Centre - State Tensions

Centre - State Tensions

Syllabus Areas:

GS II - Polity

India’s federal structure has always required delicate coordination between the Union and the States. In recent years, debates around GST rationalisation, fiscal transfers, centrally sponsored schemes, and political centralisation have intensified. Opposition-ruled States, in particular, have alleged that the Union government is tightening control over finances and decision-making. Several issues have even reached the Supreme Court. This article explores whether federalism is weakening under the present political configuration and unpacks the deeper structural and political dynamics shaping Centre–State relations.

Current Flashpoints Between the Centre and the States

Development Needs or Political Contestation?

The conflict between the Centre and Opposition-ruled States is driven by both developmental concerns and political strategies.

• During the 1990s, coalition politics encouraged collaborative federalism. Economic and institutional reforms saw active consultations between the Union and the States.
• Post-2014, reforms in resource allocation, abolition of the Planning Commission, and centralisation tendencies have altered this equilibrium.
• The emergence of single-party dominance at the national level has reduced the negotiation space historically enjoyed by regional parties.
• States argue that centralisation—particularly in fiscal matters—has undermined the flexibility and autonomy that the Constitution intended.

Evolving Federal Institutions After Liberalisation

Shift in Institutional Roles

Post-liberalisation, institutions such as the Finance Commission and GST Council were expected to strengthen cooperative fiscal federalism. However:

• The Finance Commission’s role has expanded, as it is now the only major institution determining vertical and horizontal distribution of resources.
• States surrendered significant taxation powers under the GST grand bargain, expecting joint decision-making.
  Yet, recent unilateral decisions on GST rate rationalisation have generated apprehensions.

Horizontal Imbalance Concerns

• Wealthier States, especially in the South, argue that they are being penalised through horizontal devolution due to the inverse-income formula favouring lower-income States.
• Poorer States remain heavily dependent on central transfers, creating a structural imbalance that deepens regional inequality.

Rising Centralisation and Fiscal Constraints

Cesses and Surcharges

A major concern raised by States is the steep rise in cesses and surcharges, which are not shared with States.

Key effects:

• The Union retains a larger share of revenue outside the divisible pool.
• States face reduced fiscal space to finance welfare schemes, infrastructure, and development priorities.
• The perception of the Centre “squeezing” State fiscal autonomy has grown.

Weakening Fiscal Capacity of the Union Itself

Interestingly, the Centre’s own fiscal strength has declined:

• Nearly 80% of borrowings are used for revenue expenditure.
• States have become the primary drivers of capital expenditure and infrastructure creation.
• Jobless growth and low-wage equilibria sustained by migrant labour have intensified regional disparities.

Competitive Populism

Due to rising inequality and limited employment generation:

• Both Centre and States resort to guarantees and welfare commitments.
• These strain budgets and further push States into dependence on central approvals or funds.

Centre–State Trust Deficit: Structural Issues, Not Just Politics

Misuse of Constitutional Powers?

States allege that:

• Constitutional powers, centrally sponsored schemes, and institutional controls are being used to centralise decision-making.
• The GST structure itself has made States financially dependent on the Centre.
• The decline of deliberative forums like the Planning Commission has left a vacuum in cooperative federal planning.

The Need for New Institutional Mechanisms

There is increasing debate on:

• Whether the Finance Ministry alone should decide centrally sponsored scheme allocations.
• Whether India needs a new institution (or a revamped Inter-State Council) to manage development financing, coordination, and dispute resolution.

Regional Parties, Single-Party Dominance, and Changing Coalition Politics

Erosion of Regional Bargaining Power

• Earlier coalition eras were characterised by negotiation, mutual dependence, and policy accommodation.
• Today, alliances are more top-down. Regional parties often join the ruling coalition for electoral or survival incentives, not federal bargaining.
• Centralisation has also weakened regional capital and entrepreneurship, partly due to mechanisms like electoral bonds that reshape political financing.

Reduced Incentive for Federal Assertion

Regional parties in alliances may prioritise:

• Holding power in their States over challenging central dominance.
• Using national alliances as leverage for local political consolidation rather than defending federal principles.

Future Federal Challenges: Delimitation and One Nation–One Election

Delimitation Concerns

The post-Census delimitation exercise is expected to:

• Increase Lok Sabha seats for high-population northern States.
• Reduce the relative political weight of lower-population but economically stronger southern States.
• Intensify the mismatch between political power (population-driven) and economic power (income-driven).

Southern States worry that:

• Their lower population growth may disadvantage them politically despite better development performance.
• Structural inequalities will deepen if political representation becomes skewed.

One Nation, One Election Proposal

The proposal:

• Is framed as improving efficiency and reducing election expenditure.
• Critics argue it may be a political tool that strengthens centralisation.
• Does not address deeper democratic challenges such as economic inequality, institutional autonomy, and regional representation.

India’s federal tensions today are not merely a clash between rival political parties—they reflect structural, economic, and institutional shifts that have altered the federal balance.
Fiscal centralisation, changing party dynamics, rising regional inequality, and weakening of platforms for State–Centre dialogue have all contributed to the strain.

As India heads toward delimitation and debates “one nation, one election,” the need to preserve a fair, cooperative, and inclusive federal structure becomes even more crucial for the stability of the Union and the strength of its democracy.