Cooperative Federalism, Myth or Reality

In 2015 the 14th Finance Commission recommended that states receive forty two per cent of the divisible pool of central taxes, up from thirty two per cent. It was the largest single increase in the share of the states in the history of the Commission, and it came with the government's acceptance. In the same year the Planning Commission, long seen as a symbol of centralised control, was replaced by NITI Aayog, with the Chief Ministers on its governing council. These steps were presented as proof that India had entered a new phase of cooperative federalism. Sceptics replied that the phrase was a slogan. The topic asks which view is closer to the truth.

The idea has an older home in Indian constitutional thought. Granville Austin, in his study of the making of the Constitution, described India's federal system as cooperative, in which the Union and the states are not rivals but partners who depend on one another to carry out shared tasks. The framers knew that a vast and diverse country with the memory of Partition needed a strong centre. They also gave the states real powers. The Constitution places subjects in three lists, with agriculture, police, public health and local government on the State List, and gives the states a share of central taxes through the Finance Commission.

The strong evidence for cooperation lies in the way the system has worked in practice. The states implement most central laws, and the centre depends on them for the delivery of schemes such as the Mahatma Gandhi National Rural Employment Guarantee Act. The Inter State Council, set up in 1990 on the advice of the Sarkaria Commission, and the zonal councils offer forums for discussion. Tax sharing is decided by independent Finance Commissions. The newest forum was created under the constitutional amendment passed in 2016. The Goods and Services Tax Council is a more striking example, since it brings together the Union and all states in a body where decisions need a three fourths majority and the states together hold two thirds of the weight. It is the first time that the Union has agreed to pool a part of its sovereignty over taxation in this manner.

The Goods and Services Tax Council is a more striking example, since it brings together the Union and all states in a body where decisions need a three fourths majority and the states together hold two thirds of the weight.

Yet the other side of the ledger is long. The Constitution leans toward the centre, which has power over residuary subjects, can legislate on state subjects in the national interest under Article 249, and can take over a state under Article 356 when the constitutional machinery fails. The article was used more than a hundred times, often to dismiss governments of opposing parties, until the Supreme Court in the S. R. Bommai case of 1994 held that the use was subject to judicial review. Governors, appointed by the Centre, have at times behaved as agents of the party in power. In 2016 the imposition of President's rule in Uttarakhand and Arunachal Pradesh was struck down or reversed by the courts, which suggests that the old habit has not died.

Money is the heart of the matter. The states carry most of the responsibility for spending, on health, education and policing, but the centre collects the more buoyant taxes. This vertical imbalance makes states depend on transfers. A large part of the transfers comes through centrally sponsored schemes, which come with conditions that the states must follow, even when local needs are different. The Chief Ministers complained for years that these schemes treat the states as implementing agencies and not as partners. The Planning Commission also allotted grants at its discretion, which gave the centre influence. The change in 2015 reduced the share of such tied funds, but many schemes continue, and the freedom of states to borrow is limited by the centre's consent.

Politics shapes the outcome more than rules. In the era of one party dominance, the Congress ruled at the Centre and in most states, and conflicts were settled inside the party. When regional parties rose in the late 1980s and coalitions governed the centre in the 1990s and 2000s, states gained bargaining power, and the centre had to listen. After 2014, when a single party won a majority in the Lok Sabha, the question was whether the Centre would use its strength to dominate. The rhetoric favoured partnership, and the Prime Minister, who had served as a Chief Minister, spoke of Team India. Whether the practice matches the rhetoric depends on how the Centre treats states ruled by its opponents.

Competition has been added to cooperation. The idea of competitive federalism holds that states should compete for investment and talent by improving their governance, and the centre should reward them. The ranking of states by the ease of doing business, begun in 2015, reflects it. Competition has clear benefits, because successful experiments in one state, like Gujarat's power reforms or Tamil Nadu's welfare schemes, spread to others. But it can also widen gaps between rich states that attract capital and poor states that cannot. Cooperation is needed to see that the weaker states are lifted up, and not left behind.

A number of reforms would strengthen the reality. The Inter State Council should meet regularly and be given a permanent secretariat, as the Sarkaria and Punchhi commissions urged. The practice of appointing Governors should be changed to follow the recommendation of consulting the state. The number of centrally sponsored schemes could be reduced and the funds given with flexibility. Local governments, the third tier, should be given the functions and funds that the 73rd and 74th amendments promised in 1992. Disputes over rivers, security and tax could be settled by negotiation before they reach the courts.

The honest answer is that cooperative federalism is neither a myth nor a settled reality but a work in progress that depends on behaviour. A constitution can provide for partnership, but it cannot make partners trust each other. India's federation has survived for seven decades with its borders redrawn and its parties transformed, which is an achievement in itself. What it will do the next time a state and the Centre want different things, and the Centre has the power to prevail, is the question that decides which word the phrase deserves.