India - a union of states - An analysis of new federalism

An insight into how the federal structure of India is now evolving.

India - a union of states - An analysis of new federalism

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• The story: Federalism is a system of dual government, including the Centre and many 'States', where power is shared. Federalism is one of the pillars of the Basic Structure of the Constitution, as enunciated by the Supreme Court in 1980s.
• Slow deterioration: Over the decades, ans specially post-2014, the coercive policies introduced by the Central Government coming on top of the pandemic-induced economic shock, worsened the situation of State governments in many ways. As the Supreme Court said earlier in the "S.R. Bommai vs Union of India" case, the States are not mere appendages of the Union and the latter should ensure that the powers of the States are not trampled with.
• Indian federalism:

1. Experts have claimed that the nature of Indian Constitution is quasi-federal. The S.C. in "Sat Pal v State of Punjab and Ors (1969)" held that the Constitution of India is more Quasi-federal than federal or unitary.
2. The respective legislative powers of states and Centre are traceable to Articles 245 to 254 of the Indian Constitution. The Seventh Schedule of the Constitution contains three lists that distribute power between the Centre and states (Article 246).
3. On 98 subjects in the Union List, the Parliament has exclusive power to legislate. On 59 subjects of the State List, the states alone can legislate. And on the subjects of the Concurrent List (52), both the Centre and states can legislate.
4. In case of a conflict, the law made by Parliament prevails (Article 254). In the "State of Bombay vs F.N. Balsara case, 1951", the SC held that if an enactment falls within one of the matters assigned to the State List and reconciliation is not possible with any entry in the Concurrent or Union List after employing the Doctrine of “Pith and Substance”, the legislative domain of the State Legislature must prevail.

• Various issues: In recent years, many steps by the Union government undermined the principles of fiscal federalism. This has been manifested by the increasing monetary share of the States in Centrally Sponsored Schemes (CSS). Then there's the issue of imposition of demonetisation without adequate consultation with the States, causing great grief at local level. The outsourcing of the statutory functions under the Smart Cities Mission is also discussed. 

1. As of 2020-21, the Union government’s share in the total contribution of the petroleum sector was 68%, which left only 32% to the States. In 2013-14, the Union:State share was almost 50:50.
2. Impact of the Covid-19 is most stark. The states were curtailed in aspects relating to Covid-19 management such as procurement of testing kits, vaccination, the use of the Disaster Management Act, 2005, and the unplanned national lockdown The ill-prepared government during the Second Wave countered criticism by claiming health as a ‘State subject’.
3. Several other bills and amendments introduced by the Union government in the recent past have also led to the weakening of States’ autonomy. These include - (i) The farm laws (which have been repealed now), (ii) Banking Regulation (Amendment) Act of 2020, (iii) Government of National Capital Territory Amendment Act, 2021, (iv) Indian Marine Fisheries Bill, 2021, (v) Draft Electricity (Amendment) Bill, 2020, and (v) National Education Policy of 2020.

• Taxation: Enlarging the non-divisible pool of taxes in the form of cess in petrol tax and instituting the Agriculture Infrastructure and Development Cess have resulted in a situation where the Union continues to exclusively benefit from tax collection. The share of non-divisible pool cess and surcharge in total taxes collected by the Union government has increased from 12.67% in 2019-20 to 23.46% in 2020-21. The 2021-22 Budget Estimates indicate that the States’ share of Union tax has reduced to 30% against the mandated 41% devolution prescribed by the 15th Finance Commission.
• GST: During the pandemic, the Union government repeatedly violated the compensation guarantees to the States under the GST regime. Delay in paying the States their due worsened the impact of the economic slowdown. The GST compensation period expires in 2022, and despite multiple requests from the States, the deadline has not been extended. Inadequate Funding: Cash-starved States have been seeking non-tax avenues to generate funds to sustain their programmes. The suspension and transfer of the Member of Parliament Local Area Development (MPLAD) funds to the Consolidated Fund of India led to a major crisis situation for most States. Although the Government has raised the borrowing limit under the Fiscal Responsibility and Budget Management Act (FRBM) from 3% to 5%, it has imposed certain restrictive conditions making it more difficult for the states to borrow.
• Summary: States may ask for the creation of a formal institutional framework to mandate and facilitate consultation between the Union and the States in the areas of legislation under the Concurrent List. State governments may consider deploying human resources to support them in preparing responses to the consultations initiated by the Union, especially with a focus on the federalism angle. Chief Ministers may create forums for regular engagement on this issue. This would be crucial in the advocacy of major demands like the extension of GST compensation to 2027 and inclusion of cess in the divisible pool of taxes. The intention of the framers of the Constitution was to ensure that public welfare is subserved and the key to that lies in listening to stakeholders. The essence of cooperative federalism lies in consultation and dialogue whereas a unilateral legislation without taking the States into confidence will only lead to protests on the streets. A diverse country India requires a proper balance between the pillars of federalism (autonomy of states, centralisation, regionalisation etc). Extreme political centralisation or chaotic political decentralisation can both lead to the weakening of Indian federalism.
• EXAM QUESTIONS: (1) Explain the meaning of "federalism" and "quasi federalism". (2) What are the threats to the federal structure of India as it stands today? Explain. (3) What are the issues of taxation and GST that are riling the states of India? Explain.

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