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THE CURRENT STATE OF COOPERATIVE FEDERALISM IN INDIA

Why in news?

Amid the growing rhetoric of strengthening cooperative federalism in India, it is useful to pause from time to time and review the actual progress. The ongoing budget season is the right time to carry out a realistic assessment. 

Details about budget picture:

In her budget speech, Union finance minister highlighted the need for greater Centre-state cooperation to implement agricultural reforms, strengthen medical education, promote tourism, and attract investments.

  • Almost all state budgets cover these issues.
  • In fact, the Odisha government follows a practice of presenting its budget in two parts, with the first part dedicated to agriculture and allied activities.
  • To promote tourism, the Rajasthan government has proposed implementing a policy on the Ease of Travelling.
  • The Uttar Pradesh government is in the process of establishing 21 new medical colleges and a medical university.
  • The Tamil Nadu government is likely to launch a new industrial policy shortly that will provide incentives compatible with the goods and services tax regime to attract investors.

Transfer from centre to states?
 

  •  Under the Union budget, the total estimated transfers to states from the Centre for the ongoing fiscal year have been reduced by around ₹1.41 trillion.
  • This is because of a decrease in the estimated transfers to states on account of their share in central taxes and centrally-sponsored schemes.
  • Rajasthan government argues that while the Centre has several options of raising funds, such as disinvestment and approaching the Reserve Bank of India, no such option is available to the state.
  • The Tamil Nadu budget also points out that the Centre has reduced the state’s share in central taxes for the current fiscal year by around ₹8,000 crore.
  • The government of Odisha, in its budget, has also noted that its share in central taxes for the current fiscal year has been reduced by ₹9,000 crore.
  • The most interesting story emerges from Uttar Pradesh. The state has been forced to revise its estimated receipts on account of its share in central taxes downwards by a massive ₹17,000 crore. Unlike other states, this substantial reduction did not find mention in its budget speech, and was quietly slipped into one of the budget documents.

Way forward:

  • Politics has trumped economics and the greater good thus far in India’s story of cooperative federalism. This needs to be fixed before it is too late.
  • Greater transparency and stakeholder participation in the budget-making process of the Centre as well as states could go a long way in this regard, as also institutionalized mechanisms for better Centre-state coordination.
  • Above all, political parties need to rise above their electoral mindsets and act in favour of the country’s greater good for India to realize the true potential of cooperative federalism.

Background:

What is cooperative federalism?

  • In Cooperative federalism the Centre and states share a horizontal relationship, where they “cooperate” in the larger public interest.
  • It is an important tool to enable states’ participation in the formulation and implementation of national policies.
  • Union and the states are constitutionally obliged to cooperate with each other on the matters specified in Schedule VII of the constitution.

What is competitive federalism?
 

  • In Competitive federalism 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 a free-market economy, the endowments of states, available resource base and their comparative advantages all foster a spirit of competition. Increasing globalisation, however, increased the existing inequalities and imbalances between states.
  • 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.
  • The investors prefer more developed states for investing their money. Union government devolves funds to the states on the basis of usage of previously allocated funds.
  • Healthy competition strives to improve physical and social infrastructure within the state.
  • Competitive federalism is not part of the basic structure of Indian constitution. It is the decision of executives.

In 1974, when the Supreme Court commented on the Constitution envisaging a cooperative federal structure, federalism has come a long way in India.

In relation to the imposition of President’s rule under Article 356 of the Constitution, federalism is far more mature.

Between 1947 and 1977, there were 44 instances when the power to impose President’s rule was exercised.

Between 1977 and 1996, the power was exercised almost 59 times. Prime Minister Indira Gandhi’s cabinet resorted to the power an estimated 50 times in her 14 years.

From 1991 till 2016, there have been 32 instances of the exercise of this power compared to 92 instances in the preceding period.

In S.R. Bommai v. Union of India (1994), the limitation laid down by the Supreme Court might have placed gentle breaks on exercise of this power (President’s Rule), but the Centre continues to wield superior legislative powers, including residuary powers and legislative precedence.

Although Cooperative Federalism has been Improved, Instances of Contentious terrain:

Taxation powers are contentious issue and the Central government has won most of the disputes purely due to express provisions in the Constitution.

In the Goods and Services Tax (GST) scenario, States have foregone some taxation powers (octroi, entry tax, luxury and entertainment taxes, etc.) but have powers to levy taxes through panchayats and municipalities.

The spirit of co-operative federalism in India is observed by following

1. Distribution of Powers,

2. Supremacy of the Constitution,

3. A Written Constitution,

4. Rigidity and

5. Authority of Courts.

Under this arrangement in the Constitution, Center has got dominant power as evident from following:

  • States must exercise their executive power in compliance with the laws made by the Central government and must not impede on the executive power of the Union within the States.
  • Centre can even usurp the legislative discretion of state with the permission of Rajyasabha (Article 249)
  • Governors are appointed by the Central government to oversee the States.
  • The Centre can even take over the executive of the States on the issues of national security or breakdown of constitutional machinery of the State. (Article 356)

Cooperative federalism in India is practiced under following norms:

  • Article 263 of the Constitution has provided for the setting up of an Inter-State Council for investigation, discussion and recommendation for better coordination of relation between the Centre and the States.
  • The Zonal Councils set up under the State Reorganization Act 1956 provide another institutional mechanism for centre- state and inter-state cooperation to resolve the differences and strengthen the framework of cooperation.
  • The National Development Council and the National Integration Council are the two other important forums that provide opportunities for discussion to resolve differences of opinion. Central councils have been set up by various ministries to strengthen cooperation.
  • NITI Ayog and its governing councils
  • Conference of state Governors
  • Conference of State Chief Ministers
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September 2022
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