(GS Paper II – Federalism, Centre–State Relations, Devolution of Powers, Finance Commission)
Context (Introduction)
Escalating tensions between the Centre and various Opposition-ruled States over GST decisions, fiscal transfers, CSS funding, and use of cesses have revived concerns about whether single-party political dominance is accelerating a drift toward centralisation, weakening India’s federal equilibrium.
Main Arguments
- Shift from coalition-based accommodation to centralised dominance: The 1990s–2000s saw institutional negotiation between Centre and States. After 2014, single-party dominance has reshaped federal bargaining, reducing avenues for deliberative decision-making.
- Weakening of intergovernmental institutions: The abolition of the Planning Commission removed a key coordination platform. GST Council functioning has faced criticisms for unilateral decision-making contrary to early cooperative norms.
- Horizontal fiscal imbalance concerns: Southern States argue that Finance Commission formulas (population, inverse-income criteria) structurally favour northern States, ignoring spatial inequality and demographic transitions.
- Rising centralisation through fiscal tools: Cesses and surcharges — outside the divisible pool — have steadily risen, constraining State fiscal space. CSS allocations are increasingly determined by the Centre without consistent consultation.
- Changing political economy and weakened regional autonomy: Declining regional capital, competitive populism, and limited job creation alter States’ bargaining capacity vis-à-vis the Centre.
Criticisms / Drawbacks
- Shrinking State autonomy over finances: With cesses rising and GST limiting indirect tax powers, States face weakened control over revenues.
- Erosion of trust and “good faith” obligations: States allege unilateral Centre-driven decisions in GST disputes, fund releases, and CSS design.
- Institutional imbalance post-Planning Commission: No equivalent body now supports coordinated long-term State–Centre developmental planning.
- Deepening structural spatial inequality: Fiscal formulas do not fully address disparities in growth, migration, wages, and demographics.
- Changing nature of federal coalitions: Unlike earlier coalitions dependent on regional parties, current alliances do not prioritise federal bargaining.
Reforms and Way Forward
- Strengthen Intergovernmental Institutions
- Establish a permanent Inter-State Council Secretariat to institutionalise federal dialogue.
- Operationalise regular Zonal Council meetings with statutory follow-up, as recommended by the Punchhi Commission.
- Revisit the role of NITI Aayog to grant it fiscal and planning powers, restoring cooperative planning functions earlier performed by the Planning Commission.
- Reform Fiscal Federalism
- Limit excessive use of cesses and surcharges, aligning with 15th FC observations on improving the divisible pool.
- Adopt a balanced horizontal devolution formula that acknowledges demographic achievements (southern States) while retaining redistribution — an approach suggested by multiple Finance Commissions.
- Implement independent fiscal councils at the Union and State levels, as recommended by the Rangarajan Committee, to depoliticise fiscal assessments.
- Enhance GST Council Federalism
- Strengthen the Council’s dispute resolution mechanism (never operationalised), as envisaged in Article 279A.
- Return to consensus-based decision norms, consistent with the cooperative spirit recommended during GST design.
- Ensure predictable GST compensation mechanisms, following expert recommendations for a “GST Stabilisation Fund.”
- Rebalance Centrally Sponsored Schemes (CSS)
- Rationalise the number of CSS and expand flexible components for State-specific adaptation.
- Adopt transparent formula-based fund releases to reduce political discretion.
- Shift monitoring from the Ministry of Finance to a broad-based federal body (as suggested by ARC).
- Address Structural Spatial Inequality
- Create an Equalisation Grant Framework for lagging regions to reduce spatial disparities (Rajan Committee).
- Encourage labour-intensive regional growth via wage reforms, regional capital incentives, and targeted migration policy.
- Strengthen institutional parity by investing in poorer northern districts — a long-standing expert recommendation.
Conclusion
India’s federalism is undergoing a stress test. While redistribution remains a constitutional principle, weakened institutional forums, unilateral fiscal decisions, and centralised political incentives have generated friction. Strengthening cooperative federalism requires transparent fiscal norms, empowered institutions, and a renewed commitment to balancing national cohesion with regional autonomy.
Mains Question
- Is cooperative federalism weakening under conditions of single-party dominance? Evaluate recent Centre–State tensions and suggest reforms based on major committee and commission recommendations.(250 words, 15 marks)
Source: The Hindu