Federalism - Issues and Challenges Pertaining to the Federal Structure

Mains Marks Booster     29th July 2023        

Federalism is a constitutional mechanism divides power between different levels of government, granting autonomy to federated units while sharing power according to agreed rules. It combines self-government and shared governance.

  • Meaning: It is a system of government in which the same territory is controlled by two levels of government. Generally, an overarching national government is responsible for broader governance of larger territorial areas, while the smaller subdivisions, states, and cities govern the issues of local concern.
  • Federalism of India: known as a quasi-federal system because it combines key characteristics of a federation and a union. 
  • No mention of the term 'federation' in the Constitution: Article 1 defines India as a 'Union of States'. Unlike the United States, the Indian federation is not the result of an agreement between the states.
  • Federal features of Indian Federalism: Dual Polity, Division of Power, Written constitution, Supremacy of the Constitution, Constitutional Rigidity, Independent Judiciary, Bicameralism.
  • Unitary Features of Indian Federalism: Emergency Powers, All-India Services, Parliament's Authority, Single Constitution, Demos-enabling federalism, Governors, Lack of comparable powers to states
  • Federal principles and cooperation between central states serve to balance these unitary traits, which make Indian federalism asymmetric in nature and unique
  • The central and state governments cooperate with the state to achieve common goals while adhering to federal governance principles in Indian federalism. This led to rise of competitive and cooperative federalism in India.

Evolution of Federalism in India

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Cooperative and Competitive Federalism

Cooperate Federalism: Cooperative federalism allows the central and state governments to collaborate on policies, programmes, and resources for national development. 

  • Cooperation, intergovernmental discourse, and harmonious governance are the priorities.
  • Mechanism of Cooperative Federalism in India: Inter-State Council, NITI Aayog, 7Th schedule, GST Council

Competitive Federalism

  • Meaning: Under competitive federalism, governments compete to attract investment by creating a business-friendly environment, implementing investor-friendly regulation.
  • Significance: It encourages states to embrace innovative policies, reforms, and initiatives to strengthen governance and economic competitiveness
  • Apparatus of Competitive Federalism in India: Ease of Doing Business Rankings, Special Economic Zones (SEZs), Investment Promotion Initiatives.


  • India has cooperative and competitive federalism. Competitive federalism encourages states to compete to improve economic growth and governance, while cooperative federalism emphasises teamwork and collaborative decision-making.
        cooperative feder

Centre-State Relations

The Indian Constitution divides powers, duties, and resources between the two tiers of government. 



Legislative Relations

  • Articles 245–255 address centre-state legislative relations.
  • The seventh schedule divides legislative jurisdiction into union, state, and concurrent lists.

Financial relations

  • Articles 268–293 govern centre-state financial relations. 
  • The President establishes a Finance Commission every five years to provide financial resource distribution recommendations under Article 280.

Administrative relation

  • Articles 256–263 govern centre-state legislative relations
  • The Union and State Governments administer the subjects in their separate lists.

Issues in centre-State relations

  • Fiscal Imbalance: States often complain that they lack financial autonomy and rely largely on the federal government for funding. 
  • State fiscal autonomy has been sought due to concerns about financial resource allocation, revenue-sharing methods, and grant distribution.
  • GST Implementation: The centre and states disagree on revenue-sharing, GST Council decision-making authority, and revenue loss compensation.
  • Delayed GST compensation and shortfall in revenue had heightened the tension between centre and state.
  • A council with 2/3 state voting authority oversees GST. However, many states have expressed concerns because any GST council decision requires 75% of the vote to pass, giving the Centre a veto power, that 19 states can override. 
  • Dispute Resolution: Constitutional interpretations, power distribution, and law enforcement have caused conflict. 
  • Role of Governors: Governors' discretionary powers and state politics are debated. 
  • Governors opposing elected state governments have raised issues about their impartiality and neutrality.
  • State Autonomy and Central interference: Some states claim the central government's actions violate their powers and autonomy. 
  • Use of Article 356: President's Rule and political usage of central institutions have been contentious.
  • Water sharing and river disputes: State-to-state river water disputes have led to judicial confrontations. 
  • Encroachment of the Centre on state-listed subjects: Many analysts view the Farmer's Produce Trade and Commerce Act of the Union government as an intrusion on state list subjects.
  • Management of All India Services: Despite the fact that the officials work for the state, state administrations have no authority to punish them.
  • Competitive and Cooperative federalism: Balancing them has proved difficult. 
  • Competitive federalism encourages state competitiveness, while cooperative federalism promotes collaboration and decision-making. 
  • Balancing these two approaches and ensuring a fair allocation of resources and opportunities among nations is a constant problem.
  • Strong Centre: Indian variant of federalism upholds a strong centre in the Kuldip Nayar vs Union of India case (2006).

The deployment of central investigative agencies in the States much to the displeasure of the States

  • Central Bureau of Investigation (CBI)’s attempted arrest of Kolkata Commissioner of Police Rajeev Kumar without a warrant in early 2019.
  • The protracted investigations at the instance – in a gold-smuggling case in the Kerala saw a major State-Centre face-off, after the Customs, NIA and ED charge-sheeted the former Principal Secretary to the Chief Minister’s Office of Kerala.
  • CBI, NIA, ED investigations, purportedly for political reasons, into the functioning of the State governments have caused considerable dent in the federal architecture of the country.

Combative federalism:  where the States and the Centre are always at loggerheads.

  • The proposed amendments to the Indian Administrative Service (IAS) (Cadre) Rules of 1954 will take away the liberty of the States to deny consent for handing over civil servants for Central deputation. Further, if there are differences between the Centre and the States, the Centre’s decision will have to be accepted by the States within a specified time period.
        collaborative federalism

Asymmetrical federalism: 

  • Political asymmetry: Representation of States in the Rajya Sabha based on their population, it is a political asymmetry.
  • Example: That is why States such as Uttar Pradesh have 31 seats in the Rajya Sabha, whereas Meghalaya and Mizoram have just one each.

Constitutional asymmetry: We find it in the special provisions and powers extended to Nagaland, Mizoram and others in the omnibus Article 371.

Fiscal asymmetry: When transferring funds from the Centre to States, statutory transfers are made based on the recommendations of the Finance Commission.

Way Forward for Federalism in India: 

  • Strengthen inter-governmental relations through regular dialogue and conflict resolution mechanisms. 
  • Ensure fair and equitable distribution of financial resources between the center and states. 
  • Empower state governments by delegating more powers and encouraging policy leadership. 
  • Promote cooperative decision-making and shared responsibilities between the center and states. 
  • Protect state autonomy and prevent encroachment on their powers. 


  • The Interstate Council, Finance Commission, and constitutional modifications have helped the Indian government foster cooperative federalism and settle disagreements, but these problems still influence centre-state relations.
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