Co-operative federalism in India

Context:

• Recently, there was a debate on the constitutional sanctity of the term ‘Union’.
• There is also an ongoing issue of vaccine wars, heated debates over the Goods and Services Tax (GST), and the role of the Governor.

Relevance: Mains: GS-II

• Functions & responsibilities of the Union & the States, issues & challenges of federal structure, devolution of powers & finances up to local levels & challenges therein.

What is federalism?

• Federalism is a system of government in which the power is divided between a central authority and various constituent units of the country.
• Usually, a federation has two levels of government.
• One is the government for the entire country that is usually responsible for a few subjects of common national interest.
• The others are governments at the level of provinces or states that look after much of the day-to-day administering of their state.
• Both these levels of government enjoy their power independent of the other.
• The federal system has dual objectives:
  • To safeguard and promote unity of the country
  • Accommodate regional diversity.

Comparison with Unitary government

• Nations are described as ‘federal’ or ‘unitary’, depending on how governance is organized.
• In a unitary setup, the Centre has plenary powers of administration and legislation, with its constituent units having little autonomy.
• Either there is only one level of government or the sub-units are subordinate to the central government.
• The central government can pass on orders to the provincial or the local government.
• But in a federal system, the central government cannot order the state government to do something.
• The state government has powers of its own for which it is not answerable to the central government.
• Both these governments are separately answerable to the people.

Key features of federalism

1. There are two or more levels (or tiers) of government.
2. Different tiers of government govern the same citizens, but each tier has its Jurisdiction in specific matters of legislation, taxation, and administration.
3. The jurisdictions of the respective levels or tiers of government are specified in the constitution. (Constitutionally guaranteed).
4. The fundamental provisions of the constitution cannot be unilaterally changed by one level of government.
   • Such changes require the consent of both levels of government.
5. Courts have the power to interpret the constitution and the powers of different levels of government.
   • The highest court acts as an umpire if disputes arise between different levels of government in the exercise of their respective powers.
6. Sources of revenue for each level of government are specified to ensure its financial autonomy.

Types of federation

• The exact balance of power between the central and the state government varies from one federation to another.
• This balance depends mainly on the historical context in which the federation was formed.
• There are two kinds of routes through which federations have been formed.
• Coming together federations 
  • It involves independent States coming together on their own to form a bigger unit so that by pooling sovereignty and retaining identity they can increase their security.
  • Examples: USA, Switzerland, and Australia.
  • All the constituent States usually have equal power and are strong vis-à-vis the federal government.
• Holding together federations.
  • Here, a large country decides to divide its power between the constituent States and the national government.
  • Examples: India, Spain, and Belgium.
  • The central government tends to be more powerful vis-à-vis the States.
  • Very often different constituent units of the federation have unequal powers.
  • Some units are granted special powers. (Asymmetric federalism)

• India has a ‘holding together’ model that ensures autonomy to subnational units to ensure efficiency in governance and to represent regional diversity. 
• India’s quasi-federal structure has always been sui generis.
• As Article 1 of the Indian Constitution says, India is a Union of States.
• The choice of words is deliberate: it is the several States that, together, make up the Indian Union.
• Admittedly, unlike in other federations, there is no separate State citizenship or State Constitutions.
• States are important, self-contained units within the Indian constitutional scheme.
• The Constitution originally provided for a two-tier system of government, the Union Government and the State governments.
• Later, the third tier of federalism was added in the form of Panchayats and Municipalities.
• As in any federation, these different tiers enjoy separate jurisdiction.
• Thus, State governments are not subnational agents of the Union government but are governments in their own right, with a specific set of powers and responsibilities guaranteed by the Constitution.

Strong center

• The British lawyer and academic, Sir Ivor Jennings, was of the view that India has a federation with a strong centralizing policy.
• Our founders knew that India’s diversity made federalism inevitable, but, fearing fissiparous tendencies among States that had never been a single political unit, they also created a strong center.
• Although the Union government cannot intervene in the domain of State governments, the relations are indeed asymmetrical between the Union government and the States by design.
• The Union government has overriding powers in the subjects listed under the Concurrent List, and also has primary control in the residual domains.

Why is India called ‘quasi-federal’?

• Even though the States are sovereign in their prescribed legislative field, and their executive power is co-extensive with their legislative powers, it is clear that “the powers of the States are not coordinate with the Union”.
• This is why the Constitution is often described as ‘quasi-federal’.
• Certain unitary features such as Article 356, emergency powers, redrawing of State boundaries without discussion, vertical imbalances in fiscal matters, make the distribution of powers at best quasi-federal.

Changes to federal structure

• The sharing of power between the Union Government and the State governments is basic to the structure of the Constitution.
• It is not easy to make changes to this power-sharing arrangement.
• The Parliament alone cannot change this arrangement.
• Any change to it has to be first passed by both the Houses of Parliament with at least a two-thirds majority.
• Then it has to be ratified by the legislatures of at least half of the total States.

Role of Judiciary

• The judiciary plays an important role in overseeing the implementation of constitutional provisions and procedures.
• In case of any dispute about the division of powers, the High Courts and the Supreme Court make a decision.

Distribution of legislative powers

The Constitution provided a three-fold distribution of legislative powers between the Union Government and the State Governments. Thus, it contains three lists:

• Union List includes subjects of national importance such as the defense of the country, foreign affairs, banking, communications, and currency.
  • They are included in this list because we need a uniform policy on these matters throughout the country.
  • The Union Government alone can make laws relating to the subjects mentioned in the Union List.
• State List contains subjects of State and local importance such as police, trade, commerce, agriculture, and irrigation.
• The concurrent list includes forest, trade unions, marriage, adoption, and succession.
  • Both the Union as well as the State Governments can make laws on the subjects mentioned in this list.
  • If their laws conflict with each other, the law made by the Union Government will prevail.
• Residuary subjects: According to our constitution, the Union Government has the power to legislate on these ‘residuary’ subjects.

Distribution of financial powers

• The Union and State governments have the power to raise resources by levying taxes to carry on the government and the responsibilities assigned to each of them.
• However, the power of the States to raise their resources is limited, and there is a good deal of dependency on the Centre for financial assistance.

Cooperative federalism

• It is the horizontal relationship between union and states and shows neither is above the other.
• In a vast country like ours, the spirit of cooperative federalism should guide the relations between the Centre and the States on the one hand, among different States and between the States and the Panchayati Raj Institutions (PRIs) and the Urban Local Bodies (ULBs) on the other.
• The essence of cooperative federalism is that the Centre and the State Governments should be guided by the broader national concerns of using the available resources for the benefit of the people.
• Co-operative federalism encourages the Government at different levels to take advantage of a large national market, diverse and rich natural resources, and the potential of human capabilities in all parts of the country and from all sections of the society for building a prosperous nation.
• Co-operative federalism makes it possible to raise all the available resources by the Government at different levels in a coordinated way and channel them for use for the common good of the people.
• This requires a harmonious relationship and cooperative spirit between the Centre and the States and among the States themselves.

Competitive federalism

• Here, the relationship between the Central and state governments is vertical and between state governments is horizontal.
• This idea of Competitive federalism gained significance in India post-1990s economic reforms.
• In Competitive federalism, States need to compete among themselves and also with the Centre for benefits.
• States compete with each other to attract funds and investment, which facilitates efficiency in administration and enhances developmental activities.
• Investors prefer more developed states for investing their money.
• Union government devolves funds to the states based on usage of previously allocated funds.
• Enhancing devolution to states as per recommendations of the 14th finance commission (42%) is a step towards competitive federalism, which enabled states to design and implement programs better suited to their needs.

• NITI Aayog has been constituted to actualize the important goal of cooperative federalism and enable good governance in India.
• In 2017, the Niti Aayog called out for competitive “cooperative federalism” stressing that this formula would redefine the relationship between the Centre and the States.
• Two key features of cooperative federalism are
  1. A joint focus on the National Development Agenda by the Centre and States.
  2. Advocacy of concerns and issues of States and Union Territories with Central Ministries.
• To correct the regional developmental imbalance, NITI Aayog has taken special steps for areas requiring special attention and support, such as those in the NorthEast, Andaman, and Nicobar, and Lakshadweep islands, and the Himalayas.
• NITI Aayog has constituted special forums to identify these areas’ specific constraints and formulate special policies to ensure sustainable development while protecting the abundant natural resources in these regions.
• Subtly, NITI Aayog not only puts the onus on Chief Ministers to hasten the implementation of projects for the betterment of the state but also makes the state an attractive investment destination – a kind of competitive federalism.

Success of federalism

The real success of federalism in India can be attributed to the nature of democratic politics in our country. This ensured that the spirit of federalism, respect for diversity, and desire for living together became shared ideals in our country. 

Linguistic States

• The creation of linguistic States was the first and a major test for democratic politics in our country. 
• When the demand for the formation of States based on language was raised, some national leaders feared that it would lead to the disintegration of the country.
• The Central Government resisted linguistic States for some time.
• However, it conceded the demand for a linguistic reorganization of States in the 1950s when the demands became hard to ignore. 
• The experience has shown that the formation of linguistic states has made the country, more united.
• It has also made administration easier.

Language policy

• A second test for the Indian federation is the language policy.
• Our Constitution did not give the status of national language to any one language.
• Hindi was identified as the official language.
• But Hindi is the mother tongue of only about 40% of Indians.
• Therefore, there were many safeguards to protect other languages.
• Besides Hindi, there are 21 other languages recognized as Scheduled Languages by the Constitution.
• States also have their official languages.
• Much of the government work takes place in the official language of the concerned State.
• The promotion of Hindi continues to be the official policy of the Government of India.
• Promotion does not mean that the Central Government can impose Hindi on States where people speak a different language.
• In the 1960s, it agreed to postpone the declaration of Hindi as the sole official language until there was consensus among all States. 
• The flexibility shown by Indian political leaders helped our country avoid the kind of situation that Sri Lanka finds itself in.

Rather than weakening, such moves strengthened the Union. On the contrary, efforts to centralize power by the Union government in the 1970s and 1980s generated centrifugal pressures across several regions. The series of Centre-State conflicts that followed were resolved not through more centralization but by recognition of the rights and demands of regions. 

• Restructuring the Centre-State relations is one more way in which federalism has been strengthened in practice.
• How the constitutional arrangements for power-sharing work, in reality, depends to a large extent on how the ruling parties and leaders follow these arrangements.
• For a long time, the same party ruled both at the Centre and in most of the States.
• This meant that the State governments did not exercise their rights as autonomous federal units.
• As and when the ruling party at the State level was different, the parties that ruled at the Centre tried to undermine the power of the States.
• In those days, the Central Government would often misuse the Constitution to dismiss the State governments that were controlled by rival parties.
• This undermined the spirit of federalism.

Coalition governments

• All this changed significantly after 1990.
• This period saw the rise of regional political parties in many states of the country.
• This was also the beginning of the era of coalition governments at the Centre.
• Since no single party got a clear majority in the Lok Sabha, the major national parties had to ally with many parties including several regional parties to form a government at the Centre.
• This led to a new culture of power-sharing and respect for the autonomy of State Governments.
• Coalition governments were responsible for landmark decisions that have defined the trajectory of Indian development.
• The government headed by Mr. V.P Singh not only implemented the recommendations of the Mandal Commission to initiate affirmative action policies for Backward Classes but also established the Inter-State Council (ISC) as a constitutional body to address inter-State conflicts based on federal principles.
• Subsequent coalition governments oversaw the implementation of major economic reforms in the 1990s apart from passing the Right to Employment, the Right to Information, the Right to Education, and the Right to Food Acts that opened up spaces for democratization and social inclusion.
• This trend was supported by a major judgment of the Supreme Court that made it difficult for the Central Government to dismiss state governments arbitrarily.
• Thus, federal power-sharing is more effective today than it was in the early years after the Constitution came into force.

Policy innovations by State governments

• While coalition governments provided space for regional voices within the Union government, policy innovations by State governments have inspired several developmental initiatives by the Union government.
• The Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) is inspired by a similar scheme in Maharashtra launched in the 1970s.
• The Integrated Child Development Services (ICDS) Scheme that simultaneously addresses schooling and nutrition by providing nutritious meals in schools is modeled after the pioneering mid-day meals program launched in Tamil Nadu.
• Ayushman Bharat is based on health insurance programs launched by State governments such as Karnataka and Andhra Pradesh.
• The Pradhan Mantri-Kisan Samman Nidhi (PMKISAN) that supports small farmers through cash transfers mimics the Rythu Bandhu scheme of Telangana.

Different models of development

• Apart from specific policy innovations, inter-State diversity in development trajectories also allows for mobilizing alternate historical models for learning.
• For example
  • Growth-centric interventions in States such as Gujarat were showcased as the way to ensure development under neoliberalism conditions
  • Tamil Nadu and Kerala showed that prioritizing investments in human development and democratizing opportunities can deliver more inclusive development.
• Driven by democratic pressures, such policy emphasis has also helped counter the power of dominant development narratives diffused by technocratic elites and policy think tanks.
• Schemes often derided as a waste of resources in such policy circles has subsequently become the hallmark of India’s welfare architecture.

Financial issues

• Issue of Cess:
  • Cess is not shared with States.
  • In recent times, Central Government is increasingly imposing additional cesses, which are not under the divisible pool.
• GST issue: 
  • At the time of introducing the new indirect tax regime, the Goods and Services Tax (GST) law assured States a 14% increase in their annual revenue for five years (up to July 1, 2020).
  • But the Union government has deviated from the statutory promise and has been insisting that States avail themselves of loans.
  • Also, the present compensation period will end in 2021-22.
  • This will create serious financial stress to the States, especially to those which require higher compensation.
• Mismatch between Revenue and expenditure:
  • The gap between the revenue that state governments are allowed to generate and the expenditure that they are expected to incur has been widening, particularly with the implementation of the Goods and Services Tax (GST). 
• Borrowing limit:
  • Last year, the Union government increased the borrowing ceiling of the States from 3% to 5% for FY 2020-21.
  • But conditions are attached to 1.5% of the 2% of increased ceiling. 
  • Attaching conditions for expenditure out of the borrowed amount is considered against the principle of cooperative federalism.
• Centrally sponsored schemes:
  • Several states allege that the Centre has been encroaching into domains under State government control through centrally sponsored schemes in sectors such as education and health where States are required to spend about 85% and 82% of public expenditure, respectively.

Legislative issues

• Many subjects from the state list have been moved to the concurrent list, where the Centre dominates State.
• For example, during the Emergency, education was moved to the Concurrent list which was until then a State subject under the constitutional division of responsibilities.
• Legislation by the Union on subjects enumerated in the State and Concurrent Lists goes against the grain of cooperative federalism. 

Executive and administration related issues

• Article 356, which enables the Union to take over the administration of a State on the recommendation of the Governor, was envisaged to be a dead letter by Dr. B.R. Ambedkar, has been one of the most overused provisions of our Constitution.
• Central institutions (Income Tax Department, the Enforcement Directorate, and the National Investigation Agency (NIA)) are increasingly weakening the policy levers of State institutions. 
• The Centre has been meddling with the appointments of vice-chancellors in universities funded and run by State governments.
• Direct transfers to beneficiaries of welfare schemes bypassing States are also contributing to this dynamic.
• Further, it is alleged that the Centre is increasingly ignoring elected representatives of State governments, holding meetings with State secretaries and district collectors on issues that are primarily under State control. 

• Harmonious and cooperative relations between different States are as important as that between the Centre and the States for the healthy functioning of our federation.
• Various problems have been cropping up in inter-State relations from time to time.
• While healthy competition among the States for providing better and efficient services is to be welcomed, the practice of granting tax rebates and subsidies needs to be seen in the right perspective of whether they lead to national welfare.
• Instances are not lacking where the States have joined a sort of a race in granting tax rebates for attracting new industrial units.
• This has affected the resource position of the concerned States without commensurate benefits.
• Similarly, often there is a tendency on the part of the States to allow tariff concessions to various sections.
• A national consensus had evolved at the Chief Minister's Conference for fixing the minimum tariff for agriculture and to move over to a regime of fixing tariffs for recovering the costs.
• Some states have, however, gone against this consensus and allowed free electricity to the agriculture sector.
• This has not only put the financial condition of the State Electricity Boards in a precarious position but also created problems for the neighboring States where vociferous demands have been made for similar concessions
• Another important problem that keeps cropping up time and again is in respect of share in natural resources like river waters which have given rise to severe tensions and prevented optimal utilization of such resources.
• There is a need for evolving a national policy on this issue and for putting in place a suitable mechanism for resolving such disputes.

• There is an inherent contradiction between the principles of democracy and federalism when federal units are unequal in size, population, and economics.
• In a democratic setup, all citizens are equal and are thus entitled to equal representation in governance.
• But this would imply that bigger States are likely to dominate the national conversation over smaller States.
• The small States fear that they would get a smaller share of the pie economically, a much reduced say in national issues, and be irrelevant in the political governance of the country.
• To assuage this legitimate fear, federal democracies have incorporated into their governing structures various kinds of compromises to ensure a balance between democratic principles and federal ones.

USA model

When the Americans adopted their Constitution, they protected smaller States in four ways.

1. First, national powers over the States were limited.
2. Second, each State regardless of size had two seats in the Senate, giving smaller States an outsized role in national governance.
3. Third, Presidents are elected by electoral votes, which means they must win States rather than the total national population.
   • Presidents George W. Bush and Donald Trump won without winning the popular vote.
4. Fourth, and deplorably, the slave-owning States which did not confer citizenship on slaves were allowed to count the slaves for purposes of representation, with each slave being counted as three-fifths of a person.
   • Fortunately, Americans have rid themselves of slavery.

American structures have been accused of essentially facilitating and entrenching minority rule through the Senate, which favors rural, sparsely populated states that are also predominantly white.

Indian model of Asymmetric federalism

Just as the Centre and the States do not have matching powers in all matters, there are some differences in the way some States and other constituent units of the Indian Union relating to the Centre. This creates a notable asymmetry in the way Indian federalism works. Most federations that are formed by ‘holding together’ do not give equal power to their constituent units.

• Thus, all States in the Indian Union do not have identical powers.
• Some States enjoy a special status.
• States such as Assam, Nagaland, Arunachal Pradesh, and Mizoram enjoy special powers under certain provisions of the Constitution of India (Article 371) due to their peculiar social and historical circumstances.
• These special powers are given for the protection of land rights of indigenous peoples, their culture, and also preferential employment in government services.
• Indians who are not permanent residents of this State cannot buy land or house here.
• Similar special provisions exist for some other States of India as well.
• Besides the Centre and the States, the country has Union Territories with and without a legislature.

Issue of representation in Lok Sabha (Delimitation)

• The Indian Constitution may face an unprecedented crisis in 2026 when there will be a dramatic change in the composition of the Lok Sabha.
• Since 1976, seats in the Lok Sabha have reflected the 1971 census and have not taken into account changes in the population.
• The primary reason for this has been unequal population growth among States.
• India’s most highly developed and prosperous States have been successful at family planning, while the poorer States continue to expand.
• The freeze was thus a chance to ensure that India’s most successful States are not punished politically for their success.
• Post-2026, when this compact ends, there will be a seismic shift in national power towards India’s poorest and most populated States, which is sure to generate much resentment among the States that will lose political and economic power and influence.
• This calls for a realignment in the balance between the democratic principle and the federal principle in the Indian Constitution.

Unequal growth and development (Finance Commission)

• Increased economic and governance divergence between States.
• Economic growth trajectories since liberalization have been characterized by growing spatial divergence.
• Across all key indicators, southern (and western) States have outperformed much of northern and eastern India resulting in a greater divergence rather than expected convergence with growth.
• This has created a context where collective action amongst States becomes difficult as poorer regions of India contribute far less to the economy but require greater financial resources to overcome their economic fragilities.
• Glimpses of these emerging tensions were visible in the debates around the 15th Finance Commission (FC) when the Government of India mandated the commission to use the 2011 Census rather than the established practice of using the 1971 Census to determine revenue share across States.
• This, Southern states feared, risked penalizing States that had successfully controlled population growth by reducing their share in the overall resource pool.
• The 15th Finance Commission, through its recommendations, deftly avoided a political crisis.
• But the growing divergence between richer and poorer States remains an important source of tension in inter-State relations that can become a real impediment to collective action amongst States.

• The powers of States vis-à-vis the Centre contained in the Lists and in the provisions dealing with altering boundaries of States must be increased to assuage the fear of smaller States that they will be dominated by bigger ones.
  • There is no reason to believe that empowering our States would cause national disintegration.
  • On the contrary, more localized decision-making is bound to increase national prosperity.
  • Indeed, this was the entire goal of the creation of Panchayat governance through the 73rd and 74th Amendments to the Constitution.
• The role and composition of the Rajya Sabha, our House of States, must be expanded. This would allow smaller States a kind of brake over national majoritarian politics that adversely impact them.
• Constitutional change and the change in financial redistribution between the States must require the consent of all or nearly all States (the fate of the Goods and Services Tax, or GST, serves as a salutary warning in this regard). 
• Serious thought must be given to breaking up the biggest States into smaller units that will not by themselves dominate the national conversation.
• Inter-State Council (ISC) under Article 263 must be strengthened to amicably resolve disputes, discuss subjects common to all states and make recommendations for better policy coordination.

• It is the strengthening of federal polity and recognition of diversity that has contributed to the uniqueness and vibrancy of Indian democracy.
• Recommendations of the Sarkaria Commission and Punchhi Commission must be implemented in letter and spirit
• There needs to be a mix of competitive and cooperative federalism for India to move ahead.
• The present Covid situation also underscored the need for Cooperation among various governments for public welfare.