Model Answer
0 min readIntroduction
India, as a quasi-federal state, navigates a complex interplay between the Centre and the States in financial matters. The concepts of fiscal federalism, fiscal consolidation, and cooperative federalism are central to understanding this dynamic. Fiscal federalism concerns the division of financial powers, fiscal consolidation refers to reducing government debt, and cooperative federalism emphasizes collaboration. While India has formally embraced cooperative federalism, its practical implementation has been marked by both progress and persistent tensions, particularly concerning resource allocation and policy implementation. The recent implementation of the Goods and Services Tax (GST) and the role of NITI Aayog exemplify this evolving relationship.
Defining the Concepts
Fiscal Federalism: This refers to the financial relationship between different levels of government – Centre, State, and Local. It encompasses the division of taxing powers, expenditure responsibilities, and transfer of resources (like devolution of taxes and grants-in-aid) to ensure fiscal autonomy and efficiency. The recommendations of the Finance Commission (Article 280) are crucial in shaping fiscal federalism in India.
Fiscal Consolidation: This is the process of reducing government debt and deficits through measures like expenditure control, revenue enhancement, and prudent borrowing. It aims to achieve macroeconomic stability and sustainable public finances. The Fiscal Responsibility and Budget Management (FRBM) Act, 2003, is India’s primary legislation for fiscal consolidation.
Cooperative Federalism: This denotes a horizontal relationship between the Centre and States based on mutual trust, consultation, and collaboration. It moves away from a command-and-control approach towards a more participatory and consensus-oriented governance model. It emphasizes shared responsibility and joint decision-making.
Cooperative Federalism in India: An Assessment
Post-independence, India initially witnessed a strong centralizing tendency. However, the 1990s economic reforms and subsequent political developments paved the way for a more cooperative approach. Several mechanisms have been established to foster this:
- Finance Commission: Regularly recommends principles governing the distribution of tax revenues between the Centre and States, promoting fiscal equalization.
- Goods and Services Tax (GST) Council: A constitutional body (Article 279A) where Centre and States jointly decide on GST rates, rules, and regulations. This is a prime example of cooperative federalism in action.
- NITI Aayog: Replaced the Planning Commission and aims to foster a collaborative approach to policy formulation, involving States in the development process.
- Inter-State Council: Established under Article 263, provides a platform for Centre and States to discuss and address issues of common interest.
Successes of Cooperative Federalism
- GST Implementation: Despite initial challenges, the GST Council has largely functioned effectively, demonstrating the potential for consensus-building.
- COVID-19 Response: The coordinated efforts between the Centre and States in managing the pandemic, including vaccine procurement and distribution, showcased a degree of cooperation.
- Policy Formulation: NITI Aayog has facilitated greater State participation in national policy discussions, leading to more inclusive outcomes.
Challenges to Cooperative Federalism
- Financial Imbalance: States often rely heavily on Central transfers, creating a dependency that can limit their autonomy.
- Centralizing Tendencies: The Centre continues to exercise significant control over key policy areas, leading to friction with States.
- Political Differences: Divergent political ideologies between the Centre and States can hinder cooperation. Recent examples include disputes over farm laws (repealed in 2021) and the Citizenship Amendment Act (CAA).
- Delayed Release of Funds: Delays in the release of Central funds to States, particularly for centrally sponsored schemes, disrupt implementation and create financial strain.
Recent Trends & Concerns
The trend of the Centre increasingly bypassing states in implementing schemes directly, such as the PM-KISAN scheme, raises concerns about the erosion of cooperative federalism. The use of centrally sponsored schemes as leverage to influence state policies also undermines the spirit of collaboration. The debate surrounding the terms of reference of the 16th Finance Commission also highlights the ongoing tensions regarding resource devolution.
Conclusion
Cooperative federalism in India remains a work in progress. While institutions like the GST Council and NITI Aayog demonstrate the potential for collaborative governance, persistent challenges related to financial imbalances, political differences, and centralizing tendencies continue to impede its full realization. Strengthening inter-governmental coordination, ensuring equitable resource devolution, and fostering a spirit of mutual respect are crucial for realizing the true potential of cooperative federalism and building a more resilient and inclusive India. A more balanced approach, respecting the autonomy of states while maintaining national unity, is essential for sustained progress.
Answer Length
This is a comprehensive model answer for learning purposes and may exceed the word limit. In the exam, always adhere to the prescribed word count.