Federalism Under Assault

Former President of the Centre for Policy Research and political commentator Yamini Aiyar spoke in defence of federalism as a Constitutional principle. She said that federalism should not be understood merely as an arrangement of institutions, procedures and fiscal rules. Rather, it embodies political restraint, negotiation and the recognition that citizens can inhabit multiple regional and subnational identities while remaining fully Indian. In her view, the pressing challenge to Indian federalism lay in the ideological turn toward majoritarianism which treated plural political identities and democratic deliberation as impediments. She criticised the rhetoric of the “double engine” model, under which having the same party in power at the Union and State levels is presented as a guarantee of development. She said that this narrative undermines the constitutional premise of federalism by portraying dialogue and regional difference as obstacles to growth. It seeks to delegitimise those features of federalism that allow India’s diversity to be represented. She also pointed to a structural paradox within Indian federalism. While States often demand autonomy and resist intrusion by the Centre, they frequently reproduce centralisation within their own state by refusing to devolve power and resources to local bodies. In her view, any serious defence of federalism must therefore extend beyond the Union-State relationship and include a commitment to grassroots democracy. She observed that a very small proportion of public expenditure takes place at the local government level, which she described as a major weakness in India’s democratic structure. Turning to fiscal federalism, Aiyar said that the Union had long used centrally sponsored schemes to shape State priorities, but that more recent reliance on cesses and surcharges had deepened the problem because those revenues are not shareable with the States. The result has been a contraction of the divisible pool available for devolution. She also referred to debates around the Sixteenth Finance Commission, warning against approaches that would cap cesses and surcharges only in exchange for reducing the States’ baseline share of tax devolution, or schemes that would seek to bypass States in the name of directly empowering local bodies. In her view, such proposals risked producing a merely “de-concentrated” system rather than actual decentralisation. She further drew attention to widening social and economic disparities across regions. Some southern and western States, she said, were showing levels of productivity and growth far in excess of poorer northern States. This had led to debates between the principle of equality (between all States) and equity (whether the economic performance of each State should be considered). The question was how to preserve a constitutional commitment to equal citizenship while also addressing the frustrations of States that generate greater fiscal capacity. She said these issues would become especially acute in the context of representation and delimitation, and argued that the Union government was not presently in a position of sufficient trust to lead a dialogue. States themselves would have to initiate dialogue among one another and also demonstrate internally a greater willingness to honour federal principles, including by constituting State Finance Commissions.