Federalism (India) — Practice

Question 1

Classify each subject into the correct legislative list (Union, State, or Concurrent) and explain what would happen if both Parliament and a state legislature passed laws on a Concurrent List subject:
(a) Defence and armed forces
(b) Agriculture and irrigation
(c) Labour relations and industrial disputes

Accepted Answer

(a) **Defence and armed forces → UNION LIST**: Security of the nation is entirely a Central function. No state can maintain its own army or conduct foreign policy. This reflects the 'unitary' character — centralised defence is essential for national security.

(b) **Agriculture and irrigation → STATE LIST**: Farming conditions, crop patterns, water use, and land relationships vary enormously across states. What works in Punjab's wheat farming doesn't apply to Kerala's spice cultivation. States understand their agrarian conditions better than the Centre. The 2020 Farm Laws controversy: Centre tried to legislate on 'agriculture' (State List subject) — states protested this was federalism violation.

(c) **Labour relations and industrial disputes → CONCURRENT LIST**: Labour issues cross state boundaries (migrant workers, interstate industries). But states have legitimate interests in regulating wages and working conditions. Both Parliament (labour codes — Code on Wages 2019, etc.) and state legislatures (state minimum wages) can legislate. **Conflict resolution**: If Parliament and a state legislature both pass laws on a Concurrent List subject and they conflict, PARLIAMENT'S LAW PREVAILS — unless the state law was reserved for the President's consideration and received his assent (Art 254 proviso).

Question 2

Why is India described as a 'Union of States' rather than a 'Federation of States'? Identify FOUR constitutional provisions that give the Centre dominance over states.

Accepted Answer

**Why 'Union' not 'Federation'**:
Dr. Ambedkar explained in the Constituent Assembly: 'The word Union is used because the federation is not the result of an agreement among the states. The state cannot secede from the Union.' Unlike USA (originally independent states that agreed to federate), India created states from scratch. The Union (Centre) has primacy by design — the states exist within the Union, they did not create it.

**Four constitutional provisions giving Centre dominance**:

1. **Residuary Powers (Art 248 + Entry 97 of Union List)**: Any subject not mentioned in any of the three Lists falls under PARLIAMENT'S legislative power. In contrast, USA constitution gives residuary powers to states. In India, any new technology (space, nuclear, internet) automatically falls to Parliament.

2. **Governor's Appointment by Centre (Art 155)**: The Governor of each state is appointed by the President (effectively the central Cabinet). The Governor can delay state legislation, reserve bills for Presidential assent, and recommend President's Rule — making this office a potential central agent in state politics. An elected governor (as in USA) would be more genuinely state-oriented.

3. **Article 356 (President's Rule)**: The Centre can directly govern a state if 'constitutional governance has broken down.' Though restricted by the Bommai case, this provision represents the Centre's ultimate veto over state governance.

4. **Emergency Provisions (Arts 352, 353, 360)**: During a National Emergency (Art 352), Parliament can legislate on ANY subject including State List subjects. States effectively become subject to Parliament's legislation in every domain — the federal structure is suspended. During the 1975–77 Emergency, the Central government controlled even police (State List) through Parliament's emergency legislation.

Question 3

Centre-State financial relations are a persistent source of tension in Indian federalism. Explain the constitutional framework for financial federalism. Why do states consistently claim they receive inadequate resources? What reforms would you suggest?

Accepted Answer

**Constitutional Framework**:

*Tax Division*:
- Taxes levied by Centre alone (custom duties, corporate tax, income tax) → constitutionally divided with states through Finance Commission recommendations
- Taxes levied by States alone (land revenue, stamp duty, state excise) → entirely state revenue
- GST (2017, 101st Amendment): replaced state sales tax + Central excise; Centre and states share 50-50 in IGST; CGST goes to Centre, SGST to states

*Finance Commission (Art 280)*:
- Constituted every 5 years; recommends VERTICAL devolution (Centre-to-states share) and HORIZONTAL distribution (how to divide among states)
- 15th Finance Commission (2021–26): 41% of divisible pool goes to states (down from 42% recommended by 14th FC — 1% transferred to newly created J&K UT)
- States receive about ₹8.25 lakh crore from tax devolution in 2023–24 through Finance Commission

*Grants-in-Aid (Art 275)*: Additional grants to less developed states to address fiscal capacity gaps

**Why states claim inadequacy**:

1. **Centralisation of revenue**: GST centralises tax administration — states gave up their independent sales tax and VAT for a shared system. The 'input tax credit' mechanism and IGST administration are Central-controlled, delaying state revenue flows.

2. **CSS proliferation**: Over 200 Centrally Sponsored Schemes (CSS) come with 'conditions' — states must contribute matching funds (typically 40–60% share) AND spend on Central priorities. This reduces state fiscal autonomy.

3. **Revenue buoyancy gap**: States bear disproportionate spending responsibilities (health, education, police = State List) but revenue sources haven't grown as fast as expenditure needs. COVID-19 health expenditure fell on states; Centre's direct fiscal transfers were inadequate.

4. **Natural resource revenue centralisation**: Taxes on coal, oil, and minerals go primarily to the Centre, even when states bear all environmental and social costs (mining displacement, pollution).

5. **GST compensation cess controversy**: States were promised 14% annual revenue growth guarantee when GST was introduced. During COVID-19, the Centre stopped compensation payments (arguing revenues were insufficient) — creating a major trust deficit.

**Suggested reforms**:
(i) **Increase Finance Commission devolution to 45%+**: Higher formula-based transfers reduce discretionary power and state dependency.
(ii) **Rationalise CSS**: Reduce from 200+ to 50 core schemes; give states flexibility in implementation rather than prescribing Central processes.
(iii) **Greater GST autonomy for states**: Allow states to vary GST rates within bands for some items, restoring some tax flexibility.
(iv) **Permanent Finance Commission**: Replace ad hoc 5-year commissions with a permanent body that can respond to crises in real time (as happened during COVID).
(v) **Urban local body funding**: Create a constitutional revenue-sharing mechanism for urban local bodies (currently dependent on state discretion), enabling smart city investments.

Practice — Federalism (India)

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