Dynamism of Indian Federalism

Ritesh Bhardwaj
Assistant Professor, Deptt. of Political Science
Shyam Lal College (Eve.)
University of Delhi
riteshbhardwajdu@gmail.com

Abstract:-

Federalism is a necessity for the union of a number of independent states which are not
strong enough individually to protect themselves from outside danger and whose union is
requisite for their safety and promotion of economic interests, but which are not prepared to
surrender their independence completely. India was not an exception to it. In fact, to build a
political institution, context plays an important role in terms of structure and functioning of an
institution. Federation reflects the nature and extent of relationship between the centre and
states. It is a device for territorial decentralization and a method of dividing powers so that the
centre and the state governments operate within their respective spheres sanctioned by the
constitution. In fact, a federation is conceived mainly to maintain a balance between over-
centralization and autonomy of states. This paper will analyse the dynamics of Indian federalism
in different phases. It will also highlights the role of liberalisation impact on Indian federalism
after 1991 to till date.

Indian federalism in practice has devised several answers to the demands confronting it
from time to time, but if we have to periodise according to characteristics on the whole, then it
can be said that India’s federal governance has taken India from the ‘benign centralism’ of
Nehruvian ere (1950-64) through the troubled period of ‘excessive centralism’ (1965-89), to the
new ‘negotiatory federalism’ or ‘Competitive federalism’ (1989-to the present) of the post
liberalized era of Indian politics.

During the period of 1950-67 centre-state disputes were negotiated though the
mechanism of the Congress party at the centre and most of states. From 1967 to the nineties, the
centre-state dialogues became more dissonant with one state after another demanding more
powers, more autonomy to correct what may be called the inequities in the constitutional power
sharing scheme and to make the constitution truly federal. From the Rajamannar Committee
Report and Anandpur Sahib Resolution in the seventies, sharing arrangement in the

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constitutional scheme was perceived to be unequal and unfair and was demanded to be amended
in favour of the states. A comprehensive review of Centre-State Relations was undertaken by the
Sarkaria Commission in the 1980s. After two decades that have gone by, both the polity and
economy have undergone deep changes, posing new challenges for intergovernmental relations
and calling for a fresh relook at the relative roles and responsibilities of each level and their
inter-relations. The Punchhi Commission reported in 2010 was of another review and entrusted
with this task make recommendations that would help to address the new emerging challenges in
India after 1990s.

From the 50’s to the 80’s, the halcyon days of India’s five-year plans, the states came to
occupy the commanding heights of the economy. As the new millennium opened, images of a
centralized planned command economy had become a fading memory. In the 1990s India took
the big leap towards a globalised market economy, when state chief ministers came to play
leading roles in the emerging economy. In other words, it can be said that the bureaucratic state
move towards regulatory state. It was the conditions created by economic liberalization that
necessitated a shift from a centralized command economy to a federal market economy. Its
raison d’être was the displacement of pubic investment by private investment as the engine of
economic growth. From the decade of the nineties, the states have become the principal arena for
private investment. Post-nineties, the sates command a larger share of economic sovereignty than
they did under the conditions of centrally planned economy. Their growth depends a lot on their
own initiate now. Despite structural constraints on the states arena of economy, freedom has
certainly increased, since the union government is transforming itself from the interventionist
state of a centrally planned economy and the license permit raj to that of a regulatory state of
federal market economy that tries to enforce fiscal discipline and to ensure transparency and
accountability in market and federal processes.

Since the 1990s, India had become considerably more federalized than before. 1 This is
evident in the increased political autonomy and revenue of state governments vis-à-vis the Union
government; growing maneuverability of the constitutional heads of state – President and

1
M.P. Singh, Economic Liberalization and Political Federalization in India: Mutually Reinforcing Responses to
Global Integration, in Harvey Lazar, Hamish Telfora & Ronald Watts (eds.), The Impact of Global and
Regional Integration on Federal Systems: A Comparative Analysis, Montreal (McGill-Queen's University
Press, 2003), 191-236.

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governors; growing salience of Union constitutional agencies like the Election Commission of
India and intergovernmental agencies like the ISC (Inter-State Council) and NDC (National
Development Council); decline in the role of centralized planning; creation of a series of
independent regulatory agencies and appellate tribunals under parliamentary statutes in such vital
sectors of the economy as communications, electricity, insurance, finance, stock exchange, etc.;
greater visibility of the Human Rights Communication, Minority Commission, Scheduled Castes
and Tribes Commission appointed either under the Constitution or a parliamentary statute; and
constitutional entrenchment of local self-governing institutions of Panchayats and Municipal
Corporation, etc. This remarkable transformation is due mainly to factors such as:

 The change in party system of Congress dominance to a multi-party system of federal

segmentation resulting in unstable federal coalition/minority governments;

 Judicial interpretation and judicial activism supporting the autonomy of states;

 Growing maneuverability of the constitutional heads of state;

 Regulatory role by the Election Commission;

 More inclination on economic liberalization and globalization, rather than to formal

constitutional amendments.

 Significance of Regulatory Institutions

One of the most important changes in India over its post-independence period is the end,
starting in 1989, of the ‘dominant party system’, associated with majority governments, and the
shift to a multi-party system and coalition governments. According to Rudolph and Rudolph this
was associated with the decline in parliamentary government and in the quality of the political
executive (the Cabinet and the Prime Minister). In some ways, there is a compensatory response,
in part, in terms of the activities of the Supreme Court, Presidency and Election Commission,
which have become the institutions concerned with good governance for the people in the
country.

Since the 2014 general elections, Indian federalism finds itself in a significantly different
political ambience from what was prevailing for about two and a half decades since 1989. In the
backdrop of a decade of unstable multiparty coalition governments and later stable but
excessively regionalised and fragmented federal governments, India came under a de facto one-
party majority government of the BJP (Bharatiya Janata Party) led by Narendra Modi within the

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NDA (National Democratic Alliance) framework. The Modi Mandate produced a prime
ministerial government at the centre though it must contend with some continuing strong
regional parties in some states and a Rajya Sabha still controlled by an opposition majority at
least until 2018 or so. Moreover, in the state Assembly elections held since May 2014, BJP’s
winning spree in Haryana and Jharkhand, and partly in Maharashtra (in strained pre-poll
coalition with Shiv Sena) and Jammu & Kashmir (in strained post-poll coalition with PDP or
People’s Democratic Party), came to be rudely punctured in the Delhi Assembly elections in
February 2015, when the AAP (Aam Aadmi Party) rose Phoenix-like from its ashes in the
parliamentary elections only a few months ago. Thus the centralist thrust under BJP/NDA is now
countervailed by continuing or regenerated decentralist thrust. The point is that the situation is
pregnant with the double possibility of both federal centralization and decentralization. Another
dimension of public policy and governance pertaining to the present regime is the challenge of
reconciling the tensions between inclusive economic development and divisive Hindutva, and
Indian nationalism and regionalism verging on ambivalent separatism in the PDP-BJP coalition
government in Jammu & Kashmir.2

Under the changed circumstances, now the regulatory institutions gained more
significance, not only to create, sustain, and perfect markets, but also to ensure procedural
fairness in the election; operation of a multiparty system and the formation and conduct of
coalition governments in a federal framework. Lloyd Rudolph and Susanne Rudolph 3 have
highlighted the way in which India has moved in the last decade from an interventionist to a
regulatory state. They talk about three institutions – the judiciary, the presidency and the Election
Commission – that are not only the integral parts of the formal constitution of India but have also
become the regulatory mechanisms that have grown enormously in strength and effectiveness
over the last 10 years. Rudolph and Rudolph have rightly summarized that economic reform in
India since 1990s have transformed India from a command economy to a federal market
economy that facilitates a wider ‘sharing of sovereignty’ within the state and the market. Under

2
M. P. Singh, Fiscal Federalism and its Impact on Growth in Indian States: Role of Grants and Royalties,
Special address at the workshop organized by the Energy and Recourses Institute (TERI, New Delhi, 5 March,
2015).
3
Lloyed I. Rudolph and Susanne H. Rudolph, Readoing the constitutional design: from an interventionist to a
regulatory state, in Atul Kohli, The Success of India's Democracy, (New Delhi, Cambridge University Press,
2004), 127-162.

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these new conditions, the states command a larger share of economic sovereignty than they did
under the centrally planned economy. Whether they do well or badly economically depends more
than before on what they do for themselves. The states have become the principal arena for
private investment. Their competition for private investment has generated the races to the
bottom and to the top. Since adoption of economic liberalization, the state chief ministers play
leading roles in India's emergent federal market economy. They are seen on front pages, covers
of news magazines and television screens, making and breaking coalition governments,
welcoming foreign statesmen and investors, dealing with natural disasters and domestic violence.
By the end of the nineteen-nineties, the state’s Chief Ministers became the marquee players in
India's federal market economy.

In the political economy, quite visible is the growing hold of corporate capitalism4 both
of the domestic and of international, (multinational) type, as also the World Bank, International
Monetary Fund (IMF), and the World Trade Organization (WTO) inspired reforms process. The
era of globalization has resulted in the merger of global capital with Indian monopoly capital
resulting in steep rise in the potential and strength of corporate sector. It has also resulted in the
emergence of regional business groups on one hand and regional as well as rural-urban
dichotomy on the other. Most of the parties, national vis-à-vis regional, have widely accepted the
Globalization, Privatization and Liberalization (GPL). With no exception, all parties are inviting
foreign capital, welcoming multinational corporations and seeking ways and means for economic
reforms. Even voters are aspiring for quick returns in terms of infrastructure from Bijli-Pani-
Sarak to employment with better salaries and better life-style.

Financial inclusion is an important priority of the government. The objective is to ensure

the excluded sections, i.e. weaker sections and low income groups, access to various financial
services such as a basic savings bank account, need-based credit, remittance facility, insurance
and pension. Recent remarkable fiscal transformation is due mainly to developments such as:

 Pradhanmantri Jan Dhan Yojna (PJDY) envisages universal access to banking

facilities with at least one basic banking account for every household, financial
literacy and access to credit & insurance. The RBI has issued guidelines for licensing
of new banks in the private sector on 22nd February, 2013 and April 2014 two

4
Rajni Kothari, Issues before Indian Democracy: An Overview, in Rajendra Vora & Suhas Palshikar (ed.),
Indian Democracy: Meanings and Practices, (New Delhi, Sage Publications, 2004), 45-54.

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 applicants have been granted ‘in principal’ approval to setup new banks in the private
sector within period of eighteen months.

 The RBI has formulated and released guidelines in November, 2014 for licensing of
payments banks and small finance banks in the private sector. Subsequently the RBI
has invited applications for setting up of small banks and payments banks and
announcement for setting up of differentiated banks serving niche interests such as
local area banks and payment banks. The payment and Settlements Act, 2007 (PSSA)
was enacted with a view to providing sound legal basis for the regulation and
supervision of payment system in India by the RBI. The proposed amendments will
provide finality to determination of the payment obligations and settlement
instructions between a central counter party (the system provider) and system
participants in the event of insolvency, dissolution, or winding up of a central counter
party.

 The Union Cabinet, on 10th December, 2014 approved a proposal allowing PSBs to
raise capital form public markets through follow on public offer (FPO) or qualified
institutional placement (QIP) by diluting Government of India holding upto 52 per
cent in a phase manner based on their capital requirement, stock performance,
liquidity, market appetite and subject to certain conditions.

 Government of India has approved the Insurance Laws (Amendment) Ordinance,

2014 on 26th December 2014 for removing archaic and redundant provisions in the
insurance laws, empowering the Insurance Regulatory and Development Authority
(IRDA) to enable more effective regulation and enhancing the foreign equity
investment cap in an Indian insurance company from 26 to 49 per cent with the
safeguard of Indian ownership and control.

 The National Pension scheme (NPS) which was initially introduced for the new
recruits who had joined central government services (except armed forces at first
stage) with effect from 1st January, 2004, has been subsequently extended to
autonomous bodies, state governments, and the unorganized sector. The
Swavalamban Scheme, a co-contributory pension scheme launched in 2010 for
pension in the unorganized sector, is now open to the citizens of India who are not
part of any pension/provident fund scheme. The Pension Fund Regulatory and
Development Authority (PFREDA) Act, 2013 has been made effective from 1st
February, 2014 for this purpose.

 The government has been promoting private investment in renewable energy through
an attractive mix of fiscal and financial incentives. India introduce a clean energy cess
on coal in 2010. This cess on coal which feed the National Clean Energy Fund
(NCEF) has been increased from 50 to 100 per ton in budget 2014-15. The scope of
the NCEF has now been expanded to include funding in the area of clean
environment initiatives. As a follow-up of its announcement in budget 2014-15, a
‘National Adaptation Fund’ with an initial corpus of 100 cores has been set up to

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 support adaptation actions to combat the challenges of climate change in sectors like
agriculture, water and forestry.

 To improve India’s low ‘Ease of Doing Business’ index ranking, reforms are being
undertaken. The important measures that have been undertaken are liberalization of
licensing and deregulation of large number of defence products, extending the
validity of licencees to provide enough time to licencees to procure land and obtain
the necessary clearance from authorities, adoption of a checklist with specific time-
lines for processing application filed by foreign investors in cases relating to
retail/non-resident Indian (NRI)/export-oriented unit (EoU) foreign investments,
automation of processes for registration with the Employees Provident Fund
Organization and Employees State Insurance Corporation, processing of environment
and forest clearances and ensuring compliance through peer evaluation, self-
certification, etc.

 The ‘Make in India Progarmme’ is aimed to facilitate investment, foster innovation,

enhance skill development, protect intellectual property and build best-in-class
manufacturing infrastructure.

 Under the project a ‘Government to Business’ (G2B) portal is being set up to serve s
a one-stop delivery of services to the investor and address the needs of the business
and industry from inception through the entire life cycle of business. The process of
applying for industrial licence (IL) and industrial entrepreneur memorandum (IEM)
has been made online and this service is now available to entrepreneur on 24x7 bases
at the E-Biz (Easy Business) website.

 Government has set up a new ‘Ministry of Skill Development and Entrepreneurship’

to promote skill and entrepreneurial activities, work is being undertaken on setting up
common norms for skill training across central ministries/ departments. To create a
common standard for skills training and certification in the country efforts are on to
align the National Council for Vocational Training (NCTV), school boards and the
University Grants Commission (UGC).

 A process for online submission of application for environment coastal regulation

zone (CRZ) and the forest clearances has been started. The decision-making process
has been decentralized by strengthening federalism.

 A Shram Suvidha Portal has been launched for online registration of units, filing of
self-certified, simplified, single online return by units, introduction of transparent
labour inspection scheme via computerized system as per risk-based criteria,
uploading of inspection reports within seventy-two hours and timely redressal of
grievances. A Universal Account Number has been launched facilitating portable,
hassle-free and universally accessible Provident Fund accounts for employees.

 The Apprentices Act, 1961 has been amended so as to make it flexible and attractive
to youth industry and an Apprentice Protsahan Yojna to support micro small and

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 medium enterprises (MSME) in the manufacturing sector in engaging apprentices has
been launched.

 FDI policy in India has been further liberalized. FDI up to 49 per cent through the
government route has been permitted in the defence industry. Higher FDI has also
been allowed on a case-to-case basis. FDI up to 100 per cent through the automatic
route has been permitted in construction, operation and maintenance of identified
railway transport infrastructure.

 Some new schemes have been announced for development of urban infrastructure,
these are:
a. The Swachh Bharat Mission
b. Heritage City Development and Augmentation Yojna (HRIDAY)
c. Smart City Scheme

 Public administration reforms have been initiated such as Digital India Programme in
the form of e-government, which gained momentum after the launch of the National
E-Governance Plan (NeGP) in 2006. India is still lagging behind 117 countries in the
World E-Government Development Index. Recently, the government of India
announced a new exemplary initiative which reflects, the need of map existing
system, the need to streamline and integrate emerging systems, the use of a mobile
platform for service delivery, the development of voice-based mobile applications,
the provision of widespread training to equip citizens with adequate Information and
Communication Technology (ICT) skills, an increase in number of Common Services
Centre (CSC) to reachable distance in all rural communities, the provision of e-
services in regional languages and the need to establish the perception of trust and
security in the electronic environment as necessary condition for effective ICT-
enabled Pubic Administration reformation within the Indian context.

Apart from above recent initiatives, the policy of liberalization and privatization has been
hailed and criticized equally. The critics have argued that irrespective of prioritization, the policy
has permitted multinationals in all areas, this in turn, may subvert Indian capital and establish
their supremacy in the corporate sector. The policy has, however, led to jobless growth,
voluntary retirement, accentuation of labour and job retrenchment. Other objection is for
negligence of agriculture. Rise in fiscal deficit is another area of concern. Yet another area of
worry is utilization of collected money from privatization for social welfare, instead of just
paying for oil and other international debts. Furthermore, redistribution of income in favour of
the internalized elites, deterioration in living standards of the general population, laxity towards
the goals of social equality, justice and welfare are some of the areas where New Economic
Policy has raised question marks. The removal of tariffs, the relaxation of industrial policies, and

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the extrication of the government from the business sector have been slow and subject to
political obstacles and bureaucratic inertia. Moreover, there is no evidence of any incentives
being given to promote corporate and private savings. Lately, it is service sector that has been
fueling, whereas manufacturing sector has been lagging behind in both productivity and
expansion.5

Here we may conclude by stating that the new model of centre-state relations is perhaps
emerging beyond the horizon of a liberalized political economy. Perhaps almost imperceptibly
an informal amendment of the constitution is taking place over the last decade, a change that is
likely to be irreversible given the trends in our emergent federal market political economy. With
the off-loading of the centre’s functions and powers in many spheres, the states feel less
‘controlled’ or ‘suffocated’ and have come to enjoy more ‘economic’ and thereby ‘political
space’ to draw other own destinies in the federal common market, where the centre can merely
be regulator and at best a facilitator in the development efforts of states.6 However, economic
reforms have proved to be irreversible, though with varying pace, under shifting
coalition/minority governments, left-of-center (United Front) as well as right-of-centre (Rao-
Manmohan Singh Congress regimes, National Democratic Alliance, United Progressive Alliance
and National Democratic Alliance). The analysis of India’s emergent constitutional design
reveals how a centralized, interventionist, and tutelary state is being replaced by a relatively
decentralized regulatory state willing to rely on, but not surrender to, a market economy and self-
reliant civil society.

5
Prateep K. Lahiri, Development–A Reality Check, The Hindu, (New Delhi, December 16, 2003).
6
Rumki Basu, Power Sharing in the Federal Project in Post Globalised India: Governance and Fiscal Reforms in
Globalisation & the Changing Role of the State: Issues and Impacts, (New Dawn Press, INC., India), 261-262.

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