- culture, spiritual

Federal Competitiveness – a paradigm shift in center – state financial relationship

Dr. Kumar Bijoy

Article 1 of the constitution declares that India, that is Bharat, shall be a Union of States. Part XI of the Indian constitution defines the power distribution between the federal government (the Centre or union) and the States in India. This part is divided between legislative, administrative and executive powers. The financial relationship between the center and states as covered in Part XII of the Indian Constitution, including Article 280 that deals with the mandate for setting up a periodic Finance Commission. Indian Constitution is said to be federal in form, but unitary in spirit.


The phrase “unitary bias” arises because residuary powers—the power to legislate on matters not enumerated in the central, state or concurrent list of subjects—is given to the center under Article 248.


In any federation, to the extent possible, States should be financially self-sufficient so that they enjoy maximum autonomy and write their growth story on their own, but in India, the States dependence on the Centre for all development make it impossible. It is evident from the reaction of Mr. Narendra Modi, the then chief minister of Gujarat, in 2012, on the eve of Republic Day about the Centre’s “systematic onslaught on the federal structure” – “It is high time the Centre realizes that giving to the states what rightfully belongs to them will not weaken the Centre. The states must co-ordinate with the Union Government and not remain subservient to it. Co-operative and not coercive federalism must be the norm in our country”.



Two years since assuming office, the government has taken many steps to economically empower states and make them key stakeholders in India’s development agenda. The sharp increase in share of untied funds to states from the pool of central taxes to 42% (from 32% now) as well as giving states more say and flexibility in centrally sponsored schemes can be counted as a big push to cooperative federalism and Modi’s ‘Sab ka Saath Sub Ka Vikas’.



But development of Pan India is possible only when states are ready to take advantage of the changing scenario on economic front and on center-state financial relationship. Now the time has come where states’ GDP growth rate is equally in lime light as of India’s GDP or States ranking in ease of doing business has become one of the important factor for FDI destination within country.


Even after seven decades of independence Indian states can easily be grouped as advanced, developing, backward and most backward. To achieve and sustain high GDP growth rate (more than 9%pa) of India, states should participate very actively in the development process like ‘Make in India’, ‘Digital India’ etc. States should compete against each other not only in attracting the investment from outside but for center’s ambitious program as well without allowing any politics in between. Political differences should not be the road block for economic alliance between State and center.



State should actively participate in national reform agenda and avail the opportunities created with the support of central government. Establishing more and more economic activities, developing infrastructure, maintaining law and order and good governance are the mantras for sustainable growth for any state but backward states have to act faster, continuous and for longer period to come at par with already developed states.


The central government needs to handhold these backward states through policy provisioning on account of various fronts ranging from tax incentives, additional fund allocation to transferring the national projects specially related to capacity building to those states under big bang theory. Chief Ministers of all North East states, Bihar, Orissa, Jharkhand, and Chhattisgarh should proactively engage themselves in making their states as the first destination for the agent of development. This will be a win-win situation for both state and center and will certainly be a game changer in the future.


Dr. Kumar Bijoy is Head – Department of Management Studies SSCBS –DU

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