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Centre State Relations

An Unfinished Agenda of Federalism

Promoting both cooperative and competitive federalism has been an overarching theme of this government. Political analyst K.C. Wheare, in his book Federal Government, defines “federalism” as “the method of dividing powers so that the general and regional governments are each within a sphere coordinate and independent”. This implies a system of governance in which sovereignty is constitutionally divided between a central governing authority and subnational political entities.

Article 1 of the Constitution states, “India, that is Bharat, shall be a Union of States”. While the Constitution doesn’t mention the term “federal”, it does provide for a governance structure primarily federal in nature. It provides for separate governments at the Union and in the states. Further, it specifies and demarcates the powers, functions and jurisdictions of the two governments. Last, it details the legislative, administrative and financial relations between the Union and the states.

The distribution of legislative powers has been broken down clearly into three lists: the Union List, the State List and the Concurrent List. The Union List, comprising the “vital interests of the State”, is the longest, with 100 items. It includes defence, arms and ammunition, foreign affairs, foreign trade, atomic energy, treaties, war and peace, currency, and the Constitution. The State List (61 items) comprises, among others, public order, police, trade and commerce within the state, agriculture, land revenue and various taxes. The Concurrent List (52 items) includes preventive detention, contracts, economic and social planning, social security, education, labour welfare and electricity.

On the Union List, Parliament has exclusive powers to legislate. While the state has exclusive powers to legislate on the State List, in certain situations, Parliament can also do so. As regards the Concurrent List, the issue is more complex. In case of a conflict between a state and a Central legislation, the parliamentary legislation shall prevail (Supreme Court, 2005). This, coupled with the fact that residuary powers of legislation are vested in the Union, gives a “unitary” tilt to federalism in India.

A disconcerting trend has been observed since 1950. While the Union and Concurrent Lists have expanded, the State List seems to have shrunk. This has led many to question the structure of Indian federalism and to propose its remodelling. Typically, two opposite forces seem to operate: One, cooperative federalism; and two, competitive federalism. Cooperative federalism implies the Centre and states share a horizontal relationship, where they “cooperate” in the larger public interest. It’s visualised as an important tool to enable states’ participation in the formulation and implementation of national policies. Competitive federalism can refer to the relationship between the Central and state governments (vertical) or between state governments (horizontal). This idea gained significance in India post the 1990s economic reforms. In a free-market economy, the endowments of states, available resource base and their comparative advantages all foster a spirit of competition. States need to compete among themselves and also with the Centre for benefits. Increasing globalisation, however, made the already existing inequalities and imbalances between states starker. This gave rise to concerns about states’ freedom to formulate their own growth policies.

Efforts at cooperative federalism have commenced but need to be strengthened. The acceptance of the 14th Finance Commission’s recommendations, apart from significantly enhanced devolution, enables states to design and implement programmes better suited to their needs. This ends the persistent critique of “one size fits all”. No doubt, the transition is contentious. The Central government’s envelope shrank in respect of important Centrally Sponsored Schemes, particularly health and education. States find it difficult to restructure and synchronise their financing. More importantly, the disbandment of the Planning Commission (PC) and its replacement by the NITI Aayog is specifically designed to promote cooperative federalism. NITI Aayog will concentrate on the broader policy framework instead of micro resource-allocated functions. But we need to take some further steps.

One, the reactivation of the Centre-State Council. Under Article 263, this council is expected to inquire and advise on disputes, discuss subjects common to all states and make recommendations for better policy coordination. Unfortunately, it was made to languish while the PC flourished. The NITI Aayog can’t replace the council’s functions either. It’s indeed the only recognised constitutional entity for harmonising the actions of the Centre and states. Its effective utilisation would lend legitimacy to cooperative federalism.

Two, with increasing difficulty in the early enactment of key legislation, it’s expected that on contentious issues like land, labour and natural resources, the state will promote best practices. This will enable greater investment and economic activity in states with a favourable regulatory framework. Enactment by states must secure expeditious Central approval.

Three, while competition between states, reflected in the World Bank’s Ease of Doing Business index, has generated interest, this must be a continuing exercise. But states not doing well on the index complain of infirmities of process and procedure. These need to be made more acceptable and transparent.

Four, on issues like international treaties, WTO obligations, or the environment, how is the interest of affected states to be protected? An institutional mechanism must be evolved where important decisions are appropriately discussed with states. As India becomes globally more interdependent, these potential contentious issues must be resolved.

Cooperative and competitive federalism may be two sides of the same coin. Their complementarity is contingent on many affirmative steps. We have made significant progress in the last 18 months. This is an unfinished agenda.

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