The structural balance of India’s quasi-federal system faces strain as states navigate complex fiscal constraints and governance disputes with the Union. While the Constitution of India divides authority to maintain a strong Centre along with functional state autonomy, friction has emerged over the implementation of the Goods and Services Tax (GST) framework, delayed central fund allocations, and the design of central schemes. Operational challenges include disputes over the discretionary boundaries of state Governors and the overlapping jurisdictions of federal investigative bodies in opposition-governed states. Resolving these points of friction requires structural reforms that can revitalize cooperative federalism to support balanced economic and political growth across all regions.
Constitutional and Financial Dimensions of Federalism
Legislative and Administrative Framework
The standard distribution of power between the Union and the States is governed by the Seventh Schedule of the Constitution, which separates jurisdictions into the Union List, State List, and Concurrent List. Administrative coordination is supported by explicit provisions designed to encourage cooperative dispute resolution.
- Article 263: Empowers the President to establish an Inter-State Council to investigate, discuss, and advise on disputes between states or between the Union and states.
- Article 254: Outlines the protocols to handle inconsistencies between laws made by Parliament and laws made by the Legislatures of States regarding subjects listed in the Concurrent List.
Fiscal Federalism and the Divisible Pool
The resource allocation architecture relies on the Finance Commission, a constitutional body constituted under Article 280, to recommend the vertical sharing of central taxes. While the vertical devolution share stands at 41%, states encounter clear revenue pressures due to the composition of the total tax collections. Total Central Tax Revenue ├── Divisible Pool (41% Devolved to States via Finance Commission Criteria) └── Cesses and Surcharges (Retained exclusively by the Centre; excluded from Divisible Pool) The expansion of cesses and surcharges reduces the total volume of the divisible pool, lowering the net financial transfers received by state exchequers. Furthermore, the transition to the GST system has limited the independent taxation powers of individual states, making them dependent on timely central releases and formula-based compensation extensions.
Institutional Bottlenecks in Governance
The Office of the Governor
Tensions frequently surface regarding the execution of gubernatorial responsibilities under Article 200 of the Constitution. The absence of specific constitutional timelines for granting or withholding assent to bills passed by state legislatures occasionally leads to prolonged legislative delays.
Central Schemes and Investigative Agencies
The implementation of Centrally Sponsored Schemes (CSS) often limits local fiscal flexibility, as these programs require matching state contributions while enforcing rigid operational guidelines. Additionally, administrative disagreements occur when federal law enforcement agencies initiate independent actions within state jurisdictions without receiving prior local administrative consent.
Proposed Structural Frameworks for Reform
Financial Rebalancing
Reforming fiscal federalism requires modifying the terms of reference for future Finance Commissions. Potential solutions include capping the percentage of revenue gathered through cesses and surcharges and establishing permanent legal consultative channels through an institutionalized Council of State Finance Ministers.
Codification of Procedures
Operational stability can be improved by setting clear statutory timelines for the gubernatorial review of state bills. Codifying government formation procedures during instances of a hung assembly reduces administrative ambiguity.
| Reform Area | Primary Target | Proposed Operational Solution |
| Legislative Assent | Article 200 Management | Introduce a standard six-month window for Governors to decide on state bills. |
| Federal Dialogue | Inter-State Council | Mandate regular annual cycles for meetings to resolve systemic policy disputes. |
| Fiscal Planning | Central Assistance | Ensure cost-sharing models account for local administrative capacities. |
IASPOINT Booster Facts for UPSC
- Sarkaria Commission (1983): Recommended that Article 356 should be applied sparingly as a measure of last resort and advocated for the creation of a permanent Inter-State Council, which was eventually established in 1990.
- Punchhi Commission (2010): Advised that the Union should consult states through the Inter-State Council prior to introducing bills concerning subjects on the Concurrent List. It also suggested that the Governor should decide on state bills within a fixed six-month timeframe.
- Doctrine of Pleasure: The Punchhi Commission explicitly recommended amending the Constitution to remove the “doctrine of pleasure” regarding the tenure of Governors, suggesting they should only be removed via a structured resolution passed by the respective State Legislature.
- Bommai Case Precedent (1994): The Supreme Court of India ruled that the floor of the State Legislative Assembly is the sole legal forum to test the majority support of an active government, limiting arbitrary dismissals under Article 356.
- Zonal Councils: These statutory bodies were created under the States Reorganisation Act of 1956 to promote regional coordination, separating their legal origin from the constitutional Inter-State Council.