A Structural Reset For India’s Federalism

A Structural Reset for India’s Federalism: Time for Institutional Recalibration

India’s federalism, ironically described as ‘quasi-federal,’ is at a crossroad. The recent report submitted by Tamil Nadu’s high-level committee on Union-State relations has reinvigorated debates around systemic issues: a weakening fiscal federal framework, executive overreach, and the erosion of constitutional safeguards. What this moment demands is not incremental tinkering but a structural reset geared towards substantive alignment with evolving realities of governance, regional diversity, and democratic principles.

Centralisation of power, fiscal imbalances, and executive incursions have compromised the original vision of collaborative and nuanced federalism. These actions tilt the scales against States, limiting autonomy and experimentation, and further exacerbating political tensions between the Union and subnational governments. While India’s governance challenges are unique, interstate cooperation grounded in trust—not dependence—should form the bedrock of future reforms.

The Institutional Landscape: Federalism in Constitutional Doctrine

India’s Constitution conceptualises federalism as a division of legislative, executive, and fiscal power through the Seventh Schedule, spanning Union, State, and Concurrent Lists. Emergency provisions under Articles 352, 356, and 360, alongside residuary powers vested in Parliament under Article 248, highlight centralising tendencies, contrasted by mechanisms like the Finance Commission and GST Council aimed at revenue-sharing cooperation. Federalism is safeguarded as part of the Constitution’s Basic Structure, upheld in landmark rulings like S.R. Bommai vs Union of India (1994).

However, the governance apparatus has deviated significantly from these safeguards. While Commissions—starting with the Rajamannar Committee (1971) to the Punchhi Commission (2010)—have consistently called for devolution and reduced political interference, implementation remains cosmetic at best. For instance, Article 356, once a glaring tool for partisan interventions, is now subject to judicial review. Yet even within its restricted usage, governance authority continues to tilt disproportionately in the Union’s favour, driven by institutional inertia and political expediency.

Argument: A Case for Structural Reforms Backed by Evidence

Fiscal federalism exemplifies contemporary imbalance. The introduction of GST in 2017 curtailed States’ independent taxation authority, centralised rate settings within the GST Council’s voting architecture, and racked up disputes over compensation transfers. For instance, the Union’s delays in GST dues during the pandemic not only undermined trust but exposed the inherent vulnerabilities of States in vertical fiscal dependence.

The Union currently retains 62% of total revenue collection while States shoulder nearly 70% of expenditure responsibilities, especially on welfare—health, education—and infrastructure development. Section 7 of the proposed restructuring by Tamil Nadu’s committee makes a salient demand: tying conditional transfers through Centrally Sponsored Schemes (CSS) to performance-driven formulas rather than opaque policy mandates.

Beyond finances, the role of Governors—constitutional intermediaries—has grown alarmingly contentious. The discretionary powers under Article 163 and delays in assent to Bills starkly illustrate their misuse across politically fragmented States like Kerala and Tamil Nadu. The December 2025 standoff between the Tamil Nadu government and its Governor, over withheld assent to the prohibition of online gambling Bill, reflected naked partisanship disregarding legislative precedence.

From cooperative engagement formats like the Inter-State Council shrinking into obsolescence to growing executive-driven governance models through NITI Aayog, political dominance by single-party regimes at the Centre further alienates States into subordination. The broader shift from legislative federalism to executive federalism erodes structured accountability within intergovernmental dialogues, leaving States to navigate ad hoc political pressures rather than constitutional mechanisms.

Counter-Argument: Institutional Centralisation as Stabiliser?

Critics argue that centralisation safeguards against fragmentation—a scenario India witnessed during Partition and princely state integration. The logic is simple: regional autonomy, if unchecked, risks uneven governance outcomes, welfare disparities, and counterproductive redundancies. Proponents cite emergency governance provisions and uniform GST taxation to justify overriding State-specific deviations in crises requiring speed, stability, and synchronisation.

However, such arguments downplay the long-term erosion of trust and innovation. India's linguistic, cultural, and developmental diversity underscores the failure of one-size-fits-all solutions. Centralisation may offer temporary stability but history—including post-Emergency backlash in 1977—shows the limits of paternalistic governance models in a resilient democracy. Competitive federalism and policy experimentation offer a middle-ground that avoids an overdrawn reliance on the Union’s interventionist tendencies.

International Perspectives: Germany’s Cooperative Federalism Model

India’s quasi-federalism contrasts sharply with Germany’s cooperative federal system, rooted in constitutional equality between the Länder (States) and Bund (Federal government). Germany’s fiscal arrangements provide Länder constitutionally assured transfers, maintaining equilibrium between economic disparities and fiscal autonomy. While the Union retains certain prerogatives during emergencies, Länder actively shape national legislation through the Bundesrat.

India’s GST Council—an executive forum—could draw inspiration by integrating legislative deliberation akin to Germany’s intergovernmental fiscal negotiations. Furthermore, Germany’s commitment to bottom-up subsidiarity strengthens regional autonomy—a principle India struggles to internalise within its vertical hierarchies.

Assessment: Recalibrating Union-State Relations

Federalism resets in India must address three structural imperatives. First, evolving fiscal frameworks that assure predictable, performance-aligned, and transparent revenue transfers must replace transaction-based approaches under CSS and GST. Second, institutionalising binding inter-State dialogue platforms under Article 263—such as reinvigorating the Inter-State Council—would ensure structured accountability beyond transient executive-driven mechanisms. Third, limiting political misuse of Governors by codifying appointment, responsibilities, and timelines could reduce recurring Union-State frictions.

If India’s policymakers truly aim to preserve regional diversity alongside national unity, federalism demands recalibration consistent with its original constitutional ethos. The longer the Centre resists meaningful devolution, the deeper governance inefficiencies will fester—not as isolated conflicts, but systemic disillusionments weakening India’s democratic backbone.

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