Assessing the Functioning of India’s Federal System

India is one of the world’s largest democracies, governing over a billion people across 28 states and 8 union territories. To manage this scale and diversity, the Constitution established a federal system – one that divides power between the Union government and the states. But how well has this system actually worked in practice? The answer is more complicated than a textbook reading of the Constitution might suggest. India’s federal system has long grappled with centralizing pressures, friction-filled union-state relations, and the ongoing challenge of balancing national unity with regional autonomy.

India’s federal design: federal in form, centralized in practice 🔗

The Indian Constitution does not use the word “federation.” Instead, Article 1 describes India as a “Union of States” – a deliberate choice that signals the non-secessionist nature of the polity. The Constituent Assembly intended to build a strong Centre as a safeguard against the secessionist tendencies that had accompanied Partition.

In structure, the Constitution divides legislative power between the Union and states through three lists in the Seventh Schedule: the Union List (subjects on which only Parliament can legislate), the State List (subjects reserved for states), and the Concurrent List (shared jurisdiction). The Union List contains more subjects than the State List, and in any conflict between Union and state legislation on Concurrent List subjects, Union law prevails. Residuary powers – over subjects not listed in any of the three lists – vest with the Union government under Article 248, unlike in the United States where residuary powers belong to the states.

Constitutional scholars and political scientists have described India’s model in various ways. Ivor Jennings described it as a “federation with a strong centralising tendency,” while Granville Austin called it “cooperative federalism,” noting that the strong Centre was never meant to reduce states to mere administrative agencies. The dominant academic label, however, remains quasi-federal – a hybrid that combines federal features with a unitary bias.

Key centralizing tendencies in practice 🔗

Several constitutional provisions tilt the balance of power toward the Centre in ways that go beyond the formal division of the three lists.

Emergency powers and Article 356 🔗

During emergencies under Articles 352, 356, and 360, the Union assumes expansive powers and can effectively override state authority. Article 356 – which allows the President to impose direct rule over a state when its constitutional machinery has broken down – has been a particularly contentious provision. Misuse of Article 356 was rampant in the decades following its adoption, especially during the Indira Gandhi era. States governed by opposition parties were routinely subjected to President’s Rule on politically motivated grounds, severely undermining the spirit of federalism.

The role of governors 🔗

Governors are appointed by the President on the advice of the Union government and are generally not residents of the states they govern. Governors often act as agents of the Union in states, influencing state-level decisions – particularly in matters of government formation after elections. The Office of the Governor has frequently been criticized for being used to destabilize state governments run by parties different from the one in power at the Centre.

Legislative overreach and the Concurrent List 🔗

Scholars have identified several constitutional provisions that perpetuate centralizing tendencies, including the power of the Parliament to legislate on state subjects under certain circumstances and the primacy given to Union laws over conflicting state laws. The Union has at times extended its reach into interconnected entries within the State List, effectively diminishing the legislative authority of the states. Parliament can also legislate on state subjects during a national emergency or when the Rajya Sabha passes a resolution declaring a state subject to be of national importance.

Financial dependence of states 🔗

The Union government controls the majority of revenue sources, while states bear greater expenditure responsibilities. This financial asymmetry forces states to rely heavily on central grants, tied transfers, and Centrally Sponsored Schemes – which often come with conditions that limit state discretion. The now-replaced Planning Commission was also criticized for undermining state autonomy by imposing centrally designed schemes and priorities, though NITI Aayog has since taken a more advisory role.

Critical areas of union-state friction 🔗

India’s federal relations have been heavily marred by political partisanship, with mutual distrust between rival parties at the Centre and in the states often obstructing cooperative governance. Several recurring friction points stand out.

Deployment of central forces: States have often objected to the deployment of central armed forces within their territory without adequate consultation, viewing it as an encroachment on law and order – a state subject.

All-India Services: Officers of the Indian Administrative Service (IAS) and Indian Police Service (IPS) are recruited by the Centre but serve in state cadres. While they act as a bridge between Centre and states, states have raised concerns about the Centre’s control over their postings and transfers.

Inter-state disputes: Disputes over river waters, boundaries, and resource sharing have periodically strained both Centre-state and inter-state relations. Inter-governmental institutions like the Inter-State Council, NITI Aayog, and Zonal Councils remain largely under-utilized for resolving these disputes due to political divisions.

The Sarkaria Commission: reviewing the balance 🔗

By the late 1970s and early 1980s, tensions between the Centre and states had reached a boiling point. Regional parties were asserting greater autonomy, and the misuse of Article 356 had become a flashpoint. In response, the Government of India established the Sarkaria Commission in June 1983, headed by retired Supreme Court judge R.S. Sarkaria, with the mandate to examine the working balance of power between the Union and state governments and recommend reforms within the constitutional framework.

After extensive consultations with state governments, political parties, and constitutional experts over five years, the Commission submitted its report in 1988 containing 247 specific recommendations covering legislative relations, the role of governors, emergency provisions, financial relations, All-India Services, and more.

Key recommendations 🔗

The Commission’s most important recommendations centered on restraining the overuse of central authority while keeping the federal structure intact:

• Article 356 (President’s Rule): The Commission recommended that Article 356 should be used very sparingly and only as a last resort, and only after issuing a formal warning to the errant state. This directly addressed the political weaponization of President’s Rule.
• Inter-State Council: The Commission recommended establishing a permanent Inter-State Council under Article 263 as a forum for continuous dialogue between the Centre and states. This recommendation was implemented in 1990.
• Governors: The Commission recommended that governors should be eminent persons from outside the state and should not have participated in active politics recently – a move aimed at reducing their use as political instruments of the Centre.
• Concurrent List legislation: The Commission recommended that the Union should ordinarily occupy only that portion of a Concurrent List subject where uniformity of national policy is genuinely required, leaving the remaining details to states.
• Financial devolution: The Commission suggested that states should be consulted in determining the terms of reference of Finance Commissions, and that financial transfers should be more predictable.

Out of 247 recommendations, 180 have been accepted by the central government, though many important ones – especially those concerning the role of governors – have seen inconsistent implementation. Despite this, the Sarkaria Commission report has become a foundational reference point in all discussions on Centre-state relations and has been frequently cited by the Supreme Court.

From conflict to competition: the rise of competitive federalism 🔗

The narrative of Indian federalism is not only one of central dominance and state grievances. From the 1990s onwards, a new dynamic began to emerge – competitive federalism – in which states began actively competing with each other to attract investment, improve governance, and perform better on national rankings.

The seeds of competitive federalism were sown in the 1991 liberalization reforms, which shifted India toward a market-driven economy and gave states greater room to attract investments. States began competing on the ease of doing business, infrastructure, tax incentives, and single-window clearance systems. India’s improvement in the World Bank’s Ease of Doing Business rankings – jumping 65 positions – was made possible largely through state-led reforms, driven by annual state-level EoDB rankings that created reputational incentives for improvement.

NITI Aayog has institutionalized this competitive dynamic through sector-specific performance indices covering health, education, water management, and agriculture. States like Gujarat and Maharashtra have competed fiercely through investment summits and policy reforms to attract manufacturers, while Tamil Nadu has leveraged its skilled workforce and infrastructure to secure major technology investments.

Cooperative and competitive federalism: two sides of the same coin 🔗

Competitive federalism does not operate in isolation – it is paired with cooperative federalism, where Centre and states collaborate to achieve common national goals. The most prominent example is the Goods and Services Tax (GST), introduced in 2017 through consensus between the Centre and all state governments. The GST replaced a fragmented web of central and state indirect taxes with a unified structure, creating a single national market. The GST Council, where states are equal members, represents a significant institutional innovation in collaborative fiscal governance.

However, competitive federalism also carries risks. States engage in populist policies – reckless subsidies and cash transfers – to gain political mileage, turning competition into a fiscal bidding war rather than a race for genuine governance improvement. There is also the concern that economically stronger states find it easier to attract investment, potentially widening the development gap between richer and poorer states like Bihar, Odisha, and Assam.

Assessing the federal system overall 🔗

India’s federal system has proven to be remarkably resilient. In all phases of Indian democracy, attempts at centralization and homogenization have been resisted by regional actors safeguarding the original federal design. The 73rd and 74th Constitutional Amendments in 1992 added a third tier to the federal structure – Panchayati Raj Institutions and urban local bodies – further decentralizing governance to the grassroots level.

The landmark Supreme Court judgment in S.R. Bommai v. Union of India (1994) significantly strengthened the federal character of the Constitution, holding that federalism is part of the basic structure and subjecting the imposition of President’s Rule to judicial review. States can no longer be dismissed by the Centre without constitutional justification surviving scrutiny by the courts.

Yet structural challenges persist. Financial dependence of states on the Centre, the political use of governors, under-utilized inter-governmental bodies, and the tensions inherent in a strong-Centre design continue to test the system. What India has developed over seven decades is not a perfect federation, but a living, adaptive federal arrangement – one that absorbs conflict, accommodates diversity, and continues to evolve.

What do you think? Does India’s strong-Centre federal design remain a necessary feature for national unity, or has it become an obstacle to genuine state autonomy? And with competitive federalism gaining ground, are India’s states truly empowered actors in the federal system, or does financial dependence on the Union still hold them back?

References

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