India’s federal structure is unlike any classical federation in the world. While the Constitution distributes powers between the Union and the States, the actual functioning of this arrangement reveals a distinct tilt toward the Centre-a tilt that was designed deliberately, yet one that has repeatedly sparked debates about state autonomy, financial equity, and the health of democracy itself. Understanding how Indian federalism actually works, beyond its textbook description, is essential for anyone seeking to grasp the realities of governance in the country.
Table of Contents
- The structural bias toward the Centre
- Financial dominance and the fiscal imbalance
- The role of the Finance Commission
- Cooperative federalism in practice
- Tensions and conflicts
- The Sarkaria Commission: A landmark review
- Why the Commission was formed
- Key findings and recommendations
- Impact and legacy
- The evolving nature of Indian federalism
The structural bias toward the Centre
The Indian Constitution divides legislative powers through the Seventh Schedule into three lists: the Union List, the State List, and the Concurrent List. On paper, this appears like a balanced arrangement. In practice, however, the distribution of legislative powers is heavily skewed in favour of the Union Government. The Union List contains subjects of national significance-defence, foreign affairs, atomic energy, banking, and more-and Parliament has exclusive authority over them. The State List covers local matters like police, public health, and agriculture. But the Concurrent List, where both levels of government can legislate, carries a critical rider: in case of any conflict, Union law prevails.
This was no accident. The Constituent Assembly debates reveal that India ended up with a much larger Concurrent List than anyone had anticipated in the 1930s or 1940s, reflecting the dominance of a nationalist thinking that sought to reproduce the unitary character of the colonial state in an independent India. What is more, residuary powers-subjects not enumerated in any of the three lists-are vested in the Union under Article 248, a provision that departs from the American model, where such powers are reserved for the states.
The numbers themselves are telling. The Union List originally contained 97 entries, the State List 66 entries, and the Concurrent List 47 entries. With residuary powers also sitting with the Centre, the balance of legislative authority was structurally weighted from the outset. Furthermore, Parliament can legislate on State List subjects under specific conditions-such as when the Rajya Sabha passes a resolution under Article 249 in the national interest-further diluting the exclusivity of the State List.
Financial dominance and the fiscal imbalance
Legislative bias is only one dimension of the central tilt. Financially, the relationship between the Union and the States has historically been one of dependence rather than partnership. Major sources of revenue-income tax (except on agricultural income), customs duties, and excise duties-lie with the Centre. The power to distribute taxes through the Finance Commission and grant financial assistance to States under Article 275 further highlights the Centre’s fiscal dominance, raising concerns about vertical fiscal imbalance.
The central government controls major sources of revenue such as income tax, corporate tax, and GST, which creates a vertical fiscal imbalance. States, having fewer independent revenue sources, have to depend on the Centre through mechanisms like the Finance Commission, centrally sponsored schemes, and grants. This dependence means that States often cannot set their own spending priorities freely. Centrally Sponsored Schemes (CSS), for example, come with conditions attached, further limiting state discretion in how funds are used.
The emergence of planned development concentrated power in the hands of the Union, with the Planning Commission acting as a limb of the Union Government. Though the Planning Commission was abolished in 2014 and replaced by NITI Aayog, many State governments continue to flag fiscal centralization as a persistent concern. The introduction of GST in 2017 centralized tax administration, reducing States’ fiscal autonomy and sparking protests from resource-poor States.
The role of the Finance Commission
The Finance Commission, constituted every five years under Article 280, is the primary mechanism for determining how tax revenues are shared between the Centre and the States. The 14th Finance Commission (2015-2020) significantly increased the states’ share in the divisible pool of central taxes from 32% to 42%. The 15th Finance Commission (2021-26) retained it at 41%, adjusting 1% for the newly formed Union Territories of Jammu & Kashmir and Ladakh. While these are welcome steps, critics argue that the devolution framework still leaves States structurally dependent on Union decisions rather than empowered to generate their own fiscal strength.
Cooperative federalism in practice
Despite this structural centralization, Indian federalism has never been purely top-down. Cooperative federalism-the idea that the Centre and States work together as partners rather than as superior and subordinate-has been a recurring theme, even if its realization has been uneven.
The GST Council is perhaps the most cited contemporary example of cooperative federalism at work. Under the GST regime, two-thirds of voting power is with the States and one-third with the Centre, reflecting the accommodative spirit of federalism. Consensus among members has been the guiding principle for decisions in the GST Council. The introduction of the Goods and Services Tax in 2017, designed through consensus between the Centre and States, marked a milestone in cooperative fiscal federalism, creating a unified tax structure while navigating complex negotiations over revenue sharing.
Centrally Sponsored Schemes like MGNREGA and the Pradhan Mantri Gram Sadak Yojana are also examples of this shared governance model-programs funded at the Centre but executed by States, representing quintessential examples of cooperative federalism in action. However, these arrangements also illustrate the limits of cooperation when the Centre sets the agenda and the States are left to implement it with little room for local variation.
Tensions and conflicts
The relationship between the Centre and States has not always been smooth. The working of the Indian federation over the decades clearly shows that the relations between the Centre and the States have not always been cordial. The misuse of Article 356-which allows the Centre to impose President’s Rule in a State on grounds of constitutional breakdown-has been one of the most contentious sources of conflict. The Office of the Governor has been criticized for being used to destabilize State Governments run by parties different from those in power at the Union. Governors’ frequent reservation of State Bills for the President’s consideration also tends to hamper the State Legislature’s law-making process.
The post-1990s era brought a different dynamic. Coalition governments at the Centre gave regional parties greater influence, and economic liberalization created new incentives for States to assert themselves. The resurgence of State governments as vibrant players in India’s political system can be attributed to the decline of one-party dominance, the rise of regional parties, the formation of coalition governments at the federal level, and the deregulation efforts of liberalization.
The Sarkaria Commission: A landmark review
The Sarkaria Commission was set up in June 1983 by the central government with the charter to examine the relationship and balance of power between State and central governments and suggest changes within the framework of the Constitution of India. Chaired by Justice Ranjit Singh Sarkaria, a retired Supreme Court judge, the Commission worked with members Shri B. Sivaraman and Dr. S.R. Sen. The Commission submitted its final 1,600-page report in 1988, containing 247 specific recommendations.
Why the Commission was formed
By the early 1980s, India’s federal structure was under visible strain. States were complaining about excessive central interference; there were serious concerns about the arbitrary use of President’s Rule and the partisan role of Governors. It was highlighted that a vast expansion in the powers of the Union Government had occurred at the expense of the State Governments and local bodies. While the intention behind Union-State relations was to operate on the principles of cooperative federalism and consensus in all areas of mutual interest, these ideals had not been effectively implemented. Regional parties-from the Akali Dal in Punjab to the Left Front in West Bengal-were demanding greater State autonomy, and the Centre needed a credible mechanism to address these concerns.
Key findings and recommendations
The Commission out-rightly rejected the demand for curtailing the power of the Centre and stated that a strong Centre is essential to safeguard national unity and integrity. However, it observed over-centralization as an avoidable phenomenon. This was the Commission’s central balance: India needed a strong Union, but not an overbearing one.
Among its most significant recommendations were the following:
Inter-State Council: The Commission recommended the establishment of a permanent Inter-State Council under Article 263 of the Constitution to serve as a forum for regular dialogue between the Prime Minister, Chief Ministers, and other senior leaders. On the Commission’s recommendation, the Inter-State Council was established in 1990.
Article 356 and President’s Rule: The Commission emphasized that Article 356 should be invoked very sparingly and only in extreme cases, as a measure of last resort, when all available alternatives to rectify or prevent a breakdown of the constitutional machinery in the State have been exhausted.
Concurrent List: On residuary powers, the Commission recommended that those related to taxation should remain with Parliament, while all other residuary subjects should be moved to the Concurrent List. It also emphasized that the Union should consult States before legislating on subjects in the Concurrent List, ensuring that Centre priority in this domain does not translate into unilateral action.
Impact and legacy
The Commission’s emphasis on consultative federalism influenced policy-making processes, with the Centre increasingly consulting States on major decisions. However, some recommendations, particularly those requiring constitutional amendments, remained unimplemented due to political complexities. Many of its important recommendations have not been implemented, and tensions in federal relations remain a recurrent feature.
Nevertheless, the Sarkaria Commission’s report continues to be the foundational reference for any serious discussion on Centre-State relations. It set the stage for the Punchhi Commission and continues to be cited by the judiciary in landmark cases involving the dismissal of State governments and the discretionary powers of Governors. Recent developments like the establishment of NITI Aayog and the creation of the GST Council reflect the Commission’s vision of collaborative federalism, where Centre and States work together rather than in opposition.
The evolving nature of Indian federalism
What makes Indian federalism particularly interesting is its adaptive quality. It is not a fixed, static arrangement but one that shifts with political realities, judicial interpretations, and economic policy. The Supreme Court’s landmark ruling in the S.R. Bommai v. Union of India case (1994) established that federalism is part of the basic structure of the Constitution and cannot be dismantled even by a constitutional amendment. This gave federalism a constitutional immunity it did not explicitly possess before.
The Sarkaria Commission observed that federalism is more a functional arrangement for cooperative action than a static governmental concept. This insight remains as relevant today as it was in 1988. The challenge for Indian governance is to move from a model where cooperation is episodic and conflict is structural, to one where institutional mechanisms-the Inter-State Council, the GST Council, the Finance Commission-facilitate consistent and meaningful dialogue. The traditional approach to federalism that sees competition and cooperation at loggerheads is no longer relevant in the post-1990s scenario. A combination of cooperative and competitive spirit ensures economic prosperity and the welfare of the nation in an equal and equitable manner.
The structural bias toward the Centre is real and well-documented, but so is the resilience of the States in asserting their identities and interests. The question is whether the institutional scaffolding-commissions, councils, constitutional provisions-can keep pace with the ever-shifting political landscape of a country as vast and diverse as India.
What do you think? Given that the Sarkaria Commission made 247 recommendations in 1988 and many remain unimplemented even decades later, what does this tell us about the political will required to reform federal relations? And in an era of coalition politics giving way to strong central mandates, is cooperative federalism becoming more of an aspiration than a functioning reality?
References
- https://inclusiveias.com/upsc-polity-federal-system/
- https://casi.sas.upenn.edu/iit/sarathpillai
- https://ijrti.org/papers/IJRTI2504249.pdf
- https://www.nayalegal.com/federalism-in-india
- https://forumias.com/blog/summary-of-sarkaria-commission-report-on-center-state-relations/
- https://theamikusqriae.com/the-evolution-and-challenges-of-centre-state-relations-in-india-a-critical-perspective-2/
- https://www.dalvoy.com/en/upsc/mains/previous-years/2025/general-studies-paper-ii/centre-state-financial-relations-fiscal-federalism-india
- https://blog.mygov.in/editorial/gst-and-cooperative-federalism/
- https://ijirl.com/wp-content/uploads/2025/05/COOPERATIVE-FEDERALISM-IN-INDIA-NAVIGATING-THE-INTERPLAY-OF-COLLABORATION-AND-COMPETITION-IN-A-DIVERSE-NATION.pdf
- https://byjus.com/free-ias-prep/different-commissions-recommendations/
- https://thinkindiaquarterly.org/index.php/think-india/article/download/14456/9656/
- https://en.wikipedia.org/wiki/Sarkaria_Commission
- https://prepp.in/news/g-41911-sarkaria-commission-report-reports-of-various-commissions-indian-polity-upsc-notes
- https://vajiramandravi.com/upsc-exam/sarkaria-commission/
- https://www.ensureias.com/blog/current-affairs/sarkaria-commission-key-recommendations-on-centre-state-relations-and-federal-governance
- https://polsci.institute/constitutional-gov-democracy-india/sarkaria-commission-centre-state-relations-india/
- https://riceias.com/federalism-in-india/
- https://unacademy.com/content/wbpsc/study-material/polity/sarkaria-commission/
- https://www.drishtiias.com/daily-news-editorials/gst-and-fiscal-federalism
Leave a Reply