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Nature of Indian Federalism

Constitutional Framework of Federalism

India's political system is often described as federal in form but unitary in spirit, or quasi-federal. While the Constitution incorporates features of a federal system (like division of powers, dual polity), it also contains a number of features that lean towards a strong central government. Articles 245 to 263 in Part XI and Part XII deal with Centre-State relations.

Federal Features:

The Indian Constitution establishes a federal system with division of powers between the Union and the States.

Division of Powers (Seventh Schedule)

A key federal feature is the distribution of legislative subjects between the Centre and the States. The Seventh Schedule contains three lists:

Residuary Powers: Subjects not included in any of the three lists are vested in the Centre (Parliament).

This clear division of legislative powers is a fundamental aspect of federalism.


Unitary Features of Indian Federalism

Despite the federal structure, the Indian Constitution contains several provisions that give the Centre greater power and control over the States, leading critics to describe it as having a 'unitary bias' or being 'quasi-federal'.

Single Constitution, Single Citizenship

Parliament's power to alter state boundaries

Article 3 empowers Parliament to form new states, alter the area, boundaries, or names of existing states without their consent. This demonstrates the 'destructible' nature of states within the 'indestructible' Union, a significant unitary feature.

Appointment of Governors

The Governor, the head of the state executive, is appointed by the President (Central Government) and holds office during the pleasure of the President. The Governor acts as an agent of the Centre in the state and can reserve state bills for the President's consideration or recommend President's Rule, giving the Centre significant influence over state affairs.

Emergency Provisions

During a National Emergency (Article 352) or State Emergency (President's Rule under Article 356), the federal structure can be converted into a virtually unitary system. The Centre gains extensive control over the states, and the normal distribution of powers is significantly altered or suspended. This is a strong unitary feature designed to protect the unity and integrity of the nation.

Other Unitary Features:

The blend of federal and unitary features was a deliberate choice by the framers, aiming to create a strong Centre to deal with the challenges of nation-building and maintain unity in a diverse country, while also providing for state autonomy in many spheres.


Concept of Cooperative Federalism

Beyond the structural characteristics, the working of Indian federalism reflects the concept of Cooperative Federalism. This approach emphasizes the cooperation and collaboration between the Centre and the States in achieving common goals and national objectives, rather than viewing them as competing entities.

Meaning:

Cooperative federalism implies that the Centre and States work together as a team, using joint policy-making and administration to solve common problems. It acknowledges the interdependence of the federal units and encourages them to pool their resources and efforts for the overall development and welfare of the country.

Mechanisms Promoting Cooperative Federalism:

Cooperative federalism is the operational aspect of India's federal system, highlighting the need for partnership and coordination between the Union and the States for effective governance and development.

Legislative Relations between Union and States

Territorial Extent of Laws (Article 245)

Article 245 defines the territorial limits within which Parliament and State Legislatures can make laws.

Provision:

Article 245(1) states: "Subject to the provisions of this Constitution, Parliament may make laws for the whole or any part of the territory of India, and the Legislature of a State may make laws for the whole or any part of the State."

Article 245(2) states: "No law made by Parliament shall be deemed to be invalid on the ground that it would have extra-territorial operation."

This means:

This distribution ensures that Parliament has the power to legislate on matters with national implications, while State Legislatures focus on matters within their own borders.


Parliament's Power to Legislate on State List Matters

Although the State List subjects are ordinarily within the exclusive legislative competence of State Legislatures, the Constitution provides for certain circumstances where Parliament can make laws on these subjects. This is a significant unitary feature.

In National Interest (Article 249)

If the Rajya Sabha passes a resolution by a special majority (two-thirds of members present and voting) declaring that it is necessary or expedient in the national interest that Parliament should make laws on a matter enumerated in the State List, then Parliament becomes competent to make laws on that matter. Such a resolution remains in force for a period not exceeding one year, but it can be renewed any number of times. A law made under this provision ceases to have effect on the expiration of six months after the resolution has ceased to be in force.

During Emergency (Article 250)

During a Proclamation of National Emergency (under Article 352), Parliament gets the power to make laws with respect to any matter enumerated in the State List. A law made under this provision ceases to have effect on the expiration of six months after the Proclamation of Emergency has ceased to operate.

When States Make a Request (Article 252)

If the Legislatures of two or more states pass resolutions requesting Parliament to make a law on a matter enumerated in the State List, then Parliament can make laws for those states. Any Act so passed may be amended or repealed only by an Act of Parliament, and not by the Legislature of the State concerned. Other states can adopt such a law by passing a similar resolution.

To Give Effect to Treaties (Article 253)

Parliament has the power to make any law for the whole or any part of the territory of India for implementing any treaty, agreement, or convention with any other country or any decision made at any international conference, association, or other body. This enables the Union government to fulfil its international obligations, even if the subject matter falls in the State List.

During President's Rule (Article 356)

When President's Rule is imposed in a state due to the failure of constitutional machinery, Parliament is empowered to make laws with respect to any matter in the State List in relation to that state.

In case of inconsistency between laws (Article 254)

Article 254 deals with the situation when a law made by Parliament on a subject in the Concurrent List is inconsistent with a law made by a State Legislature on the same subject. In such a case, the law made by Parliament shall prevail, and the law made by the State Legislature shall, to the extent of repugnancy, be void.

However, there is a proviso: If a law made by the State Legislature on a Concurrent List subject contains any provision repugnant to an earlier law made by Parliament or an existing law, it will prevail in that State if it has been reserved for the consideration of the President and has received his assent. But Parliament can still enact subsequent legislation on the same matter adding to, amending, or repealing the State law.

Residuary powers of legislation are also vested exclusively in Parliament (Article 248).


Distribution of Legislative Powers: Seventh Schedule

The Seventh Schedule to the Constitution provides the detailed enumeration of subjects falling under the legislative competence of the Union and the States. This is the core of the division of legislative powers in India.

Union List (List I)

Contains subjects of national importance that require uniformity in legislation across the country. Parliament has exclusive power to legislate on these subjects. Examples:

It currently has about 97 subjects (originally 97).

State List (List II)

Contains subjects of local and state importance where variations from state to state are desirable. State Legislatures have exclusive power to legislate on these subjects under normal circumstances. Examples:

It currently has about 61 subjects (originally 66). Five subjects were transferred from the State List to the Concurrent List by the 42nd Amendment Act, 1976.

Concurrent List (List III)

Contains subjects on which uniformity of legislation across the country is desirable but not essential. Both Parliament and State Legislatures can legislate on these subjects. Examples:

It currently has about 52 subjects (originally 47). Five subjects were transferred from the State List to the Concurrent List by the 42nd Amendment Act, 1976: Education, Forests, Weights and Measures (except technical standards), Protection of Wild Animals and Birds, and Administration of Justice (except organization of Supreme Court and High Courts).

This detailed distribution aims to prevent conflicts of jurisdiction and ensure smooth functioning of the federal system, while also providing mechanisms to address situations where the Union needs to intervene in state matters.

Administrative Relations between Union and States

Obligation of States and Union to ensure compliance with laws made by Parliament (Article 256)

Part XI of the Constitution deals with relations between the Union and the States. Chapter I covers Legislative Relations (Articles 245-255), and Chapter II covers Administrative Relations (Articles 256-263).

Provision:

Article 256 states: "The executive power of every State shall be so exercised as to ensure compliance with the laws made by Parliament and any existing laws which apply in that State, and the executive power of the Union shall extend to the giving of such directions to a State as may appear to the Government of India to be necessary for that purpose."

This is a crucial provision that establishes the supremacy of Union laws. It imposes a dual obligation:

This allows the Central government to ensure that its laws are implemented effectively throughout the country by the state machinery. If a state fails to comply with any directions given by the Union, the President can impose President's Rule in that state under Article 365, which states that where any State has failed to comply with, or to give effect to, any directions given in the exercise of the executive power of the Union, it shall be lawful for the President to hold that a situation has arisen in which the government of the State cannot be carried on in accordance with the provisions of this Constitution.


Power of Union to Give Directions (Article 257)

Article 257 provides further instances where the Union can give directions to the States, ensuring Central oversight and coordination in certain matters.

Provision:

Article 257(1) states: "The executive power of every State shall be so exercised as not to impede or prejudice the exercise of the executive power of the Union, and the executive power of the Union shall extend to the giving of such directions to a State as may appear to the Government of India to be necessary for that purpose."

This provision ensures that the executive power of the state does not interfere with the executive power of the Union. It also empowers the Union to give directions to a state for this purpose.

Specifically, Article 257(2) and 257(3) empower the Union to give directions to the States regarding:

Protection of Railways, etc.

If the State incurs extra costs in complying with such directions, the Union Government is required to pay the state the sum so incurred (Article 257(4)).

These provisions highlight the unitary bias in the administrative relations, allowing the Centre to issue directions to states to ensure the smooth functioning of the Union and protection of national assets.


Inter-State River Disputes (Article 262)

Article 262 provides a mechanism for the adjudication of disputes relating to the waters of inter-state rivers or river valleys. This is a specific area where the Constitution empowers Parliament to deal with potential conflicts between states.

Provision:

Article 262(1) states: "Parliament may by law provide for the adjudication of any dispute or complaint with respect to the use, distribution or control of the waters of, or in, any inter-State river or river valley."

Article 262(2) states: "Notwithstanding anything in this Constitution, Parliament may by law provide that neither the Supreme Court nor any other court shall exercise jurisdiction in respect of any such dispute or complaint as is referred to in clause (1)."

This means:

Pursuant to this power, Parliament has enacted the River Boards Act, 1956 (for the regulation and development of inter-state rivers and river valleys) and the Inter-State Water Disputes Act, 1956 (for the adjudication of disputes). The latter Act empowers the Central Government to set up an ad hoc tribunal to adjudicate such disputes. The tribunal's decision is final and binding on the parties to the dispute and is not subject to the jurisdiction of the Supreme Court or any other court.

This mechanism highlights the need for a central authority to resolve conflicts over shared resources between states, which could otherwise lead to significant friction in the federal system.


Public Acts, Records and Judicial Proceedings (Article 261)

Article 261 promotes faith and credit for public acts, records, and judicial proceedings throughout the territory of India, fostering unity and legal harmony across states.

Provision:

Article 261(1) states: "Full faith and credit shall be given throughout the territory of India to public acts, records and judicial proceedings of the Union and of every State."

Article 261(2) states: "The manner in which and the conditions under which the acts, records and proceedings referred to in clause (1) shall be proved and the effect thereof determined by law made by Parliament."

Article 261(3) states: "Final judgments or orders delivered or passed by civil courts in any part of the territory of India are capable of execution anywhere within that territory according to law."

This means:

This provision contributes to the smooth functioning of the integrated legal and administrative system in India.


Inter-State Council (Article 263)

The Inter-State Council is a constitutional mechanism established to facilitate coordination and cooperation between the Centre and the States and among the States themselves.

Provision:

Article 263 states that if at any time it appears to the President that the public interests would be served by the establishment of a Council charged with the duty of:

  1. inquiring into and advising upon disputes which may have arisen between States;

  2. discussing subjects in which some or all of the States, or the Union and one or more of the States, have a common interest;

  3. making recommendations upon any such subject and, in particular, recommendations for the better co-ordination of policy and action with respect to that subject,

it shall be lawful for the President by order to establish such a Council, and to define the nature of the duties to be performed by it and its organization and procedure.

The President can establish the Council at any time, although it was established late, in 1990, based on the recommendations of the Sarkaria Commission on Centre-State Relations. It is headed by the Prime Minister.

The Inter-State Council is an important forum for discussion and deliberation on various issues impacting Centre-State relations and inter-state coordination, although its recommendations are only advisory.


Co-ordination between States

Besides the Inter-State Council, the Constitution provides other mechanisms for promoting coordination between states and ensuring smooth administrative relations.

Mechanisms for Inter-State Coordination:

These provisions and bodies aim to foster cooperation, resolve disputes, and ensure smooth administration and economic activity across state boundaries in the Indian federal system.

Financial Relations between Union and States

Distribution of Taxes (Articles 268-281)

Part XII (Articles 264 to 300-A) deals with Finance, Property, Contracts, and Suits. Chapter I within this Part deals with Finance (Articles 264-291), focusing on the distribution of revenues between the Centre and the States.

The Constitution distributes the taxing powers between the Centre and the States. The subjects for taxation are listed in the Union List (Centre's exclusive power) and State List (State's exclusive power) of the Seventh Schedule. There is no concurrent list for taxation.

The distribution of tax revenues is complex and involves various categories:

Taxes Levied by the Union but Collected and Appropriated by the States (Article 268):

Example: Stamp duties on bills of exchange, cheques, promissory notes, policies of insurance, transfer of shares, etc.

Taxes Levied and Collected by the Union but Assigned to States (Article 269):

Revenues from these taxes are assigned to the states and do not form part of the Consolidated Fund of India. Examples: Taxes on the sale or purchase of goods in the course of inter-state trade or commerce (before GST), taxes on consignments of goods (before GST).

Taxes Levied and Collected by the Union and Distributed between the Union and States (Article 270):

These are the most important sources of revenue for the states from the Centre. Examples: Income Tax (other than agricultural income), Union Excise Duties (except on certain goods). The manner of distribution is determined by Parliament based on the recommendations of the Finance Commission.

Surcharge on certain duties and taxes for purposes of the Union (Article 271):

Parliament can levy a surcharge on taxes mentioned in Article 269 and 270. The proceeds of the surcharge go exclusively to the Centre.

Taxes Levied and Collected by States and Appropriated by States:

These are taxes on subjects in the State List. Examples: Land revenue, taxes on agricultural income, succession duty on agricultural land, taxes on lands and buildings, taxes on consumption or sale of electricity, taxes on entry of goods into a local area (Octroi, before GST), taxes on luxuries, entertainments, betting, and gambling.

Goods and Services Tax (GST) Council

The introduction of the Goods and Services Tax (GST) regime through the 101st Constitutional Amendment Act, 2016, significantly changed the distribution of indirect taxes.

The GST regime and the GST Council represent a significant step towards cooperative fiscal federalism, requiring joint decision-making between the Centre and States on major indirect tax matters.


Grants-in-Aid to States

Apart from sharing of tax revenues, the Constitution also provides for grants-in-aid from the Union to the States to help them meet their financial needs and promote welfare activities.

Article 275: Statutory Grants

Article 275 empowers Parliament to make grants-in-aid to such States as it may deem necessary. These grants are made from the Consolidated Fund of India. Different sums may be fixed for different States. These grants are given based on the recommendations of the Finance Commission and are known as Statutory Grants.

Article 275 specifically provides for grants for the welfare of Scheduled Tribes in a state or for raising the level of administration of Scheduled Areas in a state, including the costs of schemes of development.

Article 282: Discretionary Grants

Article 282 provides for the Union or a State to make any grants for any public purpose, notwithstanding that the purpose is not one with respect to which Parliament or the Legislature of the State, as the case may be, may make laws.

Grants made by the Centre to the States under this article are known as Discretionary Grants. These grants are not made on the recommendations of the Finance Commission. The Centre uses these grants to help states, implement national plans and programmes, and influence state policies. These grants are given out of the public exchequer and are not charged on the Consolidated Fund of India.

Historically, the Planning Commission played a significant role in recommending discretionary grants (Plan Grants). With the abolition of the Planning Commission and the establishment of NITI Aayog, the role and nature of these grants have been reviewed.

Other Grants:

The Constitution also provided for specific grants for states like Assam, Bihar, Odisha, and West Bengal in lieu of export duty on jute and jute products for a temporary period (Article 273, now repealed).

Grants-in-aid are a crucial mechanism for fiscal transfers from the Centre to the States, addressing vertical and horizontal fiscal imbalances, but they also provide the Centre with financial leverage.


Borrowing Powers

Both the Union and the States have the power to borrow money, subject to certain limitations laid down by the Constitution.

Borrowing by the Union:

Article 292 states that the executive power of the Union extends to borrowing upon the security of the Consolidated Fund of India within such limits, if any, as may from time to time be fixed by Parliament by law.

Parliament has enacted laws in this regard, although the limit is generally very high. The Union can borrow both within India and from abroad.

Borrowing by States:

Article 293 states that the executive power of a State extends to borrowing within the territory of India upon the security of the Consolidated Fund of the State within such limits, if any, as may from time to time be fixed by the Legislature of such State by law.

A State cannot borrow from abroad without the consent of the Government of India. Furthermore, a State cannot, without the consent of the Government of India, raise any loan if there is still outstanding any part of a loan made to the State by the Government of India, or in respect of which a guarantee has been given by the Government of India.

These restrictions on states' borrowing powers, particularly the need for Central consent in certain cases, highlight the Centre's control over state finances and the overall debt situation of the country.


Finance Commission (Article 280)

The Finance Commission is a crucial constitutional body that defines the financial relations between the Union and the States.

Establishment:

Article 280 requires the President to constitute a Finance Commission every fifth year or at such earlier time as he considers necessary.

Composition:

The Finance Commission consists of a Chairman and four other members to be appointed by the President.

Parliament is empowered to determine the qualifications of the members of the Commission and the manner in which they shall be selected.

Functions:

The Finance Commission is required to make recommendations to the President on:

The recommendations of the Finance Commission are only advisory and not binding on the government, although they are usually accepted by the Central Government.

The Finance Commission plays a vital role in rationalising and systematising fiscal transfers from the Centre to the States, promoting fiscal federalism and helping states manage their finances.