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General Studies 2 >> Governance

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1. Context 

Disputes between the Centre and States in India regarding economic policies have a long history, but recent years have witnessed an increase in both frequency and intensity, transforming these disagreements into persistent frictions within the federal system.

2. Changing Economic Landscape

  • The economic context of Centre-State relations has evolved significantly since the 1980s and 1990s.
  • Ongoing economic reforms since 1991 have relaxed controls on investments, granting some autonomy to States.
  • However, the dependency of State governments on the Centre for revenue receipts has limited their absolute autonomy, leading to a more hardened stance on both sides and eroding the foundations of cooperative federalism.
  • Beyond resource sharing, conflicts have emerged in areas such as the homogenization of social sector policies, regulatory institutions' functioning, and the powers of central agencies.
  • While these policy domains ideally fall under the discretion of States, central bodies often attempt to exert influence, creating tension.

3. Central Dominance

The Centre's expanding span of activities has led to three important economic consequences:
  1. Crowding Out of States in Investments: The Centre's dominance in investments has led to underinvestment by States. For instance, the Centre's capex on roads has increased at a CAGR of 32.3% since 2015-16, while States' growth has been just 11.2%.
  2. Peculiar Form of Fiscal Competition: The enhanced fiscal space of the Centre has led to a form of fiscal competition between the Centre and States. This competition diverts focus from regional competition and challenges welfare provisioning.
  3. Inefficiencies of Parallel Policies: Federal abrasions lead to duplication of policies, as exemplified by pension reforms. The emergence of parallel schemes stems from a trust deficit in the federal system, with long-term economic consequences.

4. Implications of Central Dominance

  • The Centre's expanding span of activities has led to crowding out States in terms of investments. Infrastructure development, exemplified by PM Gati Shakti, centralizes planning, limiting State flexibility and resulting in underinvestment.
  • Fiscal competition between the Centre and States has emerged, diverting focus from regional competition. The Centre, with enhanced fiscal space, outspends States, leading to challenges in welfare provisioning.
  • Federal abrasions contribute to inefficiencies as either the Centre or States duplicate each other's policies. The example of pension reforms illustrates how parallel schemes emerge due to a trust deficit in the federal system, with long-term consequences for the economy.

Interdependence between the Centre and States is crucial for the implementation of laws and policies, particularly in concurrent spheres. Preserving this interdependence is essential for managing the diverse, developing society of India.

5. Conclusion

 Addressing the growing frictions in Centre-State relations is vital for fostering cooperative federalism, ensuring efficient policy implementation, and promoting balanced economic development across regions. Finding common ground and building trust between the Centre and States is crucial for the sustainable growth of the Indian economy.

For Prelims: Fedreal system, Centre-State Relations, Concurrent list, GDP, economic reforms of 1991, cooperative federalism, PM Gati Shakti, 

For Mains: 
1. Discuss the factors that have contributed to the increase in frequency and intensity of disputes between the Centre and States regarding economic policies in India. (250 Words)
2. Explain the concept of 'cooperative federalism' and discuss its significance in the context of India's federal structure. (250 Words)
Previous Year Questions

1. In the context of India, which one of the following is the characteristic appropriate for bureaucracy? (UPSC 2020)

A. An agency for widening the scope of parliamentary democracy
B. An agency for strengthening the structure of federalism
C. An agency for facilitating political stability and economic growth
D. An agency for the implementation of public policy
Answer: D
2. Which one of the following in Indian Polity is an essential feature that indicates that it is federal in character? (UPSC 2021) 
A. The independence of judiciary is safeguarded
B. The Union Legislature has elected representatives from constituent units
C. The Union Cabinet can have elected representatives from regional parties
D. The Fundamental Rights are enforceable by Courts of Law
Answer: A

3. Constitutional government means (UPSC 2021)

(a) a representative government of a nation with federal structure
(b) a government whose Head enjoys nominal powers
(c) a government whose Head enjoys real powers
(d) a government limited by the terms of the Constitution
Answer: D

4. Which one of the following is not a feature of Indian federalism? (UPSC 2015)

(a) There is an independent judiciary in India.
(b) Powers have been clearly divided between the Centre and the States,
(c) The federating units have been given unequal representation in the Rajya Sabha.
(d) It is the result of an agreement among the federating units.
Answer: D

5. Local self-government can be best explained as an exercise in (UPSC 2015)

(a) Federalism
(b) Democratic decentralization
(c) Administrative delegation
(d) Direct democracy

Answer: B

6. The power of the Supreme Court of India to decide disputes between the Centre and the States falls under its (UPSC 2012)

(a) advisory jurisdiction
(b) appellate jurisdiction
(c) original jurisdiction
(d) writ jurisdiction

Answer: C

7. The distribution of powers between the Centre and the States in the Indian Constitution is based on the scheme provided in the (UPSC 2012)

(a) Morley-Minto Reforms, 1909
(b) Montagu-Chelmsford Act, 1919
(c) Government of India Act, 1935
(d) Indian Independence Act, 1947
Answer: C

 8. Consider the following statements

  1. National Development Council is an organ of the Planning Commission.
  2. The Economic and Social Planning is kept in the Concurrent List in the Constitution of India.
  3. The Constitution of India prescribes that Panchayats should be assigned the task of preparation of plans for economic development and social justice.

Which of the statements given above is/are correct?

(a) 1 only     (b) 2 and 3 only           (c) 1 and 3 only               (d) 1, 2 and 3

Answer: B

9. The Prime Minister ‘Gati Shakti’ scheme is launched by the Government of India for which type of infrastructure development from the following? (SSC CPO 2022)

A. Schools and education      B. Hospitals    C. Agricultural production       D. Transport

Answer: D

10. Read the following statements related to PM Gati Shakti Yojana and select the correct statement from the given options. (Rajasthan Police Constable 2022)

A. It is a national scheme for multi-modal connectivity.
B. It brings 16 ministries under a single digital platform.
C. This program will integrate rail, inland waterways, and ports apart from economic sectors.
D. This program will use ISRO imagery developed by the Bhaskaracharya National Institute of Space Applications and Geo-informatics.

1. A, B, C and D only      2. A and B only         3. A, B and D only      4.  A, C and D only

Answer: A

11. "Cooperative Federalism" in Centre - State relations is recommended for the first time by (APPSC Group 1 2017)

A. Sarkaria Commission     
B.  Rajamannar Commisson
C. Venkatachaliah Commission
D. M.M. Punchhi Commission

Answer: A

12. With reference to the Indian economy after the 1991 economic liberalization, consider the following statements: (UPSC 2020)

1. Worker productivity (Rs. per worker at 2004-05 prices) increased in urban areas while it decreased in rural areas.
2. The percentage share of rural areas in the workforce steadily increased.
3. In rural areas, the growth in the non-farm economy increased.
4. The growth rate in rural employment decreased.
Which of the statements given above is/are correct?

A. 1 and 2 only        B. 3 and 4 only      C. 3 only        D. 1, 2 and 4 only

Answer: C


1. Explain the significance of the 101st Constitutional Amendment Act. To what extent does it reflect the accommodative spirit of federalism? (UPSC 2023)
2.  From the resolution of contentious issues regarding the distribution of legislative powers by the courts, ‘Principle of Federal Supremacy’ and ‘Harmonious Construction’ have emerged. Explain. (UPSC 2019)
3.  Did the Government of India Act, 1935 lay down a federal constitution? Discuss. (UPSC 2016)
4. The concept of cooperative federalism has been increasingly emphasized in recent years. Highlight the drawbacks in the existing structure and the extent to which cooperative federalism would answer the shortcomings. (UPSC 2015)

Source: The Hindu

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