Cooperative and competitive federalism, and decentralisation as the third tier

Detail

1. Cooperative federalism: the framers' intended basis

• Cooperative federalism means the Union and the states work as partners, not rivals. They share goals, plan together and solve common problems jointly.
• Class 11 NCERT ("Federalism") says Centre-state relations in India are "based on cooperation". The Constitution gives the Union a strong centre, but it expects the two levels to work together.
• Granville Austin, a historian of the Constitution, called the Indian system cooperative federalism. It is a strong Union that depends on states to carry out its policies, so neither level can work alone.
• NCERT's conclusion uses the image of a "rainbow": many regional identities form one union. A cooperative federation keeps this unity while giving room to diversity.
• Constitutional tools that already exist:
• Inter-State Council (Article 263). The President can set it up to discuss shared subjects.
• Zonal Councils (States Reorganisation Act, 1956).
• Concurrent List (Seventh Schedule, List III). Both levels make laws on these subjects.
• GST Council (Article 279A, added by the 101st Amendment, 2016). It is a case of pooled sovereignty: the Union and states give up part of their separate tax powers and decide GST rates together. Details are in the fiscal-federalism note.

2. NITI Aayog Governing Council

• NITI Aayog Governing Council is NITI's top body, where the Union and states meet as equals to plan national goals. NITI Aayog itself is covered in the statutory and regulatory bodies note.
• Members:
• the Prime Minister (Chairperson);
• Chief Ministers of all states and of UTs with legislatures (Delhi, Puducherry, J&K);
• Lieutenant Governors of the other UTs;

• ex-officio members, the Vice-Chairperson and special invitees.

• First meeting: 8 February 2015.

• 9th meeting (27 July 2024): several opposition Chief Ministers boycotted it. They said the Union Budget 2024–25 treated their states unfairly (verify current).
• 10th meeting (24 May 2025):
• held at Bharat Mandapam, New Delhi, with the theme "Viksit Rajya for Viksit Bharat@2047" (developed states for a developed India by 2047) [2];
• attended by Chief Ministers and Lieutenant Governors of 24 states and 7 UTs [2];
• topics included skills in AI and semiconductors, linking rivers within states, women's empowerment and reducing compliance burdens [2].
• The PM said Viksit Bharat is "not the agenda of any party" but the wish of 140 crore Indians [2].

3. Other cooperative instruments

• Sub-groups of Chief Ministers (2015): NITI set up groups of CMs. One group studied how to rationalise centrally sponsored schemes (CSS: schemes the Union designs and part-funds, and states carry out). Its advice cut the number of schemes and changed the cost-sharing ratios.
• Aspirational Districts Programme (2018):
• It began in January 2018 and covers 112 of the most backward districts.
• It follows the "3Cs": Convergence of schemes, Collaboration between Union, state and district officers, and Competition among districts on monthly ranks.

• So it mixes cooperative and competitive federalism.

• COVID-19 (2020):

• The Union used the Disaster Management Act, 2005. The National Disaster Management Authority, chaired by the PM, ordered the national lockdown (24 March 2020).
• States enforced the orders through their own disaster authorities and the Epidemic Diseases Act, 1897.
• Video meetings between the PM and CMs set the rules for each phase.

4. How the courts see it

Case	Year	Principle
Government of NCT of Delhi v. Union of India (Constitution Bench)	2018	Collaborative federalism: the Union and the Delhi government must work in harmony. The Lieutenant Governor must usually act on the advice of Delhi's ministers and should not block them over every difference.
Union of India v. Mohit Minerals	2022	GST Council recommendations are persuasive, not binding. Federalism is a "dialogue" that includes both cooperative and uncooperative forms. States may disagree and bargain.

5. Competitive federalism

• Competitive federalism means states compete with each other, and sometimes with the Union, for investment, funds and better results. Rankings and rewards push them to improve.
• Main rankings:

Index	Body	Since	What it ranks
Business Reform Action Plan (BRAP)	DPIIT (formerly DIPP), with the World Bank at first	2015	Ease of doing business reforms in each state
SDG India Index	NITI Aayog	2018	Progress on the UN Sustainable Development Goals
State Health Index	NITI Aayog (with the Health Ministry and World Bank)	2018	Health outcomes and governance
School Education Quality Index (SEQI)	NITI Aayog	2019	School learning, access and equity
Export Preparedness Index	NITI Aayog	2020	States' readiness to export
Good Governance Index	DARPG	2019	Governance across sectors such as farming, health and justice
Fiscal Health Index	NITI Aayog	2025	Health of state finances

• Fiscal Health Index 2025 [4]:
• It ranks 18 major states on five sub-indices: quality of expenditure, revenue mobilisation, fiscal prudence, debt index and debt sustainability [4].

• Odisha came first with a score of 67.8, followed by Chhattisgarh (55.2) and Goa (53.6) [4].

• Finance Commission (Article 280): some of its tax-sharing criteria reward performance. The 15th Finance Commission (2021–26) gave weight to demographic performance (lower fertility) and tax effort. Details are in the fiscal-federalism note.

6. Critique of competitive federalism

• Race to the bottom:
• States offer tax holidays, cheap land and power to attract industry.
• They also compete with freebies before elections.

• Both weaken state finances.

• Wider regional gaps: rich, coastal and industrial states win most investment. Poorer states fall further behind.

• Cooperative words, centralising practice:
• Conditional schemes: states must accept Union conditions and pay a share to get CSS money.
• Advisory bodies without teeth: NITI Aayog has no power to give grants, unlike the old Planning Commission. The Inter-State Council meets rarely.

• Boycotts of the Governing Council, such as in 2024, show that trust has weakened.

• Better descriptions of reality:

• "Confrontational federalism": open conflict over Governors, central agencies and funds.
• "Bargaining federalism": states negotiate with the Union for money and powers.

7. Decentralisation: why a third tier is needed

• Decentralisation means taking power away from the Union and state governments and giving it to local government.
• Class 10 NCERT ("Federalism") explains why India needs it:
• Many states are as big as countries. Uttar Pradesh has more people than Russia. Maharashtra is about as big as Germany.

• So power must be shared inside states too.

• Why decentralise:

• Local knowledge: people understand local problems best.
• Efficiency: people know where money should be spent.

• Participation: people take part directly in decisions, which is the core of local self-government.

• Before 1992, local bodies were weak:

• elections were irregular or not held at all;
• states could dissolve local bodies at will;

• local bodies had no powers or money of their own.

• Article 40 (Directive Principles) asked states to organise village panchayats, but courts cannot enforce it.

8. The 73rd and 74th Amendments (1992)

• 73rd Amendment, 1992 (in force from 1993): added Part IX (Articles 243–243O) and the Eleventh Schedule, which lists 29 subjects for panchayats.
• 74th Amendment, 1992 (in force from 1993): added Part IXA (Articles 243P–243ZG) and the Twelfth Schedule, which lists 18 subjects for municipalities.

Feature	Panchayats (73rd)	Municipalities (74th)
Regular elections, with a 5-year term and a fresh election within 6 months of dissolution	Art. 243E	Art. 243U
Seats reserved for SC and ST in proportion to population	Art. 243D	Art. 243T
At least one-third of seats and chair posts for women	Art. 243D(3), (4)	Art. 243T(3), (4)
Reservation for backward classes (OBC), which states may provide; it is not compulsory	Art. 243D(6)	Art. 243T(6)
State Election Commission to hold local elections	Art. 243K	Art. 243ZA
State Finance Commission every 5 years, to share state revenue with local bodies	Art. 243I	Art. 243Y
Duty to devolve powers for planning and development	Art. 243G (Eleventh Schedule)	Art. 243W (Twelfth Schedule)

• Gram sabha (Article 243A) is the body of all voters in a village. It is meant to approve plans and check the panchayat's work.
• Details are in the panchayati-raj and urban-local-government notes. The concept of decentralisation is in the state-government-governance note.

9. Devolution in practice

• Devolution means really handing over the "3Fs":
• Funds (own taxes and grants);
• Functions (the subjects in the Eleventh and Twelfth Schedules);

• Functionaries (staff who work under local bodies).

• Uneven in practice:

• The Constitution lets each state decide how much to devolve under Article 243G. So devolution differs a lot between states.
• Gram sabhas meet irregularly, and attendance is low.

• Many states have not given local bodies enough powers or money.

• Number of local representatives:

• About 31 lakh elected representatives serve in local governments [5] (NCERT: about 36 lakh).

• About 14.5 lakh (46%) of them are women [5]. This is much more than the one-third minimum.

• MoPR devolution ranking:

• The report "Status of Devolution to Panchayats in States – An Indicative Evidence Based Ranking" was released on 13 February 2025 [3].
• It scores states on six dimensions: Framework, Functions, Finances, Functionaries, Capacity Enhancement and Accountability [3].
• Top 3: Karnataka, Kerala, Tamil Nadu, followed by Maharashtra, Uttar Pradesh, Gujarat, Tripura, Rajasthan, West Bengal and Chhattisgarh. All top-10 states scored above 55 [3].
• Kerala leads on the mandatory framework, Tamil Nadu on functional devolution and Karnataka on financial management [3].

10. Comparison: participatory budgeting

• Participatory budgeting means ordinary citizens directly decide how part of a public budget is spent.
• Porto Alegre, Brazil (from 1989):
• The city had about 13 lakh people.
• Neighbourhood meetings discuss needs and elect delegates. The delegates then help shape the city budget.
• About 20,000 people take part each year.

• Results: spending moved towards poor areas, buses reached poorer neighbourhoods, and no one could be evicted without being resettled.

• Kerala's People's Plan Campaign (1996):

• This is the Indian parallel.
• The state gave about 35–40% of its plan funds to local bodies.
• Gram sabhas drew up local development plans from the bottom up.

Prelims Hooks

• The NITI Aayog Governing Council first met on 8 February 2015. Its 10th meeting (24 May 2025) had the theme "Viksit Rajya for Viksit Bharat@2047".
• Governing Council members include Chief Ministers of UTs with legislatures but Lieutenant Governors of other UTs. This is a common trap.
• GNCTD v. Union of India (2018) gave "collaborative federalism". Mohit Minerals (2022) held that GST Council recommendations are not binding and described federalism as a "dialogue".
• The GST Council is in Article 279A (101st Amendment, 2016). The Inter-State Council is in Article 263.
• The 73rd Amendment added Part IX and the Eleventh Schedule (29 subjects). The 74th added Part IXA and the Twelfth Schedule (18 subjects).
• Reservation for women (one-third) and for SC/ST is mandatory. Reservation for backward classes is left to the states (Art. 243D(6)).
• State Election Commission is in Art. 243K (panchayats) and 243ZA (municipalities). State Finance Commission is in Art. 243I and 243Y.
• Panchayat Devolution Index (February 2025): Karnataka, Kerala and Tamil Nadu are the top three. It has six dimensions, including Capacity Enhancement and Accountability.
• Fiscal Health Index 2025 covers 18 major states. Odisha is first with 67.8.
• BRAP is run by DPIIT (since 2015). The Good Governance Index is run by DARPG. The SDG India Index is run by NITI (since 2018).

Mains Points

• Cooperative versus competitive federalism:
• Rankings such as BRAP, the SDG Index and the Fiscal Health Index push states to improve.
• But they can start a race to the bottom on tax breaks and freebies, and they can widen regional gaps.

• A balance is needed: compete on outcomes, cooperate on resources, as in the Aspirational Districts model.

• Rhetoric versus practice:

• NITI has no power to give grants, and the Inter-State Council meets rarely.
• Conditional CSS, the 2024 boycott of the Governing Council, and conflicts over Governors show "confrontational" and "bargaining" federalism.

• Reforms: regular Inter-State Council meetings, as the Sarkaria and Punchhi Commissions recommended; fewer and more flexible CSS; and giving NITI a real role in sharing funds.

• Weak third tier:

• Devolution of the 3Fs depends on each state's goodwill (Art. 243G), so it is uneven, as the 2025 Devolution Index shows.

• Reforms:

  • make "activity mapping" of the 3Fs mandatory;
  • act on State Finance Commission reports on time;
  • give local bodies their own revenue sources;
  • make gram sabhas stronger.

• Lessons from Porto Alegre and Kerala: participatory budgeting can turn decentralisation into real power for citizens. It also makes spending fairer to the poor and makes local bodies more accountable.