New Challenges to India’s Federalism

Federalism & Development Challenge: To accelerate progress, the Indian have proposed several schemes and visions which may undermine the federal principle.
- For example, developmental narratives like ‘one nation, one market’, ‘one nation, one ration card’, ‘one nation, one grid’.
Undermining States: The downgrading of a full-fledged State j k, or more recently, the notification of the NCT of Delhi (Amendment) Act, 2021, reflected the centralising tendencies of the Union government.
- Similarly, the union government had invoked the Epidemic Diseases Act and the Disaster Management Act, centralising the powers to deal with the pandemic.
- However, state consultation is a legislative mandate cast upon the centre under these acts and binding Covid-19 guidelines are being issued by the Centre to the States.
Increasing Inter-State Divergence: Growing divergence between richer (southern & western) and poorer States (northern & eastern), remains an important source of tension in inter-State relations that can become a real impediment to collective action amongst States.
- This has created a context where collective action amongst States becomes difficult as poorer regions of India contribute far less to the economy but require greater fiscal resources to overcome their economic fragilities.
Silent Fiscal Crisis: The realities of India’s macro-fiscal position risk increasing the fragility of State finances.
- Weak fiscal management has brought the Union government on the brink of what economist Rathin Roy has called a silent fiscal crisis.
- The Union’s response has been to squeeze revenue from States by increasing cesses.

Way Forward

Inter-State Platform: An inter-State platform that brings States together in a routine dialogue on matters of fiscal federalism could be the starting point for building trust and a common agenda.
- In this context, the Inter-state council can be revived.
- Economic growth trajectories since liberalisation have been characterised by growing spatial divergence.
Relaxing FRBM Norms: The relaxation of limits imposed by the FRBM Act, regarding the market borrowings by the states, is a step in the right direction.
- However, these borrowings can be backed by sovereign guarantee by the Union Government.
- Moreover, the Union government can provide money to states so that they can take necessary action to deal with the crisis at the state level.
Political Will: Upholding federalism requires political maturity and a commitment to the federal principle. A politics for deepening federalism will need to overcome a nationalist rhetoric that pits federalism against nationalism and development.