Daily Mains Newsletter for UPSC 22 Dec 2021

Daily Mains Newsletter For UPSC
| RaghukulCS

22 Dec 2021 - Wednesday


Table of Contents

The Sustained Attack on Federalism

  • 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 15th 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.


  • 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.

Multi-State Cooperative Societies to be amended


  • The central government has decided to amend the Multi-State Cooperative Societies (MSCS) Act, 2002to plug the loopholes in the Act.
  • It has also begun the process of formulating a new cooperative policy, with the newly created Ministry of Cooperation writing to key stakeholders for suggestions.

What is the rationale behind the move?

  • To have an effective regulatory mechanism for the multi-State cooperative societies.
  • To keep the legislation in tune with the changing economic policies.
  • To make the management accountable to the members of the societies.
  • To protect the interests of the depositors and the shareholders of the societies.

What is the MSCS Act?

  • Cooperatives are a state subject, but there are many societies such as sugar and milk, banks, milk unions etc, whose members and areas of operation are spread across more than one state.
  • For example, most sugar mills along the districts on the Karnataka-Maharashtra border procure cane from both states.
  • The MSCS Act, 2002 was passed to govern such cooperatives.

What are Multi-state Cooperative Societies?

  • Multi-state cooperatives draw their membership from more than one state, and they are thus registered under the MSCS Act.
  • Their board of directors has representation from all states they operate in.
  • Administrative and financial control of these societies are with the central registrar.
  • Maharashtra has the highest number of multistate cooperative societies at 567, followed by Uttar Pradesh (147) and New Delhi (133).
  • Credit societies constitute the bulk of the registered societies, followed by agro-based ones (which include sugar mills, spinning mills, etc).

What are the issues/concerns with the current MSCS Act?

  • The exclusive control of the central registrar,
  • He/She is also the Central Cooperative Commissioner, and he was meant to allow the smooth functioning of multistate cooperatives.
  • The central Act cushions them from the interference of state authorities so that these societies are able to function in multiple states.
  • However, this has created obstacles as the societies have to seek approvals for new proposals (like the expansion of capacity) from officials of all states they are operating in.
  • No checks and balances:
  • For state-registered societies, financial and administrative control rests with state registrars, who exercise it through the district- and tehsil-level officers.
  • There are enough checks and balances to ensure transparency in their functioning.
  • But, in the case of multistate cooperatives, these layers do not exist. Instead, the board of directors has control of all finances and administration.

Lack of day-to-day control:

There is an apparent lack of day-to-day government control on multistate cooperatives.

  • State cooperatives have to submit multiple reports to the state registrar. However, there is no such requirement for multistate cooperatives.
  • The central registrar can only allow inspection of the societies under special conditions.
  • A written request has to be sent to the office of the registrar by not less than 1/3rdof the members of the board, or not less than 1/5th of the number of members of the society.
  • Inspections can happen only after prior intimation to societies.

Lack of proper infrastructure:

Central Registrar doesn’t have enough on-ground infrastructure.

  • There are no officers or offices at the state level, with most work being carried out either online or through correspondence.
  • Further, in cases of complaints of Ponzi schemes run by many credit societies, there is a lack of ground staff necessary for verifying their antecedents.
  • For members of the multistate cooperative societies, the only office where they can seek justice is in Delhi. 
  • The State authorities are unable to do much apart from forwarding complaints to the central registrar.

What is the way forward?

Although, Government is holding extensive consultations with experts from various fields. The proposed amendments to the Act should include the following reforms:
  • Increase in manpower, both in Delhi and as well as the states, to ensure better governance of the societies.
  • Technology should be used to bring in transparency.
  • For implementing day-to-day control, the administrative control of multistate cooperatives could be vested in the state commissioners.

Ethics / Paper -IV –Terms


  • It is a state of psychological stability and composure that is undisturbed by experiences of good or bad, pain or pleasure, or other phenomena that may cause normal people to lose the balance of their minds.
  • The quality of being calm and even-tempered; composure.
  • Equanimity is defined as being calm and maintaining your emotions, especially in bad situations.
  • Example of equanimity is when you react calmly when you are given bad news about your health or your job.


  • It is a concept that believes in the use of reason which is detached from passions, emotions and beliefs.
  • If our personal beliefs or sentiments are not in conformity with rationality, they should not prevail over rationality.
  • It means bringing out a practical solution to a practical situation.
  • Rational behavior facilitates decision-making that may not always give the best possible returns materially.
  • For example, while it is likely more financially beneficial for an executive to stay on at a company rather than retire early, it is still considered rational behavior for her to seek an early retirement if she feels the benefits of retired life outweigh the utility from the paycheck she receives.

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