India’s federalism is in need of a structural reset

India's Federalism Is in Need of a Structural Reset

1. At a Glance

• India's Constitution is federal in structure but with a pronounced centralising bias, drawing heavily from the Government of India Act, 1935, which concentrated power in New Delhi. [S1]
• The Finance Commission (a Constitutional body under Article 280) mediates fiscal federalism every five years; the 16th Finance Commission report (2026-31) was tabled in Parliament on 1 February 2026. [S2]
• States' share in central taxes stands at 41% of the divisible pool (15th FC recommendation); the 14th FC had raised it sharply from 32% to 42%. [S3][S4]
• Critical for UPSC: This topic spans GS-II (Polity — Centre-State relations, federalism) and surfaces regularly in both Prelims and Mains.

2. Why in the News

• M.K. Stalin, Chief Minister of Tamil Nadu, authored a high-profile opinion piece (The Hindu, 17 February 2026) arguing that India's federal architecture requires a structural reset — not mere tinkering — citing decades of centralisation, fiscal asymmetry, and erosion of State autonomy. [S1]
• The 16th Finance Commission report for 2026-31 (Chair: Dr. Arvind Panagariya) was tabled in Parliament on 1 February 2026, reigniting debate on devolution parameters, demographic weightage, and forest-area criteria. [S2]
• Delimitation controversy (ongoing 2024-26): Southern States fear post-delimitation loss of Lok Sabha seats as a consequence of better family-planning performance — directly linked to the federalism debate. [S1]
• Union Government released an extraordinary instalment of ₹1,73,030 crore in tax devolution to States in January 2025 (against ₹89,086 crore in December 2024), signalling fiscal pressure on States. [S4]

3. Background & Evolution

4. Core Static Facts

Constitutional Architecture - Article 245: Parliament makes laws for whole or any part of India; State legislatures for State territory. - Article 246 + Seventh Schedule: Three lists — Union List (List I, 97 entries), State List (List II, 66 entries), Concurrent List (List III, 47 entries). - Article 248 + Entry 97: Residuary powers vest with the Union (unlike USA where they vest with States). - Article 249: Parliament can legislate on State List subject if Rajya Sabha passes resolution by 2/3 majority. - Article 356: President's Rule — instrument of central override; misuse checked post-S.R. Bommai v. Union of India (1994). - Article 280: Finance Commission — appointed every 5 years by the President. - Article 263: Inter-State Council — advisory body for Centre-State coordination. - Article 279A: GST Council (inserted by 101st Constitutional Amendment, 2016).

Finance Commission (Key Numbers) - 13th FC: States' share = 32% [S4] - 14th FC: States' share = 42% [S4] - 15th FC (2021-26): States' share = 41%; cess & surcharge excluded from divisible pool. [S3] - 16th FC (2026-31): Chair — Dr. Arvind Panagariya; tabled 1 Feb 2026; new demographic parameter uses 1971-2011 population growth differential. [S2]

Devolution to Local Bodies - 73rd Amendment (1992): Eleventh Schedule — 29 subjects for PRIs; 12th Schedule for ULBs. - PIB (Feb 2025): Despite constitutional mandate, PRIs lack functions, funds, and functionaries (the "3Fs") in most States. [S5] - State Finance Commissions (SFCs) mandated under Article 243-I; implementation widely deficient.

Fiscal Data - Union Government released ₹1,73,030 crore in tax devolution (January 2025) vs ₹89,086 crore (December 2024). [S4] - Cess and surcharges (not shared with States) have grown significantly — a key grievance of States.

5. Multi-Dimensional Analysis

Economic

• States bear the bulk of capital expenditure (health, education, roads, irrigation) yet depend on Union transfers for liquidity; this vertical fiscal imbalance is structurally embedded. [S3]
• Rising cess and surcharges by the Union reduce the divisible pool, effectively clawing back devolution gains; 15th FC flagged this. [S3]
• Centrally Sponsored Schemes (CSS): over 130 schemes with matching State contribution requirements distort State budgets and priorities. [S2]
• PRS State of State Finances 2024-25 highlights persistent capital expenditure pressures on States, requiring enhanced unconditional grants. [S6]

Legal / Constitutional

• K. Santhanam's warning to the Constituent Assembly — that Union strength lies in disciplined refusal of responsibilities not properly national — remains the normative ideal against which practice is measured. [S1]
• S.R. Bommai v. Union of India (1994): federalism is part of Basic Structure; Article 356 use judicially reviewable.
• Article 249, 250, 252, 253: multiple routes for Union to encroach on State List — Parliament, Emergency, consent, international treaty.
• GST Council decisions: quasi-federal; States retain one vote each but Union can outvote them (Union = 1/3 voting weight, States = 2/3; decisions require 3/4 majority). [S2]

Administrative

• Concurrent List friction: both Parliament and State legislatures can legislate; Union law prevails on repugnancy (Article 254) — chilling effect on State initiative.
• All-India Services (IAS, IPS, IFoS): officers serve in States but are controlled/empanelled by Union — creates dual loyalty problem.
• Devolution to PRIs/ULBs (the "3Fs") remains constitutionally mandated but practically deficient — functions transferred on paper, funds not released, functionaries still under State departments. [S5]
• Governor's role increasingly contentious: withholding assent to State Bills (Article 200) cited by Tamil Nadu, Kerala, Punjab, Telangana.

Political / Governance (Ethical)

• The article's central thesis (Stalin, Feb 2026): Constitution designed with centralising bias for post-Partition reasons; those reasons no longer justify the same architecture. [S1]
• Cooperative federalism (NITI Aayog's framework) critiqued as rhetoric: NITI replaced Planning Commission but States have no statutory role in it.
• Delimitation: Southern States (TN, Kerala, Andhra) rewarded better family planning with fewer Lok Sabha seats — a demographic-federal asymmetry. [S1]

Historical

• Government of India Act, 1935: first federal scheme; residuary powers with Governor-General — the template carried into 1950 Constitution. [S1]
• Constituent Assembly debates: K. Santhanam's "positive and negative delimitation of powers" principle — federalism as restraint, not mere division. [S1]
• Sarkaria Commission (1983-88) and Punchhi Commission (2007-10): both recommended greater State autonomy; most recommendations shelved.

6. Recent Developments (Last 12–18 Months)

• 1 February 2026: 16th Finance Commission report (2026-31) tabled in Parliament by Finance Minister; Chair Dr. Arvind Panagariya. New devolution formula: demographic parameter now covers 1971-2011 population growth differential; forest cover includes both share in total forest and increase in forest area 2015-2023. [S2]
• January 2025: Union Government released ₹1,73,030 crore in tax devolution — an elevated instalment aimed at accelerating State capital spending. [S4]
• 17 February 2026: CM M.K. Stalin's article in The Hindu calling for a "structural reset" of Indian federalism — argued for autonomous States, efficient Union, accountable governance. [S1]
• February 2025 (PIB): Report on Status of Devolution to Panchayats highlighted persistent non-transfer of 3Fs; called for empowered State Finance Commissions. [S5]
• 2024-26: Multiple State Governments (TN, Kerala, Punjab, Telangana) publicly challenged Governor's withholding of assent to State Bills — escalated to the Supreme Court in some cases.
• Delimitation debate intensified in 2025-26 as the constitutional deadline for post-2026 delimitation approaches; Southern States have formally demanded a freeze on Lok Sabha seat reallocation. [S1]

7. Prelims Hooks

1. India's federal design draws primarily from the Government of India Act, 1935 — not from the US or Canadian Constitution. [S1]
2. Residuary powers under Article 248 + Entry 97 of Union List vest with the Union (unlike the USA, where they vest with States).
3. The 14th Finance Commission recommended the largest-ever increase in States' share — from 32% to 42% of the divisible pool. [S4]
4. The 15th Finance Commission recommended 41% (not 42%) because Jammu & Kashmir was bifurcated into two Union Territories. [S3]
5. 16th Finance Commission (2026-31) is chaired by Dr. Arvind Panagariya; tabled on 1 February 2026. [S2]
6. Cess and surcharges collected by the Union are not part of the divisible pool and are therefore not shared with States.
7. Article 279A (inserted by 101st Constitutional Amendment, 2016) established the GST Council.
8. Article 280 provides for the Finance Commission; it is appointed by the President of India, not Parliament.
9. Under the GST Council, the Union has one-third voting weight; States together have two-thirds; decisions require a three-fourths majority.
10. S.R. Bommai v. Union of India (1994): Supreme Court held that federalism is a part of the Basic Structure of the Constitution.
11. The 73rd Constitutional Amendment (1992) inserted the Eleventh Schedule listing 29 subjects for Panchayati Raj Institutions.
12. The Inter-State Council is provided under Article 263 — it is an advisory, not legislative, body.
13. K. Santhanam (not Ambedkar or Nehru) cautioned the Constituent Assembly that the Union's strength lies in disciplined refusal of non-national responsibilities. [S1]
14. Union Government released ₹1,73,030 crore in tax devolution to States in January 2025. [S4]
15. India's Constitution gives Parliament (not States) the power to legislate on Concurrent List subjects in case of repugnancy — Union law prevails under Article 254.

8. Mains Relevance

GS Paper: GS-II (Primary); minor GS-III angle (fiscal federalism)

Specific Syllabus Headings: - "Functions and responsibilities of the Union and the States; issues and challenges pertaining to the federal structure; devolution of powers and finances up to local levels and challenges therein." - "Statutory, regulatory and various quasi-judicial bodies." (Finance Commission, GST Council)

Plausible Mains Question Stems: 1. "India's Constitution is federal in form but unitary in spirit." Critically examine this statement in the context of evolving Centre-State relations since 1991. (250 words) 2. "The growing reliance on cess and surcharges by the Union Government undermines cooperative federalism. Analyse the implications for State finances and suggest structural reforms." (250 words) 3. "The Sarkaria Commission's recommendations on Centre-State relations remain largely unimplemented. In light of recent federal tensions, assess the need for a second-generation reform of Indian federalism." (250 words)

9. Related Topics to Study Next

10. Common Errors / Trap Areas

1. 14th FC vs 15th FC share confusion: 14th FC = 42%; 15th FC = 41% (due to J&K bifurcation). Aspirants frequently swap these.
2. Residuary powers: India's residuary powers vest with the Union (Article 248); the USA and Australia vest them with States. Canada is the opposite analogy — like India.
3. Article 263 vs Article 279A: Article 263 = Inter-State Council (advisory); Article 279A = GST Council (quasi-legislative/fiscal). Do not conflate.
4. Finance Commission vs NITI Aayog: Finance Commission is a Constitutional body (Article 280) with binding recommendations on tax devolution. NITI Aayog is an executive body with no constitutional status and no power to transfer funds.
5. "Federal" vs "Quasi-federal": The Constitution does NOT use the word "federal." Article 1 calls India a "Union of States" — this distinction matters for MCQs and essay framing.

11. Sources

• [S1] M.K. Stalin, "India's federalism is in need of a structural reset," The Hindu, 17 February 2026 — Article excerpt (Tier 4 — primary source provided)
• [S2] PRS India, "Report of the 16th Finance Commission for 2026-31" — https://prsindia.org/policy/report-summaries/report-of-the-16th-finance-commission-for-2026-31 — (Tier 1)
• [S3] PRS India, "Report of the 15th Finance Commission for 2021-26" — https://prsindia.org/policy/report-summaries/report-15th-finance-commission-2021-26 — (Tier 1)
• [S4] PIB, "Union Government releases tax devolution of ₹1,73,030 crore to State Governments" — https://www.pib.gov.in/PressReleasePage.aspx?PRID=2091732 — (Tier 1); also PIB, "14th Finance Commission — States' share raised to 42%" — https://www.pib.gov.in/newsite/printrelease.aspx?relid=115810 — (Tier 1)
• [S5] PIB, "Status of Devolution to Panchayats in States" (February 2025) — https://static.pib.gov.in/WriteReadData/specificdocs/documents/2025/feb/doc2025213501601.pdf — (Tier 1)
• [S6] PRS India, "State of State Finances 2024-25" — https://prsindia.org/files/budget/State_of_State_Finances-2024-25.pdf — (Tier 1)

Prepared for UPSC Prelims + Mains | GS-II | Centre-State Relations | June 2026