Mains Practice Questions

Introduction: 

Indian federalism is a dynamic and evolving concept, described by Granville Austin as a "cooperative federalism." While the Constitution establishes a clear division of powers, the actual functioning of the federal system is a continuous process of bargaining and negotiation between the Union and the States.

Body: 

Fiscal Developments and the Negotiated Nature of Federalism

• Goods and Services Tax (GST) Implementation: Introduced in 2017, GST marked cooperative federalism but reduced State autonomy by replacing VAT and increasing dependence on the GST Council. 
  • Delays in compensation, especially during Covid-19, and the Centre’s effective veto in the Council have exposed tensions and concerns over fiscal dominance..
• Rising Use of Cesses and Surcharges: There has been a rising trend of the Union government collecting revenue through cesses and surcharges. 
  • These are not part of the divisible pool of taxes and do not have to be shared with the States. 
  • This practice has reduced the quantum of revenue available for devolution to the States, shifting the fiscal balance towards the Centre.
• Debates over Tax Devolution: The 15th Finance Commission (2020-2025) recommended a reduction in states’ share of central taxes from 42% to 41%, sparking debates over resource allocation.
• Fiscal Deficit Limits and Borrowing Restrictions: The central government's imposition of fiscal deficit limits under the FRBM Act restricts state borrowing powers, creating a tension between fiscal discipline and state autonomy (e.g., West Bengal’s opposition to the borrowing cap).

Political Developments and the Negotiated Nature of Federalism

• Governor as a Contested Federal Interface: The Governor's discretionary powers, such as withholding assent to bills passed by the State legislatures, have often been perceived as a tool for the Centre to interfere in State affairs. 
  • The recent stand-offs between Governors and State governments in states like Tamil Nadu, Kerala, and Delhi exemplify the political negotiation that occurs outside the constitutional framework.
• Abolition of Article 370-Unilateral Federal Restructuring: The revocation of Jammu and Kashmir’s special status and its reorganization into two Union Territories was a major federal move criticized for bypassing State consultation.
  • The Supreme Court upheld the abrogation but called for restoring statehood, highlighting the judiciary’s role in balancing Centre-State powers.
• Use of Central Agencies- Autonomy under Scrutiny: The increasing use of central agencies such as the Enforcement Directorate (ED) in some states raises concerns about central government overreach and its impact on state autonomy.
• Centrally-Sponsored Schemes (CSS)- Conditional Cooperation: The rise of centrally-sponsored schemes, while promoting national goals, limits States’ financial and administrative autonomy, as they must share funding and follow strict guidelines, often forcing negotiations for flexibility or extra support.

Through constant negotiation, Indian federalism has also fostered constructive reforms and innovations:

• Consensus-driven Policy Making: GST itself may have reduced fiscal autonomy, but it created a common national market and institutionalized federal dialogue through the GST Council.
• Social Sector Expansion through CSS: Centrally Sponsored Schemes, despite constraints, have accelerated progress in health (Ayushman Bharat), education and rural infrastructure (Pradhan Mantri Gram Sadak Yojana) by pooling resources of both Centre and States.
• Emergency Fiscal Support: During Covid-19, the Centre and States coordinated relief through GST compensation loans, expanded borrowing limits up to 5% of GSDP, and targeted welfare schemes.
• Strengthening of Intergovernmental Institutions: The Finance Commission, Inter-State Council and NITI Aayog have all evolved as institutional spaces of negotiation, balancing competing demands.
• Regional Aspirations Integrated into National Policy: Federal contention has sometimes driven reform. For instance, climate action plans, renewable energy targets, and digital service delivery have been shaped through state-level experimentation, later adopted nationally.

Conclusion:

Indian federalism is a fluid and evolving framework, continuously shaped by fiscal and political interactions. Recognized as a basic feature of the Constitution (SR Bommai Case 1994), it ensures that Centre-State relations remain flexible yet firmly anchored in constitutional principles.