Recently, several Indian states have expressed concerns about what they perceive as an increasing crisis of federalism in the country. This concern is connected to their perception of the Centre’s enactment of Bills and Ordinances seen as intruding on states’ legislative domain, viewed by some as an attack on the federal structure enshrined in the nation’s Constitution.
Key Points Federal Issues Raised by States:
A primary issue raised by states has been the Central government’s refusal to fulfill its legal obligation to compensate for Goods and Services Tax (GST) shortfalls due to reduced revenue. The Centre has countered this by asserting that the lower revenues are the outcome of an unforeseen “act of God” and it should not be held accountable for such declines.
According to the GST Act, states are assured compensation for any revenue shortfalls lower than a 14% growth rate (base year 2015-16) for the first five years ending in 2022.
Centre’s Transgression into States’ Power:
States also accuse the Centre of overreaching into their jurisdictions. An instance cited is the recent Farm Acts which permit farmers to sell their produce outside the Agricultural Produce Market Committee (APMC) and encourage inter-state trade. However, these Acts are believed to encroach on the State List. Entry 33 of the Concurrent List deals with trade and commerce, production, supply, and distribution of domestic and foreign products.
An amendment in banking regulations that places cooperative banks under the Reserve Bank of India’s supervision has added fuel to this debate. Cooperative societies are part of the State List- List 2 of the Seventh Schedule to the Constitution of India.
Federalism in the Indian Context:
Countries are classified as ‘federal’ or ‘unitary’ based on their governance system. Federalism implies that both the Centre and states have freedom to act within their allocated spheres of influence, collaborating with each other. In contrast, a unitary system centralizes all governmental powers in the Central Government.
However, interpreting India’s Constitution as strictly federal or unitary poses challenges. According to the Supreme Court verdict in West Bengal vs Union of India (1962), the Indian Constitution is not purely federal. Yet in S R Bommai vs Union of India (1994), the highest court ruled that federalism is part of the fundamental structure of the Indian Constitution.
Power Distribution Between Centre and States:
The Seventh Schedule of the Indian Constitution contains three lists which allocate power among the Centre and states. These lists include the Union List, State List, and Concurrent List which enlist subjects for legislation by Parliament, States, and both, respectively.
Mechanisms for Resolving Disputes:
When disputes arise between the Centre and states over entry lists in the Seventh Schedule, the Supreme Court uses two mechanisms to resolve them: the Doctrine of Pith and Substance and the Doctrine of Colourable Legislation. The former asserts that if a legislation primarily falls under one list and only incidentally touches the other, it will be upheld. The latter restricts the legislature from stretching its constituted power indirectly.
Way Forward to Strengthen Federalism:
As a large, diverse country, India needs an appropriate balance among the pillars of federalism – autonomy of states, national integration, centralisation, decentralisation, nationalisation, and regionalisation. Either extreme political centralisation or disorderly political decentralisation can undermine Indian federalism.
To strengthen federalism’s roots in India, reforms at institutional and political levels are necessary. This includes reviewing the often controversial role of the Governor vis-a-vis the Centre’s interest and ensuring the Inter-state Council’s proper utilisation to foster political goodwill between the Centre and the states on contentious policy issues. Additionally, a legal guarantee for gradual expansion of states’ fiscal capacities without reducing the Centre’s share is another suggested reform.
