• Federalism in essence is a dual government system including the Centre and a number of States. Federalism is one of the pillars of the Basic Structure of the Constitution.
• However, in recent years, the coercive policies introduced by the Central Government coming on top of the pandemic-induced economic shock, have worsened the political as well as fiscal situation of State governments.
• As the Supreme Court iterated in the 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.

Federalism in India

• A Federal theorist K.C. Where has argued that the nature of the Indian Constitution is quasi-federal in nature.
  • The SC in Sat Pal v State of Punjab and Others (1969), held that the Constitution of India is more Quasi-federal than federal or unitary.

Constitutional Provisions: 

• The respective legislative powers of states and centres 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).
    • Union List – 98 subjects
    • State List – 59 subjects
    • Concurrent List – 52 subjects
      • However, in case of a conflict, the law made by Parliament prevails (Article 254).
• Absolute Power of State in Certain Matters: 

• According to various decisions of the Supreme Court (such as in the State of Bombay vs F.N. Balsara case, 1951), 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.

Issues Related to Federalism

• Increasing Central Dominance in Fiscal Policies: Union government undermined the principles of fiscal federalism, like:
  • Increasing monetary share of the States in Centrally Sponsored Schemes (CSS).
  • Imposition of demonetisation without adequate consultation with the States.
  • Outsourcing of the statutory functions under the Smart Cities Mission
  • 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 and it was 50:50 in 2013-14.
• Legislations Weakening States’ Autonomy: Some of these acts or bills are:
  • The farm laws (which have been repealed now)
  • Banking Regulation (Amendment) Act of 2020
  • Government of National Capital Territory Amendment Act, 2021
  • Indian Marine Fisheries Bill, 2021
  • Draft Electricity (Amendment) Bill, 2020
  • National Education Policy of 2020
• Taxation Related Issues: 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 15^th Finance Commission.
  • GST Specific Issues: During the pandemic, the Union government repeatedly violated the compensation guarantees to the States under the GST regime.
    • The GST compensation period expires in 2022, and despite multiple requests from the States, the deadline has not been extended.
• Inadequate Funding:
  • 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.

Way Forward

• Relooking into Federalism:
  • States should demand 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.
• Strengthening Inter-State Relations:
  • Instead of reaching out to each other only during crisis situations, Chief Ministers may create forums for regular engagement on this issue.
• Consultation is the Key:
  • The essence of cooperative federalism lies in consultation and dialogue whereas unilateral legislation without taking the States into confidence will only lead to protests on the streets.
• Bringing Reforms while Balancing Federalism: 

• 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.

• • The gradual widening of the fiscal capacity of the states has to be legally guaranteed without reducing the Centre’s share.

Conclusion:

• The presence or lack of federal flexibility plays a crucial role in shaping democracy. The Union government needs to invest resources towards facilitating effective consultation with States as a part of the lawmaking process.
• It is critical to establish a system where citizens and States are treated as partners and not subjects.