Written by Shri Ganarchit.B
India’s constitutional framework establishes a unique federal system that seeks to harmonize a strong central authority with regional autonomy, creating a delicate balance between national unity and state diversity. Described as a “Union of States” under Article 1, India’s quasi-federal structure grants states their own governments and legislatures while embedding them within a unified polity. This note explores the constitutional design, division of powers, fiscal federalism, executive and emergency provisions, cooperative mechanisms, and contemporary tensions, providing a comprehensive analysis of Centre-State relations as of July 2025.
Constitutional Design and Federal Identity
Article 1 of the Constitution declares, “India, that is Bharat, shall be a Union of States,” emphasizing an indestructible union rather than a federation allowing secession. This reflects a quasi-federal system where states have significant autonomy but are subject to central oversight. For example, Article 3 empowers Parliament to alter state boundaries or create new states, as seen in the 2014 formation of Telangana, typically after consulting the affected state legislature. This provision underscores the Centre’s pivotal role in shaping the federal landscape while fostering cooperation to maintain national unity. The Preamble further reinforces this balance, protecting states’ existence as integral to India’s federal identity.
Division of Legislative Powers
The Constitution meticulously divides legislative powers through the Seventh Schedule, which categorizes subjects into three lists under Article 246:
- Union List: Comprising 100 subjects (originally 97), including defense, foreign affairs, and currency, exclusively under Parliament’s jurisdiction.
- State List: Encompassing 61 subjects (originally 66), such as police, agriculture, and public health, governed by state legislatures.
- Concurrent List: Including 52 subjects (originally 47), like education and forests, where both Parliament and states can legislate, with Union laws prevailing in conflicts.
Article 248 grants the Centre residuary powers to legislate on unenumerated subjects, which can lead to jurisdictional disputes. Courts resolve these using the “pith and substance” doctrine, assessing a law’s core intent to determine its validity. For instance, a state law on agriculture that incidentally affects banking (a Union subject) is upheld if its primary purpose falls within the State List. Constitutional amendments, such as those under Article 3, allow flexibility for national priorities, but the basic structure doctrine, as affirmed in Kesavananda Bharati v. State of Kerala (1973), prevents the dissolution of states, safeguarding federalism.
Articles 249–252 further enable central intervention in state domains under specific conditions, such as a Rajya Sabha resolution or state consent, exemplifying cooperative federalism. This structure ensures clear responsibilities while allowing adaptability for shared concerns.
Fiscal Federalism and Financial Dynamics
Financial interdependence is a cornerstone of India’s federal system, governed by Article 280, which mandates the Finance Commission to recommend tax-sharing formulas every five years. The 14th Finance Commission (2015–2020) increased the states’ share of central taxes from 32% to 42%, and the 15th Finance Commission (2021–2026) adjusted this to 41% following Jammu & Kashmir’s reorganization into Union Territories. According to the Union Budget 2025-26, tax devolution to states is estimated at ₹14,22,444 crore, reflecting a 10.5% increase from 2024-25 revised estimates.
However, challenges persist. Cesses and surcharges, excluded from the divisible pool, reduce actual devolution, with their share in gross tax revenue rising in recent years, prompting state criticism. The GST regime, introduced under Article 279A, compensates states for revenue losses, with ₹1,15,662 crore released in 2022–23 to address cess shortfalls. Centrally Sponsored Schemes (CSS), funded under Article 282, provide critical support in sectors like health and education but often come with central guidelines, limiting state discretion. Critics argue these schemes create vertical fiscal imbalances, as states bear significant expenditure responsibilities with constrained revenue autonomy.
Table: Key Financial Devolution Figures (2025-26 Budget Estimates)
| Item | Amount (₹ crore) | % Change from 2024-25 RE |
| Total Transfer to States | 25,59,764 | 12.5% |
| Tax Devolution | 14,22,444 | 10.5% |
| Grants (including FC Grants) | 11,37,320 | – |
| Capital Expenditure Loans | 1,50,000 | 20.0% |
Source: PRS Legislative Research, Union Budget 2025-26 Analysis, https://prsindia.org/budgets/parliament/union-budget-2025-26-analysis
Executive Authority and Emergency Provisions
Administratively, the Centre exercises oversight through Articles 256 and 257, mandating state compliance with Union laws and allowing central directives. Governors, appointed by the President, serve as Union agents, with powers to reserve state bills or recommend President’s Rule under Article 356. This provision, used over 100 times by 1994, has been controversial, often perceived as central overreach to dismiss opposition-led state governments.
The landmark S.R. Bommai v. Union of India (1994) case addressed this misuse, ruling that President’s Rule proclamations must be based on objective material, are subject to judicial review, and require a floor test to verify a state government’s majority. The Supreme Court emphasized that states are “not mere appendages” of the Centre, reinforcing federalism as a basic structure of the Constitution. Emergency provisions, such as Article 352 (National Emergency) and Article 360 (Financial Emergency), further amplify central authority, allowing Parliament to legislate on state subjects or control state finances. Article 131 enables states to challenge central actions in the Supreme Court, as seen in West Bengal’s 2024 suit over CBI jurisdiction, ensuring judicial checks on federal overreach.
Institutional Mechanisms for Cooperation
India employs several institutions to promote cooperative federalism. The GST Council, established under Article 279A, unites Union and state finance ministers to set GST policies through weighted voting (75% majority, with states holding two-thirds votes). NITI Aayog, replacing the Planning Commission in 2015, facilitates policy dialogue through its Governing Council, comprising the Prime Minister and all Chief Ministers. The Inter-State Council, under Article 263, aims to enhance policy coordination but remains underutilized due to infrequent meetings. Other mechanisms, like tribunals under Article 262 for inter-state river disputes, provide platforms for resolving conflicts without immediate judicial intervention, embedding state voices in national governance.
Contemporary Tensions and Trends
India’s federalism faces ongoing challenges, particularly from policies perceived as centralizing. The 2016 demonetization, which invalidated 86% of currency notes, disrupted state economies without prior consultation, drawing sharp criticism from states like West Bengal. Chief Minister Mamata Banerjee called it a “financial chaos and disaster,” highlighting its impact on cash-dependent sectors like agriculture. Similarly, the 2020 labor codes, consolidating 29 central laws into four, faced opposition from states like Tamil Nadu and Kerala, who argued they undermine worker protections, particularly for informal workers. Trade unions and opposition-ruled states criticized the codes for favoring employers and lacking tripartite consultation, violating International Labour Organization principles.
Despite these tensions, cooperative federalism endures. The GST framework emerged from extensive Centre-State negotiations, and regional parties have secured higher tax shares through Finance Commissions. Judicial precedents, like S.R. Bommai, affirm federalism’s constitutional sanctity, ensuring central actions respect state autonomy. As former Chief Justice R.C. Lahoti noted, Indian federalism has a centrifugal character, diffusing powers to states unless explicitly held by the Centre, requiring active political dialogue to maintain harmony.
Conclusion
India’s federal framework adeptly balances unity and autonomy through constitutional provisions (Articles 1, 246, 248), cooperative institutions (GST Council, NITI Aayog), and judicial oversight (S.R. Bommai). Fiscal federalism, with significant tax transfers (41% recommended by the 15th Finance Commission), supports state finances, though challenges like cesses and central guidelines persist. The ongoing task is to ensure these mechanisms are actively utilized, fostering a robust federal democracy that respects both national unity and regional diversity.
References
- Constitution of India, Article 1, https://legislative.gov.in/constitution-of-india/
- Constitution of India, Seventh Schedule, https://legislative.gov.in/constitution-of-india/
- Testbook, “Seventh Schedule of Indian Constitution,” https://testbook.com/ias-preparation/seventh-schedule-of-indian-constitution
- PRS India, “Report Summary: 15th Finance Commission (2021-26),” https://prsindia.org/policy/report-summaries/report-15th-finance-commission-2021-26
- Press Information Bureau, “Centre Clears Entire GST Compensation Due Till Date (31ST MAY, 2022),” https://www.pib.gov.in/PressReleasePage.aspx?PRID=1829777
- Press Information Bureau, “Centre releases Rs. 17,000 crore of GST compensation to States/UTs,” https://www.pib.gov.in/PressReleaseIframePage.aspx?PRID=1878840
- S. R. Bommai v. Union of India, (1994) 3 SCC 1, https://indiankanoon.org/doc/60799/
- GST Council Official Website, https://gstcouncil.gov.in/
- NITI Aayog Official Website, https://www.niti.gov.in/
- Wikipedia, “2016 Indian banknote demonetisation,” https://en.wikipedia.org/wiki/2016_Indian_banknote_demonetisation
- Times of India, “Why’s Mamata Banerjee against demonetization?,” https://timesofindia.indiatimes.com/city/kolkata/Whys-Didi-against-demonetisation/articleshow/55378644.cms
- Times of India, “Why the new labour codes don’t work for Tamil Nadu,” https://timesofindia.indiatimes.com/city/chennai/why-the-new-labour-codes-dont-work-for-tamil-nadu/articleshow/105942865.cms
- PRS Legislative Research, “Union Budget 2025-26 Analysis,” https://prsindia.org/budgets/parliament/union-budget-2025-26-analysis