Mains Practice Questions

Introduction:

Co-operative federalism means the Centre and States jointly design and implement policies through consultation and shared institutions (e.g., GST Council).

• Competitive federalism means States compete to attract investment and improve outcomes using reforms, rankings, and performance incentives.
• In India, they often work as a “race with rules, competition is encouraged, but cooperation provides the common framework.

Body:

When competitive federalism complements co-operative federalism

• In Developing Common National Framework: GST created a unified market through a cooperative institution (GST Council), while States compete on compliance efficiency, logistics, and business friendliness within that common tax architecture.
  • Even contentious issues (rate rationalisation, tribunals) are negotiated in the Council, showing how cooperation sets the rules and competition improves execution.
• “Race to Improve” in Social Sectors: NITI Aayog’s state rankings and indices ( eg, SDG index) create reputational incentives. States compare performance on health, education, SDGs, etc., pushing administrative reform.
  • Under NITI Aayog’s Fiscal Health Index, states are ranked on fiscal discipline, revenue mobilisation, and quality of expenditure.
    • Odisha’s strong performance has put reputational pressure on fiscally stressed states to undertake subsidy rationalisation and fiscal reforms.
  • At the same time, indicator frameworks and review mechanisms are built with States, making it cooperative in design but competitive in outcomes.
• Competitive Benchmarking with Cooperative Support: The Aspirational Districts Programme uses delta-rankings and dashboards to drive competition among districts, but the Centre and States collaborate on real-time monitoring, capacity building, and convergence of schemes.
  • Horizontal fund devolution through the Finance Commission incentivises better-performing states within the same tier to compete on outcomes rather than entitlement alone.
  • This blends cooperative coordination with competitive performance pressure at the last mile.
• Best Practice Diffusion: Competition helps identify what works (e.g., faster clearances, better public service delivery).
  • Cooperative platforms then diffuse these practices through meetings, peer learning, and central support, turning rivalry into collective improvement—especially in sectors where outcomes depend on both levels of government (health, skilling, infrastructure).

How competitive federalism can conflict with co-operative federalism

• Fiscal Stress and Trust Deficit: When States perceive revenue loss or inadequate compensation, cooperation weakens and competition becomes political bargaining.
  • Recent demands by States for continued/extended GST compensation illustrate how fiscal disagreements can strain the cooperative spirit.
  • For instance, after the GST compensation guarantee ended in June 2022, states such as Kerala, Tamil Nadu and Punjab demanded its extension, citing post-pandemic revenue stress and limited fiscal autonomy.
• Institutional Frictions: Cooperative federalism weakens when constitutionally designed consensus-based bodies lack binding authority, allowing divergences between the Centre and States to widen once agreement breaks down.
  • In 2022, the Supreme Court held that GST Council recommendations are persuasive, not binding, a ruling that, while sound, can intensify Centre–State divergence and complicate harmonised decision-making in India’s fiscal federal system.
• Rigid Conditionalities in Centrally Sponsored Schemes: Many CSS require States to follow centrally fixed frameworks and conditions to access funds.
  • For example, several States raised concerns over the PM-POSHAN (Mid-Day Meal) Scheme, arguing that central norms on procurement and cost-sharing reduced their autonomy and turned cooperation into compliance rather than partnership.
  • Similarly, under the new VB-G RAM G Act (2025), States must adopt central guidelines for scheme design and funding patterns, including shared cost liabilities, which many have criticised for constraining local priorities and financial space, turning cooperation into compliance rather than partnership.
• Policy Domain Disputes in Concurrent Subjects: Although education is a Concurrent List subject requiring cooperative Centre–State ownership, policy divergence can trigger federal contestation.
  • For instance, Tamil Nadu and Kerala have raised concerns to certain provisions of the National Education Policy (NEP), choosing state-specific pathways, illustrating how cooperative intent can collide with political competition and claims of federal autonomy.

Measures to Minimise Conflicts

• Institutionalised Consensus-Building Mechanisms: Regular, evidence-based intergovernmental forums can convert contestation into negotiated outcomes.
  • The GST Council demonstrates how structured bargaining and voting rules help resolve rate, compensation and compliance disputes, a model that can be extended to health, skilling and education.
• Balanced Fiscal Incentives with Equity: Fiscal transfers should combine need-based support with performance incentives to maintain trust.
  • For instance, Finance Commission grants linked to health and education outcomes reward efficiency while protecting poorer States from fiscal disadvantage.
• Flexible Design in Centrally Sponsored Schemes: Shifting from rigid templates to outcome-based frameworks can restore State autonomy.
  • The Jal Jeevan Mission, which allows States flexibility in implementation while adhering to national coverage goals, illustrates cooperative goals with competitive innovation.
• Cooperative Mobility and Welfare Portability: Inter-state coordination on labour mobility can prevent exclusionary competition.
  • Initiatives like One Nation One Ration Card and the e-Shram portal enable portability of welfare and skills, supporting migrant workers while sustaining healthy inter-state competition.

Conclusion:

In India, competitive federalism can energise governance, but only when anchored in cooperative institutions that build trust and common rules. Where fiscal stress, conditionalities, or domain contestation rise, competition can harden into conflict. The way ahead is cooperation for rules with competition for results, backed by fair finances and flexible policy design.