitution: In the federal system, amendment procedures are strict
• Bicameral Legislature: Rajya Sabha and Lok Sabha are responsible for ensuring federalism in government

Important Pages

Unitary Features of the Constitution of India

• Strong Centre: The Union list is lengthier and encompasses more significant subjects than the State list
• There is an upper hand of the Union in matters of Concurrent list and Residuary powers
• States can be reorganised: Article 3 of the Indian Constitution allows the Indian Parliament to create new states or change existing states’ boundaries or designations
• Constitution partly rigid: The Indian Constitution is not entirely rigid as features can be amended according to citizens’ needs
• On the basis of the population of each state, seats in the Rajya Sabha are given out
• The Union Government consists of supreme powers in any emergency (National, Financial, or State)
• New state formation: The power to create new states and union territories in India rests completely with the Indian Parliament
• In order to accomplish so, Parliament might declare new states/union territories or split current ones into smaller ones
• Integrated Judiciary: Supreme Court and High Courts and other Courts under it
• Single citizenship (Switzerland, US); however, Australia contains double citizenship
• In India, only single citizenship is available for the citizens of the country
• This helps in the development of the feeling of nationality as it bridges regional and cultural differences
• All India Services (AIS): They are special in that they are recruited by the centre (Union government in a federal system), but their services are placed under various State cadres, and they are liable to serve both the state and the centre
• Integrated Audit System: Comptroller and Auditor General of India (CAG) audits the accounts of both centres and States
• The Governor is appointed by the President of India
• The Governor acts as a representative of the Centre by which the powers are exercised over States
• Veto power over State Bills: Certain bills agreed by the state government are reserved by the Governor for the second opinion of the President
• The President might withhold assent

In modern India, the federation is a crucial concept whose main feature is the clear and equal division of powers between states and central government. The Indian model of the federation is referred to as a quasi-federal system that primarily contains all the features of a union and federation.

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Fiscal federalism in india.

• Category Economy
• Published 2nd Mar, 2022

Fiscal federalism refers to the financial relations between Union Government and the state governments.

• It focus on how expenditure and revenue are allocated across different vertical layers of the government administration.
• Article 246 and Seventh Schedule of the Indian Constitution distributes powers and allots subjects to the Union and the states with a threefold classification.

Taxation power of Centre and State Government:

• Both the Union and State lists include the powers of taxation. The main source of income for the Union are direct taxes, mainly income tax. However, they are also entitled to collect various other taxes such as customs and corporate tax.
• States normally derive their income from indirect taxes, most commonly from sales tax. Besides this, State List also includes land revenue, excise on alcoholic liquor, estate duty, tax on vehicles and more.
• The Concurrent List does not comprise any tax power. The distribution of revenues and approaches for determining grants between the States and Union are legislated by various Articles of the Indian Constitution.

Recent Changes to the Indian Fiscal Federalism Structure

• In recent years, fiscal relations between the union and state governments have undergone significant changes.
• The three landmark changes include:
• The abolition of the Planning Commission in January 2015 and the subsequent creation of the NITI Aayog;
• Fundamental changes in the system of revenue transfers from the centre to the states through the provision of higher tax devolution to the states based on the recommendations of the Fourteenth Finance Commission (henceforth, “14th FC”); and
• The Constitutional amendment to introduce the Goods and Services Tax (henceforth, GST) and the establishment of the GST Council for the central and state governments to deliberate and jointly take decisions.
• These changes and their implementations have far-reaching consequences for the provision of public services and the union-state fiscal relations.

Fifteenth Finance Commission:

• In light of constitution of the Fifteenth Finance Commission and the formulation of its Terms of Reference, there have been rising concerns centring on the following:
• The Finance Commission’s role in providing conditional and unconditional transfers to the states;
• The use of the transfer system to achieve development and policy outcomes; and
• The future framework of state government borrowing.

Issues Under the Current Fiscal Federalism Structure

Given the recent changes, there is a serious need for redefining India’s current fiscal federalism structure.

There has been a resurgence of horizontal and vertical imbalances in the structure, which will be further discussed below.

A. Horizontal Imbalances

• Finance commissions, post 1990s, have essentially grown to become a vehicle for pushing states to implement fiscal reforms as part of economic liberalisation.
• This has been exacerbated by the replacement of the Planning Commission with the NITI Aayog. This move has reduced the policy outreach of the government as they now solely rely on the finance commission, which may in turn, leads to a serious problem of increasing regional and sub-regional inequities.
• It has caused an unfortunate surge in horizontal imbalances because of the differing levels of attainment by the states, resulting from the differential growth rates and their developmental status in terms of the state of social or infrastructure capital.
• The Terms of Reference of the 15th FC has exacerbated this process which, if implemented along with the Fiscal Responsibility and Budget Management Bill review committee recommendations, may potentially reduce the states’ capacity to intervene in economic and social sectors.
• A “fragmented” transfer system is a prime feature of the Indian fiscal federal arrangements between the union and the states. 
• The transfer of financial resources from the union to the states flow through various streams which fall in either of the following categories:
• General purpose transfers (i.e. states can spend these resources on their respective priorities which can be drawn up by them; or
• Conditional transfers (i.e. the centre only transfers resources upon the condition that the states must use it for particular programs and schemes drawn up by the centre)
• The Twelfth Financial Commission had placed emphasis on the fact that to achieve equalisation among states, grants provided for a more effective mechanism as compared to tax devolution.
• Therefore, there was a higher degree of importance given to transfers through grants, thereby, increasing the share of grants in total transfers.
• These were known as conditional grants.
• In the Thirteenth Financial Commission, the opposite movement took place, where the share of tax devolution rose again, and further increased in the 14th FC.
• However, this has changed to some extent in the 15th FC.
• Momentarily, approximately 40% of the total transfers are still linked to conditional transfers, which are largely linked to the Centrally Sponsored Schemes.
• However, transfers made under the CSS are, in actuality, outside the Finance Commission’s purview.
• These transfers are used by the central government to improve development outcomes in specific sectors, primarily economic and social services.
• In light of this institutional reality, the Finance Commission’s role in relation to conditional transfers, if the related transfers are not in their ambit, is questionable.
• On one hand, it could be accurate to interpret “measurable performance-based incentives” as an effort to introduce conditionality-driven transfers through the Finance Commission.
• However, this brings forth two issues, namely, the availability of fiscal space with the Finance Commission for making conditional grants after tax devolution, and the desirability of such grants as well as their effectiveness.
• This requires a serious review of the conditional transfers provided by the Finance Commissions, their relative importance in total transfers, the design of conditional transfers and their impact on spending as well as the outcomes in delivery of services by the states.
• In all likelihood, if a large share of Finance Commission transfers are set aside for conditional transfers, it will fundamentally change the way resources flow to the states.
• Additionally, the transfer of resources by the mechanism of grants would also affect the freedom and manoeuvrability of the states with regards to setting priorities.
• The volume of conditional grants provided by the Finance Commission may eventually alter the states’ spending behaviour. This would have a detrimental effect because it suggests that the Finance Commission has been granted the authority to restrain democratically elected governments from implementing promises made to people in the election manifestos, for instance, the provision of welfare pensions, food, subsidies, etc., this, in turn, strikes the root of democratic polity.
• Besides, it has proliferated discriminatory practices. This is denoted by the fact that the implementation of central flagship schemes is incentivised, whereas the state schemes are being controlled by classifying them as populist.
• This approach goes against the federal spirit and fails to abide by the Directive Principles of State Policy enshrined by the Indian Constitution.
• Moreover, the ToR also mandates the 15th FC to assess and monitor the performance of GST implementation and various other governance indicators.
• The added functionality of the Finance Commission as a monitoring agency of the states’ performance goes against its constitutional role.

B. Vertical Imbalances

• The creation of vertical imbalances is a result of the fiscal asymmetry in powers of taxation vested with the different levels of government in relation to their expenditure responsibilities prescribed by the Indian Constitution.
• The central government is given a much greater domain of taxation, with a collection of 60% of the total taxes, despite their expenditure responsibility only amounting to 40% of the total public expenditure.
• These imbalances are further exacerbated in cases of third tiers, comprising elected local bodies and panchayats.
• Vertical imbalances can have a hostile impact on India’s urbanisation, the quality of local public goods, which thereby, would further aggravate the negative externalities for climate change and the environment.
• The introduction of the GST is a demonstrative example of the working of cooperative federalism. However, it is questionable as to how far this conforms to actual practice.
• Under article 279A of the Indian Constitution, two-thirds of the voting rights belong to the states while the centre has one-third voting rights at the GST Council.
• Nonetheless, passing a resolution required three fourths majority.
• In effect, this confers a veto power for the centre, even when states jointly propose a change.
• The states should be able to adopt a change in their tax structure without the centre’s consent, given that each state is governed differently based on local legislations.
• Furthermore, the GST’s apportionment has raised some concerns. The suggested apportionment between the states and the centre by the committee on revenue neutral rates of the central government was a 60:40 ratio, as almost 44% of the states’ own tax revenue was subsumed under the GST as compared to 28% for the centre.
• The centre still retains their power to levy additional excise duty on, for instance, tobacco products, even though it has been brought under the GST.
• States, on the other hand, have no such right.
• This deprives the state of their main source of income, being indirect taxes, thereby slowly causing the state government to fail in upholding their end of the bargain in relation to their responsibilities.

Recommendations

• In a framework of cooperative federalism, it is important to have provisions for a higher devolution to the state governments in order to fiscally empower them to achieve the goals of the national development programme of New India-2022, which expresses goals that pertain to the subjects in the State List.
• In fact, all tiers should be fiscally empowered to achieve state-specific targets of fiscal deficit, rather than adopting a top-down approach.
• Future legislations issued by the Central Government in relation to states should enact more provisions for cost-sharing to aid them in fulfilling their duties. 

In light of the recent changes, it appears that India has deviated rather far from what cooperative federalism envisages. One can only hope that these changes bring forward the absence of a framework for non-Finance Commission grants.

Given the replacement of the Planning Commission, there is more clarity necessitated in relation to the treatment of grants outside the Commission's purview.

States need to be able to fulfil their promises upon which they were democratically elected, otherwise this can have detrimental effects not just on the fiscal federalism principles, but on the social and economic state by and large. For this, the division of direct and indirect taxes needs to be considered, especially after the implementation of the GST.

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Fiscal Federalism in India

Last updated on February 7, 2024 by ClearIAS Team

Fiscal federalism in India represents the financial relations between units of government in the Indian federal system. The Constitution of India establishes a dual polity consisting of the Union at the center and the states at the periphery, each endowed with sovereign powers to be exercised in the field assigned to them respectively by the Constitution. Read here to learn more.

The Union government has been cutting back on financial transfers to States ever since the commencement of the Fourteenth Finance Commission award term (2015-16).

This is especially odd considering that the suggestion of the Fourteenth Finance Commission, which is a clear 10 percentage points higher than that of the Thirteenth Finance Commission, was to transfer 42% of Union tax income to the States.

Except for the devolution to Jammu and Kashmir (J&K) and Ladakh, which were reclassified as Union Territories, the Fifteenth Finance Commission kept its 41% proposal. It should be 42% if the contributions of J&K and Ladakh are taken into account. To raise its discretionary spending, the Union administration boosted overall revenue while simultaneously decreasing budgetary transfers to the States.

Since the Union government’s discretionary spending is not going via the state budgets, it may have varying effects on the various states.

Table of Contents

Fiscal federalism in India

Fiscal federalism in India is designed to ensure the division of fiscal responsibilities and revenue sources between the central and state governments, enabling both to perform their functions effectively.

This framework encompasses mechanisms for revenue collection, allocation, and expenditure responsibilities, aiming to achieve economic efficiency, equity, and macroeconomic stability.

• Division of Powers and Responsibilities: The Constitution divides the legislative, administrative, and fiscal powers between the Centre and the States. List I (Union List), List II (State List), and List III (Concurrent List) in the Seventh Schedule of the Indian Constitution delineate these divisions.
• Revenue Sources: Taxes are divided between the central and state governments. While the Centre has the authority to levy taxes such as income tax (except on agricultural income), customs duties, and central excise (outside GST), states have the power to collect taxes on sales (within GST), state excise on liquor, stamps on property transactions, and agricultural income.
• Goods and Services Tax (GST): Introduced in July 2017, GST represents a significant step towards a unified national market, eliminating a cascading tax system and integrating state economies. GST is administered through the GST Council, where both the Centre and the States have representation, showcasing cooperative federalism.
• Financial Distribution Mechanisms: The Constitution provides for the distribution of financial resources between the Centre and states through mechanisms like the Finance Commission, which makes recommendations on the distribution of the union taxes to the states, principles governing grants-in-aid to states, and measures needed to augment the Consolidated Fund of a State to supplement the resources of the Panchayats and Municipalities.
• Planning and Development: Though the Planning Commission has been replaced by the NITI Aayog , the latter plays a crucial role in fostering cooperative federalism through a bottom-up approach to planning and development, focusing on the involvement of States in the economic policy-making process.
• Borrowings: Both the Centre and the States can borrow within the limits set by the F iscal Responsibility and Budget Management (FRBM) Act , aimed at maintaining fiscal discipline. The Centre can make loans to the States or give guarantees on their behalf, with conditions for borrowing being laid down by the Centre.
• Grants and Loans: The Central Government provides grants and loans to States for various purposes, including disaster relief, and development projects, and to compensate for a reduction in revenue due to policy implementations like GST.

Centralization of Fiscal federalism

The Finance Commissions recommend a state portion of the Union government’s net tax revenue.

• The tax money to be allocated to Union territories, collection expenses, cess, and surcharges are all included in the difference between the gross and net tax revenue.
• The proportion of gross tax income was only 35% in 2015-16 and 30% in 2023-24, even though the Fourteenth and Fifteenth Finance Commissions proposed that the States receive 42% and 41%, respectively, of the net tax revenue (Budget Estimate).
• The States’ portion of Union tax revenue climbed from ₹5.1 lakh crore to ₹10.2 lakh crore over these two years, even though the Union government’s gross tax collection increased from ₹14.6 lakh crore in 2015-16 to ₹33.6 lakh crore in 2023-24.
• The rants-in-aid to States declined in absolute amount from Rs 1.95 lakh crore in 2015-16 to Rs 1.65 lakh crore in 2023-24.

Cess and surcharge

• The fact that the net tax income is calculated after subtracting the money collected under the cess and surcharge, the revenue collected from the Union Territories, and the expense of tax administration is one of the reasons why the States’ share of gross revenue decreased during this time.

Direct financial transfers

There are two more avenues by which the Union government can directly transfer funds to the States: Central Sector Schemes (CS) and Centrally Sponsored Schemes (CSS).

• Through CSS, wherein the Union government provides half the money and the States are responsible for the remaining portion, the government affects the priorities of the States.
• Put another way, it suggests the plans, and the States carry them out while contributing financial resources.
• The allocation for CSS grew via 59 CSS from Rs 2.04 lakh crore to Rs 4.76 lakh crore between 2015-16 and 2023-24.
• One significant feature of CSS shared schemes is the availability of matching grants to States able to provide matching funds from their state budgets. Regarding interstate equality in public budgets, this has two distinct impacts.
• Vertical Imbalance: The division of fiscal powers often leads to a mismatch between the revenue-generating capacities of the states and their expenditure responsibilities, leading to vertical imbalances that require intergovernmental transfers to correct.
• Horizontal Imbalance: Differences in fiscal capacities and needs among states necessitate mechanisms for redistributing resources to ensure equity and balanced development across regions.
• GST Implementation Issues: While GST has streamlined tax administration and broadened the tax base, it has also faced challenges related to revenue allocation, compliance, and technological glitches.
• Fiscal Autonomy vs. Central Oversight: Balancing fiscal autonomy for states with the need for central oversight to maintain macroeconomic stability remains a delicate task.

Fiscal federalism in India is a dynamic and evolving system, reflecting the country’s socio-economic diversity and political complexities. While it has facilitated economic unity and contributed to the nation’s development, ongoing reforms, and adjustments are necessary to address emerging challenges, promote state equity, and ensure efficient and effective governance at all levels.

Related articles:

• Centre-state relations
• Indian federalism
• Issues and challenges pertaining to federal structure

-Article by Swathi Satish

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Cooperative Federalism

Quest for upsc cse panels.

Sub-Categories:

GS-II: Governance

GS-II: Polity

Need for Cooperative Federalism in India

• What are the constitutional provisions which uphold the spirit of cooperative federalism?
• What are the recent measures to promote cooperative federalism in India?
• What are the factors that hinder cooperative federalism?

What steps could help promote cooperative federalism in India?

• How has cooperative federalism helped deal with the COVID-19-induced pandemic in India? 

Prelims: Indian Polity and Governance – Constitution, Political System, Panchayati Raj, Public Policy, Rights Issues, etc.

Mains: Issues and Challenges Pertaining to the Federal Structure

Cooperative federalism is a concept of federalism in which national, state, and local governments increasingly interact cooperatively and collectively to solve common problems.

• The Indian model of federalism is predominantly ‘cooperative’ as laid down by the Supreme Court in State of Rajasthan v. Union of India , 1977.
• The most essential precondition for the effective functioning of cooperative federalism is robust institutions and mechanisms for promoting intergovernmental relations .
• The Constitution of India does not explicitly contain the phrase ‘cooperative federalism,’ but the functioning of the Constitution implicitly resulted in ‘cooperative federalism.’
• While India does not entirely mimic a pure federal system, it follows a quasi-federal system of governance . And for a smooth functioning federation, there needs to be cooperation and collaboration between the federal units.
• Sarkaria Commission Report (1988) on Centre-state relations stated that by the middle of the twentieth century, federalism had come to be understood as a dynamic process of cooperation and shared action between two or more levels of government.

India takes pride in describing itself as the world's largest democracy, and this democracy is significantly meaningful because it is encapsulated in a federal structure.

• Promoting social justice: While democracy represents the majority opinion, federalism accommodates and links it to the voice of the minority, lending a flavor of social justice.
• Ensuring accommodation: Cooperative Federalism, along with cultural and ethnic pluralism, has given the country's political system great flexibility and, therefore, the capacity to withstand stress through accommodation.
• Ensuring stability and growth: In the turbulent circumstances prevailing at that time and in the wake of India's partition, only a cooperative federal setup could ensure the needs of security, defense, urge for a welfare state, and meeting the situation of economic crisis.
• Contemporary issues: Also, the current trends ( like Covid-19) emphasize cooperation and coordination rather than the demarcation of powers between different levels of government.

What are the constitutional provisions which uphold the spirit of Cooperative Federalism?

What are the recent measures to promote cooperative federalism in india.

In recent years, several measures have been taken by the Indian government to promote cooperative federalism. Here are some examples:

NITI Aayog:

• NITI Aayog has been constituted to actualize the important goal of cooperative federalism and to enable good governance in India.
• Niti Aayog’s Governing Council comprises Chief Ministers of states and Administrators or Lieutenant Governors of Union Territories .
• NITI Aayog acts as the quintessential platform for the Government of India by bringing States together as ‘Team India’ to work towards the national development agenda.
• It also established models and programmes for the development of infrastructure and to reignite and establish private-public partnership, such as the Centre-state partnership model Development Support Services to States and Union Territories (DSSS) and the Sustainable Action for Transforming Human Capital (SATH) programme.
• Other initiatives include Policy support and capacity development of State/UT functionaries and Launching of the Aspirational Districts Programme for development of backward districts.

Goods and Services Tax (GST):  

• The introduction of the GST in 2017 is considered one of the most significant steps towards promoting cooperative federalism in India.
• It is a unified tax system that replaced various state-level taxes, creating a common market across the country.
• The GST Council , consisting of representatives from the central and state governments, is responsible for making decisions related to the tax system.
• This has ensured a high degree of collaboration and cooperation between the central and state governments.

Centrally Sponsored Schemes:

• Centrally Sponsored Schemes (CSS) are initiatives implemented by the central government in partnership with the state governments.
• Under CSS, the central government provides a significant portion of the funding for the scheme, while the state government is required to contribute the rest.
• The central government also provides guidelines and standards for the implementation of the scheme, while the state government has the flexibility to adapt the scheme to local needs and priorities.
• According to a report by the Ministry of Finance, there are currently 28 CSS in operation , covering a wide range of areas, including rural development, education, health, and skill development.

What are the factors that hinder Cooperative Federalism?

• Article 356 related to the imposition of the President’s Rule in a state which is frequently prone to misuse by the Centre.
• Limitations of Inter-state Council : While Article 263 allows the Inter-State Council to make recommendations , It does not empower it to enforce or implement them. 
• Regionalism : A strong feeling of regionalism makes it difficult for the Government to ensure cooperation because regionalism gives rise to secessionist forces, which threaten the very existence and identity of the country.
• Uniform approach : The Centre, while framing policies, fails to take into account the heterogeneity of India. The one size fits all approach doesn’t work in a diverse country like India. This makes cooperation between the centre and the state very difficult.
• Fiscal federalism: One of the major challenges is the unequal distribution of financial resources between the Centre and states. The lack of adequate financial resources can hamper the ability of states to deliver essential services and implement development programs.
• Administrative challenges: This includes issues such as inadequate staffing and training, lack of communication and coordination, and bureaucratic red tape.

Sarkaria and Punchhi Commission

The Sarkaria Commission (1987) and Punchhi Commission (2010) gave several recommendations to cultivate cooperative federalism and suggested actionable steps. Some of them include

• The office of the Governor should be apolitical, and the terms of his removal should be altered.
• Restricting the use of the President’s rule under Article 356 to prevent excessive misuse by the Centre.
• Extending the mandate of the Inter-State Council beyond advice and recommendations.
• Laying down guidelines to prevent misuse of the President’s veto of the legislation.
• Including states when the Centre enters into any international agreements.

General recommendations

• Strengthening Inter-Governmental mechanisms: Utilizing the constitutional and statutory institutions set up adequately to resolve the conflicts between the union and the state government and further the welfare of the people.
• Promoting fiscal federalism: Promoting fiscal federalism can help in promoting greater fiscal autonomy for state governments, which can in turn help in promoting greater coordination and cooperation between the central government and state governments.
• Strengthening institutional frameworks: This can be achieved by enhancing the role of institutions such as the NITI Aayog, the Inter-State Council, and the Finance Commission.
• Regular Inter-Governmental meetings: Regular meetings between the central government and the state governments can help in sharing information, discussing issues of mutual concern, and arriving at a consensus on policy matters.
• Avoiding the ‘One size fits all’ approach : This is crucial for promoting cooperative federalism because it recognizes the diversity of the States in terms of their socio-economic, political, and cultural contexts.
• Empowering local governments: Empowering local governments can help promote cooperative federalism by giving them greater decision-making powers and financial resources.

How has Cooperative Federalism helped deal with the COVID-19-induced pandemic in India?

Intergovernmental cooperation is key to effectively responding to any crisis or disaster like the recent Covid-19 pandemic.

• Health is a subject in the State List, and infectious disease control is a subject in the Concurrent list, and combating the Covid-19 pandemic necessitated a joint effort of the Union and the state governments.
• The Epidemic Diseases Act 1897 and Disaster Management Act 2005 allowed joint efforts between the central and state governments to control the spread of infectious diseases.
• The National Disaster Management Authority and State Disaster Management Authorities worked together to achieve the objectives of the DM Act.
• The virtual conferences between the Prime Minister and the Chief Ministers showed a spirit of cooperation at all levels of government.
• The collaborative efforts towards Covid-19 vaccination have been praised by the UN and WHO . Overall, the pandemic has renewed cooperative federalism in India and promises collaborative governance in the future.

PYQs on Cooperative Federalism

Q) How far do you think cooperation, competition and confrontation have shaped the nature of federation in India? Cite some recent examples to validate your answer. (Mains, 2020)

Q) The concept of cooperative federalism has been increasingly emphasized in recent years. Highlight the drawbacks in the existing structure and the extent to which cooperative federalism would answer the shortcomings. (Mains, 2015)

Q) Constitutional mechanisms to resolve the inter-state water disputes have failed to address and solve the problems. Is the failure due to structural or process inadequacy or both? Discuss. (Mains, 2013)

Frequently Asked Questions (FAQs)

Q) what is the national development council.

The National Development Council was set up in 1952. It is an apex body for decision-making and deliberations on development matters, presided over by the Prime Minister of India and comprising Union Ministers, Chief Ministers of all the States, and UTs. One of the primary functions of the Council is to prescribe guidelines for the formulation of the National Plan.

Q) Is NITI Aayog a constitutional body?

No. NITI Aayog is not a Constitutional body. It was established in 2015 through a Cabinet resolution to replace the Planning Commission and acts as a think-tank for the government of India.

© 2024 Vajiram & Ravi. All rights reserved

Federalism in India: Challenges and Opportunities | Essay for UPSC 2024

• Essay for UPSC 2024

Table of Contents

Federalism in India: Challenges and Opportunities

India, a mosaic of vibrant cultures, languages, and landscapes, thrives on the intricate dance of unity and diversity. This delicate balance is orchestrated by the unique tapestry of Indian federalism, a system where sovereign states coalesce under a unifying Union. However, like any well-worn path, Indian federalism faces its share of challenges, while also brimming with untapped opportunities. To navigate this dynamic landscape, we must closely examine the strengths and weaknesses of our federal structure, and chart a course towards a more robust and equitable union.

Restructuring of Indian Education System 2024 | Empowering Change: Revitalizing India’s Education for a Brighter Future

Challenges: Strains in the Fabric of Unity

First and foremost, the question of power distribution remains a contentious issue. The Constitution, while outlining distinct Union and State lists, also empowers the Centre with concurrent powers, leading to occasional friction. Central schemes, though well-intentioned, can sometimes come across as one-size-fits-all, overlooking the regional nuances and aspirations of diverse states. This perceived overreach fosters a sense of alienation and resentment, straining the bonds of cooperative federalism.

Furthermore, fiscal federalism presents a complex puzzle. The devolution of financial resources has not kept pace with the increasing responsibilities entrusted upon states. Resource-rich states grapple with the burden of contributing to a national pool, while their resource-deficient counterparts struggle to meet basic needs. This uneven distribution further widens the development gap between states, jeopardizing the very notion of equitable progress.

Another challenge lies in the realm of linguistic identity. India’s linguistic diversity, while enriching our cultural tapestry, can also become a source of tension. The imposition of Hindi as the official language, despite its limited regional reach, has fueled anxieties and accusations of cultural hegemony. Respecting linguistic diversity and promoting inclusive national policies are crucial to assuage these concerns and nurture a sense of shared belonging.

The rise of regionalism and identity politics poses another challenge. Political parties often exploit regional sentiments for electoral gains, exacerbating divisions and hindering collaborative efforts. Finding a balance between celebrating regional aspirations and upholding national unity remains a crucial task for India’s political leadership.

Opportunities: Weaving a Stronger Union

Despite these challenges, Indian federalism offers immense potential for a more inclusive and prosperous nation. The cooperative spirit enshrined in the Constitution forms the bedrock of this potential. Collaborative federalism, where the Centre and states work together in areas of common concern, is key to unlocking this potential. Issues like disaster management, environmental protection, and infrastructure development can be tackled more effectively through joint efforts, leveraging the strengths of each tier of government.

Fiscal federalism also presents an opportunity for course correction. Implementing the recommendations of the Fourteenth Finance Commission, such as increasing the share of taxes allocated to states, can empower them to address their unique needs and drive regional development. Additionally, exploring innovative financing mechanisms like public-private partnerships can bridge the resource gap and foster sustainable infrastructure development.

Language can be both a challenge and an opportunity. Recognizing the cultural richness embedded in India’s multitude of languages can enhance our national identity. Promoting multilingualism, encouraging regional literature translations, and respecting linguistic diversity can strengthen the bonds of unity and forge a more inclusive national narrative.

Moreover, the growing voice of regional parties can be channeled into constructive dialogues about federal reforms. By engaging in open and transparent discussions, addressing regional concerns, and building consensus on critical issues, we can transform regional aspirations into catalysts for national progress.

The Road Ahead: Embracing a Brighter Federal Future

Strengthening Indian federalism demands a multi-pronged approach. First, we must uphold the letter and spirit of the Constitution, ensuring a fair and balanced distribution of powers and resources between the Centre and the states. This requires transparent and accountable governance at all levels.

Second, fostering cooperative federalism is crucial. Establishing institutional mechanisms for regular consultation, joint planning, and collaborative implementation of national policies is key to harnessing the collective wisdom and resources of both the Centre and the states.

Third, empowering states through fiscal reforms is essential. Implementing recommendations like a revised GST compensation mechanism and increased financial autonomy can unlock their true potential and drive balanced regional development.

Finally, celebrating India’s diverse tapestry is crucial. Encouraging cultural exchange, promoting respect for different languages and traditions, and building a narrative of shared identity can strengthen the bonds of unity and create a more inclusive federalism.

In conclusion, India’s federal journey is an ongoing saga, riddled with challenges and opportunities. By acknowledging the strains, embracing cooperative spirit, and implementing necessary reforms, we can transform federalism into a powerful engine for inclusive growth, shared prosperity, and a stronger, more united India. This is not just an administrative or political necessity, but a moral imperative to fulfill the promise of a truly equal and vibrant union, where every corner of our nation thrives under the banner of unity in diversity.

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Cooperative Federalism: Myth or reality | UPSC Mains Essay Preparation PDF Download

India follows a quasi-federal model of federalism, which has features of both - a federation and a unitary nation. It is the Indian Constitution that creates a federal structure by calling it a‘ union of states’. The federal form of government is divided between a central authority and federating political entities (states). Cooperative federalism shows the relationship between the centre and the states which have joined hands in solving mutual issues with the aid and advice of each other (centre of states/ states of centre). Because of such cooperation and collaboration, both centre and state governments at different levels work toward achieving greater growth, equitable development, and social welfare of the citizens.

Centre-State Relationship

In cooperative federalism, a horizontal relationship between the union and the states and shows neither is dominant over the other. To solidify these various concepts like Inter-state council, zonal council, GST Council, 7th schedule (3 lists), etc. have been incorporated in the Indian constitution. However, while experts believe that “true” cooperative federalism is the way ahead, they emphasise the need for the Centre to include states in the decision-making. Indian federalism is very mature; we have seen the evolution of a Cooperative federal structure in India from a centralised administrative structure. As per various reports in 1947 and 1977, there were 44 instances when the power to impose the president’s rule was exercised, and between 1977-1996, such power was exercised almost 59 times. Indira Gandhi’s government is infamous for resorting to Emergency over 50 times in 14 years of her tenure as the prime minister. And from 1991 to 2016, there have been 32 instances of the exercise of this power compared to 92 times in the previous year.

Centre’s Leverage Over States

In S.R. Bommai vs. Union of India (1994), Supreme Court laid down few restrictions on the exercise of the power of the President's Rule; these restrictions were not complete restrictions but just gentle breaks on the exercise of this power. But the centre still holds superior powers of legislation, which includes residuary powers and legislative precedence. Thus, in the past few years, Cooperative federalism has increased where the center's relationship with states’ and states with states has improved. However, still, some area of contention exists in the form of powers of taxation where the centre has the upper hand due to express provisions in the constitution. In the light of recent tax reform called GST (Goods and services tax), states’ have foregone various taxation powers over taxes like entry tax, luxury tax, octroi, etc. But states still possess powers to levy taxes through panchayats and municipalities to supplement the income of local bodies so that they can invest in improving people’s conditions at the ground level. This shows an anomaly where a transaction is being taxed under GST Laws and a local state-specific law simultaneously. The Finance Commission's recommendations are placed before Parliament, and States have no say in their deliberation. Also, no provision exists for an aggrieved State to challenge its report on certain grounds.

Economic Disparity Between States

A regional disparity exists where few states are performing well in terms of their revenue generation capability, their budgetary base expanding every year. But due to lopsided development in various states where the western region of India in the last few decades of the 19th century witnessed massive industrialization, which was extended to the southern region, thus having greater financial clout vis-a-vis other Indian states. Many states have a feeling of alienation which becomes the reason why states want a separate State sometimes. Thus, the need of the hour is to have a balanced and engendered model of development where at one level states cooperate, and on the other level they compete. The centre becomes the facilitator of their growth while keeping major focus on those states which require greater assistance. Proper strategies and pathways have to be designed beforehand as to gain growth right strategies are required to utilise resources available in a different part of the country, thus industries will be primary propeller by sustainable utilisation of countries resources to ensure balanced regional development.

Mechanisms to Settle Centre-State & Inter-State Disputes

We also see an absence of dispute solving mechanism as we do not possess any mechanism to solve the disputes between the centre and State or between 2 states. Though Article 262 provides the authority to the centre to take steps to solve the disputes, the central government never took such initiative in the past few years. That becomes the major reason why so many disputes are still pending in the Supreme Court, especially river water disputes. To resolve such a contentious issue separate institutional structure must be created to solve the disputes between centre and states or between states inter se. Also, special machinery should be developed for the integral development of the whole country. Permanent Inter-state river water tribunal can be a good step as it shall protect states’ from river disputes stretching for years and waiting for centre’s tedious approval for initiating the dispute redressal mechanism Niti Aayog as a forum and various institutions under it is also an excellent step which government has brought to promote Cooperative federalism where states even with different parties having different political ideologies can come and keep their concern on the platform for deliberation, thus enhancing cooperation. State governments also in the past few years have taken the responsibility in bringing investments in their states by holding state-level trade summits like Vibrant Gujarat, Bengal means business, etc. where investors participated in the summit and states rolled the red carpet for them by the introduction of cheaper and continuous availability of inputs like electricity and water. Land to be provided at concessional rates to the business houses etc. Also, the GST council where states and centre both are members, its mechanism to solve the disputes which arise will be a true test of cooperative federalism.

It’s apparent that in the past few years, India has moved towards the path of achieving a Cooperative federal structure in the world. Still, all the stakeholders should take the necessary steps also to achieve such structure in spirit. A mechanism that promotes Cooperative federalism and increases competition between states for mutual benefit requires regular addressing by the stakeholders to deal with challenges. The centre should cooperate with states to ensure necessary autonomy existing in the policy-making and allocation of necessary funds that they can spend based on their own incumbent priorities. Cooperative federalism and competitive federalism are not two mutually exclusive concepts but are two sides of the same coin. The cooperation forms the foundation on which competition can be initiated; thus, a balance between Cooperative and competitive federalism should exist. States do not just seek parity with each other, but states also have sought parity with the centre as suggested and recommended in Sarkaria and Punchhi commission reports. Central government support would be needed by few states to participate in competitive federalism where strong states make a strong nation. To realise this vision, “Team India” should work together in India’s development.

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