Competitive Co-operative Federalism under Modi Government

The writer speaks about the various policy reshaping that the Union Government has introduced to make the Centre-State relationship competitive as well as co-operative

Under India’s constitutional framework, division of power and responsibilities of each tier of Government is neatly recognised. Municipalities/Panchayats are supposed to improve sanitation standards and efficiently utilise funds as per specific needs of local population. State Governments hold authority over police and land. Union Government is in charge of defence, foreign policy, collection of income tax, telecommunication, civil aviation, railways, etc. Yet in many crucial sectors, be it in education or health or roads, there is an overlap of responsibility between Union and State Governments. Union Government frames policies and State Governments lead the delivery process. Hence a change of resident at 7, Lok Kalyan Marg, New Delhi has an overarching influence on our lives.

As Narendra Modi is well into his 4th year as Prime Minister, if there is one aspect of governance that has received his maximum attention, it ought to be strengthening of the federal structure. Having risen to national stature through a 12 year stint as Chief Minister of Gujarat, he understood importance of leadership at the state level and recognised the challenges faced. During his first address in Rajya Sabha, the Council of States, he laid out his vision for Cooperative-Competitive federalism. The definition of much talked about ‘Gujarat Model of Development’ was extrapolated to learning and implementing best practice from each state throughout India. The Union Government led this exercise through the following means:

a.NITI Aayog: Planning Commission had no basis to operate in a largely market driven economy. After two decades of economic reforms, India of 2014 was remarkably different from 1950s. Yet the institution compelled Chief Ministers, leading state governments via a popular mandate, to go begging to Yojana Bhavan. This was an insult to our democracy. Prime Minister changed this by shutting down Planning Commission and replaced it with National Institute for Transforming India – NITI Aayog. From being an allotting body, the institution became a ‘Think-Tank’ for the Government. Under the banner of ‘TEAM INDIA’, extensive dialogues began between Union & State Governments and focussed groups of CMs on myriad issues such as financial inclusion and food security. Even the seating arrangement at the meetings changed; from a theatre style where CMs were the audience and PM sat on the dais, to a round table wherein all leaders are considered equal stakeholders.

b.Finance Commission: The Union Government was quick to accept the recommendation of 14th Finance Commission of a record 42% of States’ share in the net proceeds of the Union tax revenues. This was a major leap from 32% suggested in the earlier Finance Commission and would go down as an important step in fulfilling the development agenda. With the outlay for all states increasing considerably, it would weaken the argument that rich states subsidise the poorer ones.

c.Ease of Doing Business: India was ranked a poor 134th in World Bank’s Ease of Doing Business Rankings in 2014. This was unbecoming of a country tipped to be the fastest growing economy in the world. With a million people joining the labour force each month, the difficulty in doing business presented a scary prospect for the future. Barring a few states such as Gujarat and Tamil Nadu, others didn’t consider it a priority to improve business environment. ‘Make in India’ campaign would fail if states weren’t on board. A solution for this was found by launching a transparent competition among states on a 340 point business reform agenda, monitored by Department of Industrial Policy & Promotion and World Bank. With sector by sector, state by state results in public domain, today states are working on a war footing to improve compliance and thereby attract investments.

d.Foreign Policy: Since 2014, State Governments have been extensively involved with India’s global outreach, despite diplomacy being the sole domain of Union Government. Visiting leaders no longer restrict to New Delhi for policy dialogues and visit other cities for mere ‘Bharat Darshan’; major events itself are now held in different states. Chinese President Xi Jinping met Prime Minister Modi in Ahmedabad. Jaipur hosted the Forum for India-Pacific Islands Cooperation. Goa was granted the opportunity to host BRICS 2016. As this article goes to press, Bhopal is hosting India-ASEAN Youth Summit. All Ambassadors of India have been assigned a state to boost ties with the country they are posted in. Chief Ministers are encouraged to visit foreign countries to seek investments and strengthen diaspora network.

e.GST: The idea of ‘One Nation One Tax’ caught national attention in 2003 when the then Prime Minister Vajpayee constituted a task force for GST, yet the dream was realised only on 1st July 2017. While many books could be written on GST’s benefits and flaws, the fact that all Finance Ministers, both State and Union, sat on the negotiating table and agreed to set tax rates applicable to over 1700 items, which would be common throughout India, is no mean achievement. Ego and political differences aside, this process involved potential loss of revenue in the initial years, enhanced competition and giving up the power to make decisions individually. This is a victory of co-operative federalism. Annual budget presentation won’t grab TRPs anymore.

These factors don’t imply that all issues have been resolved. Fiscal deficit at state level remain a cause of concern and it is premature to assess the impact of GST. Despite the push for learning from other states, there are doubts on bureaucracy’s ability to adapt.

Moreover, in a fast urbanising India, city administration’s role is critical. Would the state governments devolve more power to local bodies? Yet, the focus on strengthening the federal structure is yielding tremendous dividends already. North-East states, for instance, have never had it so good


The writer is an officer of Special Duty at Goa-IPB. He holds a Masters in Public Policy from King’s College London


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