TABLE

CHAPTER TITTLE PEG NO

1 INTRODUCTION

2
REVIEW OF LITERATURE

3 DATA ANALIYES

4 FINDING AND CONCLUSION

BIBLIOGRAPHY
CHAPTER -1

1.Introduction:

Cooperative federalism, also known as marble-cake federalism, is defined as a flexible

relationship between the federal and state governments in which both work together on a variety
of issues and programs.

Cooperative federalism means a combination of cooperation and interdependence between the

Centre and the States to ensure smooth governance of the country

An example of cooperative federalism during the Great Depression was the passage and
implementation of the Federal Emergency Relief Act in 1933. This act created public works
programs such as the Civilian Conservation Corps and allocated over three billion dollars in
grants to state governments.

The contractual sharing of public responsibilities by all governments in the system appears to be

a fundamental characteristic of federalism. Sharing, broadly conceived, includes common
involvement in policy making, financing, and administration

So, our federalist form of government has several advantages, such as protecting us from
tyranny, dispersing power, increasing citizen participation, and increasing effectiveness, and
disadvantages, such as supposedly protecting slavery and segregation, increasing inequalities
between states, states blocking national 

Cooperative federalism is a concept of a stable relationship between the centre and state
governments to coordinate on issues of common interests. Granville Austin mentioned Indian
federalism as “cooperative federalism”.

Federalism is part of the basic structure of the Indian constitution which cannot be altered or
destroyed through constitutional amendments under the constituent powers of the Parliament
without undergoing judicial review by the Supreme Court.

Federalism is a system of government in which the power is divided between a central authority
and various constituent units of the country. Usually, a federation has two levels of government.
One is the government for the entire country that is usually responsible for a few subjects of
common national interest.
Federalism is a system of government in which power is divided between a central authority and
constituent political units.

The Constitution of India establishes a federal structure to the Indian government, declaring it to
bea "Union of States".

Indian model of federalism is called quasi-federal system as it contains major features of both a
federation and union

1.1 Issues Revolving Federalism

For a country like India which is divided on the linguistic and communal basis, a pure federal
structure could lead to disruption and division of states. India’s federal character has undergone,
over the past sixty years, many trials and tribulations.

Formation of Telangana under Article 3 of the constitution raised a lot of questions against the
federal nature of the polity.

100th amendment of the constitution where land was transferred to Bangladesh posed as a
threatto federalism in India.

On the introduction of GST, critics argue on the autonomy of states. With too much power
given to a state, it may want to shift away from the union.

Jammu & Kashmir’s special powers are in question in the public time and again. The continued
existence of provisions such as Article 356 (President’s rule) goes against the grain of
federalism.

States such as Karnataka, Tamil Nadu have asserted their linguistic and cultural rights in the
wake of the Centre’s interventions such as a promotion of Hindi

1.3ADVANTAGE OF THE IMPORTANCE OF CO-OPERATIVE FEDERALISM:

1. Division of Powers: In a federal government the powers of administration are divided

between the centre and the units. The powers may be distributed in two different ways. Either the
constitution states what powers the federal authority shall have, and leaves the remainder to the
federating units, or it states what powers the federating units shall possess and leaves the
remainder to the federal authority. The remainder is generally known as residuary powers. The
first method was employed in America and the second in Canada. The federal government in
U.S.A., for example, is weak in relation to the states whereas the federal government in Canada
is more powerful. In a federation both the federal and state governments are independent and
autonomous in the spheres of their powers. 'One is not subordinate to the other. Both derive their
powers from the constitution which is the supreme law of the land. The powers enjoyed by the
units are, therefore, original and not delegated by the centre.

2. Separate Government: In a federal form of government both the centre and the units have their
separate set of governmental apparatus. America is a federation of states. States have therefore
separate legislatures and Separate executives.

3. Written Constitution: A federal government must have a written constitution. As a federation

is a political partnership of various states and consequently there must be a written agreement in
the form of a written constitution.

4. Rigid Constitution: The constitution of a federation should be more or less rigid. It is regarded
as a sacred agreement, the spirit of which should not be easily violated. A flexible constitution
allows a scope to the central government to curtail the autonomy of the federating states.

5. Special Judiciary: In a federation, there are possibilities of constitutional disputes arising

between the federal centre and the units or between one unit and another. All these disputes are
to be adjudicated in the light of the constitution. For this purpose a special judiciary with wide
powers must be established. It should act as the custodian and guardian of the constitution. It
should be vested with powers of declaring any law, national or local, ultra vires if it is at variance
with the articles of the constitution. The constitution is thus the supreme law in a federation to
which both the centric and the state must adhere to

6. A Better Understanding of Local Issues and Demands – The central government has no true
way to understand what issues, demands and changes need to be made in every area of the
country. This is why federalism is such a great advantage. The smaller branches of the local
governments are right in the middle of the local society. They are better suited to deal with the
true things that need to be changed.

7. Increasing Citizen Participation – By not centralizing all power into the hands of a national
government, but sharing that power with state governments, which are closer to the level of the
common citizen, our founders actually increased a citizen’s ability to affect their government,
government policy, and law-making.

8. As a Protection Against Tyranny – One of the most important points of federalism in dividing
the power between the national government and state governments, and spreading the national
government’s power among three branches that serve as a check and balance on each other, is
that it serves as a deterrent to tyranny and runaway power. The protections we have in our
system against a tyrannical, runaway government are one of the most important points to why the
system was designed the way it was.
 9. More Efficient – When some of the power of the government is dispersed among the states,
giving states the right to solve some of their own problems, you allow for more efficiency within
the system. To try to have a national solution to all problems, which could be referred to as a
‘cookie-cutter method’ of law and policy making, you end up with solutions that are more
effective in some states, and less effective in others. To allow states to create solutions to their
own problems, using policies and laws that work best in their state, means that each state can
come up with its own solution, making government/governance more efficient.

10. Innovation in Law and Policy is Encouraged – By allowing for many state governments,
different sets of policies can be tried, and the ones found most effective at solving its problems
can then be implemented in other states, or on the national level. Imagine Christopher Columbus
trying to get funding to voyage across the Atlantic Ocean if there was a unified Europe back
then, with its head saying ‘no!’ to him; instead, he had several governments from which he could
try to get his funding – he got turned down by several governments before Spain gave him the
okay. The same principle applies today with our many states – something that is rejected in one
state can most likely be tried in another state, with competition leading the way, based on
effectiveness of those laws.

11. State Governments Can be More Responsive to Citizen Needs – The closer a government
entity is to its citizens, the more likely it is the respond to the needs of citizens. States are more
likely to listen to citizen needs, and respond to them, than the national government would be.

1.4The Disadvantages of Federalism;

1. Conflict of Authority – The biggest problem that arises when you have two bodies of
government in power is the power struggle. Both central and state government intend to assert
their power over the other which at time causes conflict between them. Even the longterm
conflict between the central and state government can create hurdles in way of national
development and prosperity.

2. Regionalism Over Patriotism – The mark of a great country is just how patriotic and prideful
the citizens is to be a part of it. Federalism, since it promotes smaller level of government, it also
promotes smaller levels of pride. It can begin to pit one region against another and take away
from the feeling of patriotism that should be present all over the entire country.

3. A Lack of Accountability – With the responsibility of the government being shared, it

becomes very easy for one sector to release responsibility for the other, and vice versa. This can
become a very large problem because if something goes wrong, both sides of the government can
relinquish control for the responsibility.

4. Inequalities Between States – The federal form of government allows for regional inequalities
between different states. For example, instead of education funding throughout the country being
the same, since it is a state issue, some states will spend more, per capita, on education than other
states, causing what could be considered a disparity. The same goes for other things, as well,
such as taxes, health care programs, and welfare programs which increases regional inequality
amongst the different states.

5. The Blockage of Nationalist Policies by States – States can fight against the existence of
certain national laws by challenging them in court, or going out of their way to not enforce those
national laws, or even deliberately obstructing enforcement of national laws.

6. Federalism makes the state weak because there is always a conflict going on between the
center and the federating units and as a result of this both the federal government and the
federating units suffer. This also results in delays and inefficiency and leads to the weakness of
the state.

7.Inefficiency in Management – Cooperative societies are unable to attract and employ expert
managers because of their inability to pay them high salaries. The members who offer honorary
services on a voluntary basis are generally not professionally equipped to handle the
management functions effectively.

8.Government Control – Cooperative societies have to comply with several rules and regulations
related to auditing of accounts, submission of accounts, etc.

9.Differences of Opinion – There are often internal quarrels due to differences of opinions and
lack of cooperation among members. It leads to difficulties in decision-making. Some members
attempt to give preference to personal interest at the cost of welfare motive.

10.Lack of Secrecy – Affairs of cooperative society are openly discussed in the meetings of
members and its accounts are published. So, it is difficult to maintain secrecy about the
operations of a cooperative society.

1.5Objectives of study

 The objectives of a federal system are as follows: To provide sovereign powers to

both the Centre and the States. To safeguard and promote the unity of the country,
while at the same time accommodate regional diversity.

 A cooperative society is formed with the main objective to serve the people and
develop the economic condition within society. A cooperative society, also known as
cooperation, is formed when a group of individuals comes together for a certain
benefit

1.6 Methodology of study

What is federalism and how it is important for India

Federalism is part of the basic structure of the Indian constitution which cannot be altered or
destroyed through constitutional amendments under the constituent powers of the Parliament
without undergoing judicial review by the Supreme Court

1.7importance of Indian federalism

Federalism is part of the basic structure of the Indian constitution which cannot be altered or
destroyed through constitutional amendments under the constituent powers of the Parliament
without undergoing judicial review by the Supreme Court.

1.8 important features of federalism explain

 (1) Clear division of powers between the Centre and the states,

(2) Independent Judiciary,
(3) Bicameral Legislature,
(4) Dual government polity,
(5) Supremacy of constitution

CHAPTER ARRANGEMENT

Chapter 1: introduction, Methodology of study, Objectives of study

Chapter 2:review of literature,international review,national review

Chapter 3: data analiyes

Chapter 4 finding and conclusion

CHAPTER-2

REVIEW OF LITERATURE

2.1 Introduction

The concept of Federalism although not mentioned explicitly in the Constitution, it was one of
the elements which was introduced before India had attained its freedom, by the Government of
India Act, 19193 . By this act there was separation of powers between the Central and the
Provincial legislatures. India is a quasi-federal system which has characteristic of both unitary as
well as federal form of government. Article 1 of the Indian Constitution mentioned India as a
Union of States and not a federation of States. Since, India is quasi federal in nature, it depicts
properties of both unitary government as well as Federal Government4 . India can be termed as a
Union because there is an incline of power towards the Central Government especially in the
matters of Concurrent list which have been stated under the Schedule 7 of the Constitution5 ,
which states that in cases of disputes or conflicts between the Union and State laws with respect
to matters enumerated in the Concurrent list, the Union law will prevail to the extent of such a
conflict. On the other hand, India is term as a Federation because of the concept of supremacy of
the Constitution which is one of the basic features of the Constitution, there is also a Government
established in the form of a three-tier level.

2.2Federal Features of India

In India there is three-tier level government i.e., Central Government, State Government and the
Panchayats for local governance which is a federal concept. There is also division of powers
between the Centre and the State by the Schedule 7 7 of the Constitution which consist of 3 lists ,
the union list which empower the union to make laws on matters enumerated in this list e.g.-
Défense, Foreign Affairs, Currency and Coinage, War and Peace, the state list which empower
the State to make laws with matters enumerated such as agriculture , police land , prison and the
concurrent list which empower both the Centre as well as the State to make laws , some of the
matters which fall under the Concurrent list are Education , Forest , Public health , Trade unions .
In the case of Pradeep Jain v Union of India8 , the Supreme Court expressed the view that India
is not federal state in its traditional sense but undoubtedly has certain federal features In India,
supremacy of the Constitution is a basic structure and considered indestructible by any of the
organs of the government, is another example of federalism in India.:

2.3 Research/Scholar Index

 1963 AIR 1241The Government of India Act, 1919

 Ambar Kumar Ghosh, “The Paradox of ‘Centralised Federalism’: An Analysis of the

Challenges to

 India’s Federal Design,” ORF Occasional Paper No. 272, September 2020 Indian Constitution,
schedule 7

2.4 INTERNOTIONAL REVIEW

1)Rebecca Bromley-Trujillo, Mirya R Holman. Publius: The Journal of Federalism, Volume

50, Issue 3, Summer 2020, Pages 446–472,, In this article, we evaluate the state of climate
change policymaking in state legislatures, with a focus on overall trends in climate mitigation
and adaptation innovation and cases of policy retrenchment. We document an increased level of
climate legislation introduced in U.S. states since President Trump’s election, particularly in
states under Democratic Party control.

2) Greg Goelzhauser, David M Konisky: Publius: The Journal of Federalism, Volume 50,
Issue 3, Summer 2020, Pages 311–343In this Annual Review of American Federalism overview
article, we introduce the concept of punitive federalism and discuss its application to
contemporary public policy. We also highlight federalism implications concerning the COVID-
19 pandemic; discuss recent policy

3)Chanchal Kumar Sharma et al. Publius: The Journal of Federalism, Volume 50, Issue 4, Fall
2020, Pages 566–592This article situates the international activities of subnational governments
in India within the broader political economy of federalism. It argues that the nature and the
extent of subnational states’ engagements in international affairs are a function of the partisan
political relationship the state incumbents have with the national incumbents. 

4)Daniel J Mallinson, A Lee Hannah Publius: The Journal of Federalism, Volume 50, Issue 3,
Summer 2020, Pages 344–369Policy diffusion studies often infer that learning occurs, but
statistical analyses cannot demonstrate it definitively. The spread of medical marijuana offers the
opportunity to take a closer look at whether policy and political learning occur during diffusion. 

5)Nicholas F Jacobs, B K Munis Publius: The Journal of Federalism, Volume 50, Issue 4, Fall
2020, Pages 544–565, Publius: The Journal of Federalism, Volume 50, Issue 4, Fall 2020, Pages
544–565, A growing number of scholars have documented how social identities defined by an
attachment to place influence individuals’ understandings about political power and
representation. Drawing on this theoretical framework, we explore how place-based identities
matter for American federalism by documenting how attachments to the American states alter
individuals’ decisions to leave, or exit, as well as to welcome newcomers into their local
communities.

2.5NATIONAL REVIEW
1)Kevin D. Williamson is a former fellow at National Review Institute and a former roving
correspondent for National Review.

2)Steve Bannon’s Gravy Train Gets DerailedFormer Trump White House chief strategist Steve
Bannon exits the New York Criminal Court after surrendering and attending an arraignment in
New York, N.Y., September 8, 2022.

3)Joe Biden delivers remarks on what he calls the “continued battle for the Soul of the Nation”
in front of Independence Hall at Independence National Historical Park in Philadelphia, Pa.,
September 1, 2022.(Jonathan Ernst/Reuters)

4)JASON W. MOOREOrganization & Environment Vol. 15, No. 3 (September 2002), pp. 301-
322 (22 pages) Published By: Sage Publications, Inc. https://www.jstor.org/stable/26162192

5)Randy Pollard, Flint Johnson, Lesley Chapel. Explore feudalism in Medieval Europe.
Discover feudalism’s origin and significance, learn how European feudal societies were
structured, and understand its legacy and why the system ended. Updated: 11/12/2021

6)North, D C.  Journal of European Economic History; Rome Vol. 6, Iss. 2, (Fall 1977): 508.
W. Kula: An Economic Theory of the Feudal System.

7)W. Kula: An Economic Theory of the Feudal System (Book Review) North, D C.  Journal of
European Economic History; Rome Vol. 6, Iss. 2, (Fall 1977): 508.

2.6 Summary
Feudalism, also called feudal system or feudality, French féodalité, historiographic construct
designating the social, economic, and political conditions in western Europe during the early
Middle Ages, the long stretch of time between the 5th and 12th centuries. Feudalism and the
related term feudal system are labels invented long after the period to which they were applied.
They refer to what those who invented them perceived as the most significant and distinctive
characteristics of the early and central Middle Ages

Use of the terms associated with feudum to denote the essential characteristics of the early
Middle Ages has invested the fief with exaggerated prominence and placed undue emphasis on
the importance of a special mode of land tenure to the detriment of other, more significant
aspects of social, economic, and political life.

CHAPTER-3

DATA ANALIYES

3.INTRODUCTION

Fiscal relations in India between the union and state governments have undergone significant

changes in recent years. Three landmark changes in union-state fiscal relations since 2015-16
have been: (i) the abolition of the Planning Commission in January 2015 and the subsequent

creation of the NITI Aayog; (ii) fundamental changes in the system of revenue transfers from the

centre to the states by providing higher tax devolution to the states from the fiscal year 2015-16

onwards based on the recommendations of the Fourteenth Finance Commission (14th FC); and

(iii) the Constitutional amendment to introduce the Goods and Services Tax (GST) and the

establishment of the GST Council for the central and state governments to deliberate and jointly

take decisions.

These changes have far-reaching implications for union-state fiscal relations and the

provisioning of public services.

After the constitution of the 15th Finance Commission (15th FC) and the formulation of its Terms

of Reference (TOR), whose award will cover the period (2020-21 to 2024-25), the discussions

and debates that followed have highlighted many important issues on the the very nature of

union-state fiscal relations 1  in India and the framework that may emerge in the future.

These debates have centred around three broad themes: (a) the role the Constitutional body that

is the Finance Commission should play in providing conditional and unconditional transfers to

the states, (b) the use of the transfer system to achieve development and policy outcomes and (c)

the future framework of sub-national (state government ) borrowing.

The TOR of the 15th FC have also raised concerns among a group of states on the use of the

population of each state as recorded in the 2011 census for the determination of resource needs.

This replacement of the 1971 population numbers, which have been used the past three decades,

by the 2011 population has worried the states which have been successful in reducing their

population growth since 1971. Their concern is that it will affect the 15 th FC transfers to them

and favour those who have not been as successful in lowering population growth rates. This
potentially adverse impact on the “horizontal” allocation of resources, as it is called, has been

another focus of debate.

This article analyses some of these issues and their possible implications for union-state fiscal

relations.

3.1Fragmented Transfer System: Conditional and Unconditional Grants

A “fragmented” transfer system is an important feature of the Indian federal fiscal arrangements

between the union and the states.

The financial resources transferred (or devolved) from the union to the states flow through

different streams which could broadly be classified as (i) general purpose transfers (the states can

spend these resources on priorities that they can draw up) and (ii) conditional transfers (the

centre transfers resources which the states have to spend on programmes and schemes that the

former has drawn up)

The share of general purpose transfers, 1  which are unconditional in nature and come with no

strings attached, in total central transfers increased from 51.41% in 2011-12 to 59.95% in 2017-

18 (Budget Estimates or BE), while that of specific purpose transfers, which are conditional in

nature, have declined from 48.59 % to 40.05 % during this period (Figure 1). In other words,

around 40 % of total transfers are still linked to various schemes and are therefore conditional.

The primary drivers of these large conditional transfers are the various Centrally Sponsored

Schemes (CSS). Transfers made under the CSS are outside the purview of resource transfers

drawn up by the Finance Commission. These transfers are used by the central government to

improve development outcomes in specific sectors, primarily social and economic services.

Given this institutional reality, when a large part of the transfers from the union to the states falls

outside the ambit of the Finance Commission, what role can the Finance Commission really play
in relation to conditional transfers? This requires a review of the conditional transfers provided

by Finance Commissions themselves, their relative importance in total transfers, the design of

conditional transfers, and, finally, their impact on spending and outcomes in delivery of services

by the states.

The 12th FC had emphasised that grants provided a more effective mechanism than tax

devolution to achieve what is called “equalisation” among the states, or achieving the same level

of social and economic services across states. The 12th FC therefore gave a higher degree of

importance to transfers through grants and increased the share of grants in total transfers. These

grants were conditional grants. The Commission had emphasized that “grants are the more

effective transfer instrument for State specific and purpose specific targeting” (12 th FC Report,

p.14).

Until the 11th FC, the composition of transfers recommended by successive Commissions was

heavily tilted in favour of tax sharing . The share of tax devolution in total Finance Commission

transfers declined to 81 % following the recommendations of the 12th FC, from the high of 92%

as recommended by the 7th FC.. The moderate shift away from tax sharing and towards grants by

the 12th FC was seen as an instrument to achieve greater horizontal equity among the states. In

the case of the 13th FC award, the share of tax devolution rose again due to the corresponding

decline in conditional grants, and went even higher in the 14th FC award (Table 1).

3..3TABLE :1 COMPOSITION OF TRANSFERS RECOMMENDED BY FINANCE

COMMISSIONS
The TOR of 15th FC indicate an intent to achieve a set of policy outcomes at the state level in

various sectors through conditional grants.

The TOR stated,

The Commission may consider proposing measurable performance-based incentives for States,
at the appropriate level of government, in following areas:
 (i) Efforts made by the States in expansion and deepening of tax net under GST;

(ii) Efforts and Progress made in moving towards replacement rate of population growth;

(iii) Achievements in implementation of flagship schemes of Government of India, disaster

resilient infrastructure, sustainable development goals, and quality of expenditure;

(iv) Progress made in increasing capital expenditure, eliminating losses of power sector, and
improving the quality of such expenditure in generating future income streams;

(v) Progress made in increasing tax/non-tax revenues, promoting savings by adoption of Direct
Benefit Transfers and Public Finance Management System, promoting digital economy and
removing layers between the government and the beneficiaries;
(vi) Progress made in promoting ease of doing business by effecting related policy and
regulatory changes and promoting labour intensive growth;

(vii) Provision of grants in aid to local bodies for basic services, including quality human
resources, and implementation of performance grant system in improving delivery of services;

(viii) Control or lack of it in incurring expenditure on populist measures; and

(ix) Progress made in sanitation, solid waste management and bringing in behavioural change to
end open defecation.It may not be inaccurate to interpret “measurable performance-based
incentives” as an effort to introduce conditionality-driven transfers through the Finance
Commission. This brings us to the two issues of, one, the availability of fiscal space with the
Finance Commission for making conditional grants after tax devolution, and, two, the
desirability of such grants and the effectiveness of such transfers.

If a large share of Finance Commission transfers is set aside for conditional transfers, will this

not fundamentally alter the way resources flow through the Finance Commission to the states?

Would not transfer of resources by the mechanism of grants instead of tax devolution affect the

freedom and manoeuvrability of the states in setting priorities?

On the issue of desirability and effectiveness, we need to evaluate the share of sector-specific

conditional Financial Commission transfers in total sectoral expenditure. How large are these

conditional transfers as a share of total spending by the states in specific sectors? In other words,

the issue is the volume of conditional grants provided by Finance Commissions and their ability

to change states’ spending behaviour.

3.4 The 14th FC in its report argued:

[T]he grants provided by the Finance Commission constitute a very small part of the total
expenditure by States on the concerned sectors. It is also difficult to establish the effectiveness of
these sector specific grants because there is no continuity in the sectoral priorities from one
Finance Commission to another. In some cases, the links between the conditionalities and the
outcomes have also been questioned by some States. Furthermore, there are far too many
elements of discretion involved in identifying the sector, allocating the amounts and designing
the conditionalities.
The 14th FC further noted:

If the sector specific grants of the Finance Commission have not been effective, it may be partly
because of the Finance Commission is not a permanent body and it would not be possible for it
to implement and monitor the conditionalities.       

At the same time the 14th FC recognised that

there is a case for transfers from the Union to the States for specific sectors or areas, especially
those with a high degree of externalities. Given the vast variation in systems and institutions, the
involvement of States in the design of such schemes is critical for the desired outcomes.
In order to have such a mechanism in place the Commission proposed a “new institutional
arrangement embodying the principles of cooperative federalism.” This, unfortunately, was not
followed up and acted on by the Government.

3.5Structure of Expenditure in a Federal Setting: The Issue of Overlapping Functional

Space

If we consider the structure of expenditure in key sectors, viz, education, health and agriculture,

state expenditure is more than 75 % of the combined expenditure of the union and the states

( Table 2). In fact, it is as high as 85 % in education and 81 % of the combined expenditure in

health. Since the primary expenditure responsibilities are at the state level, it is a big question if

conditionality-driven transfers can change States’ spending behaviour.

3.6 6CONTROL TRANSFORS DEVOPEND AND COUSES

The union government has increasingly relied on cess and surcharge revenue to meet its

expenditure requirements.

For example (Table 3), 90% of the funding for the Sarva Shiksha Abhiyan (SSA) came through

the Parambhik Shiksha Kosh (PSK), the latter being financed by a cess. A similar trend can be

observed for the Mid-Day Meal (MDM) scheme as well, which was financed up to 85% through

the PSK. When the centre earmarks revenue it collects to finance programmes that are

predominantly in the states’ domain, it not only encroaches on the states’ fiscal autonomy, but by

reducing the divisible pool of taxes it also reduces the flow of untied resources to the states

through tax devolution

15th FC in its report argued

The Commission suggested that the centre bring down fiscal deficit to 4% of GDP by 2025-26.

For states, it recommended the fiscal deficit limit (as % of GSDP) of: 4% in 2021-22, 3.5% in

2022-23, and.

The Finance Commission (FC) is a constitutional body, that determines the method and formula

for distributing the tax proceeds between the Centre and states, and among the states as per the

constitutional arrangement and present requirements.

The 15th Finance Commission was constituted by the President of India in November 2017,

under the chairmanship of NK Singh.

Its recommendations will cover a period of five years from the year 2021-22 to 2025
Recommendation of the 15th Finance Commission of India that was tabled on 1 st February 2021

are:

Maintaining vertical devolution at 41%:It has recommended maintaining the vertical devolution

at 41% the same as in the report for 2020-21.It would help in maintaining predictability and

stabilizing the resources, especially during COVID times.

It is at the same level of 42% of the divisible pool as recommended by 14th FC. However, it has

made the required adjustment of about 1% due to the changed status of the erstwhile State of

Jammu and Kashmir into the new Union Territories of Ladakh and Jammu and Kashmir.

3..7 Table:3financing of the sarva shiksha abhiyan and the mid-day meal scheme

The union government has increasingly relied on cess and surcharge revenue to meet its

expenditure requirements.
For example (Table 3), 90% of the funding for the Sarva Shiksha Abhiyan (SSA) came through

the Parambhik Shiksha Kosh (PSK), the latter being financed by a cess. A similar trend can be

observed for the Mid-Day Meal (MDM) scheme as well, which was financed up to 85% through

the PSK. When the centre earmarks revenue it collects to finance programmes that are

predominantly in the states’ domain, it not only encroaches on the states’ fiscal autonomy, but by

reducing the divisible pool of taxes it also reduces the flow of untied resources to the states

through tax devolution

3.8 Table:3financing of the sarva shiksha abhiyan and the mid-day meal scheme

3.9 Conclusion

To conclude and reiterate, the Finance Commission’s fundamental task is fiscal equalisation

across states. The principle of fiscal equalization tries to provide certain levels of resources to

each state so that it will be possible to provide an equal provision of public services across all

states. It may be inadvisable to channel conditional grants through the Finance Commission.
Hopefully, the recent changes in union-state fiscal relations would take note of the absence of a

framework for non-Finance Commission grants. In the absence of the Planning Commission and

discontinuation of the distinction between Plan and Non-Plan grants from 2017-18, clarity is

required on the treatment of grants outside the purview of the Finance Commission. A discussion

on a new framework of grants outside Finance Commission transfers should start among the

stakeholders at the earliest. The new framework of grants should ensure stability in resource

flows to the states to reduce state specific development deficits and these should happen outside

the Finance Commission. It will be wrong to use the Finance Commission mechanism to drive

conditionality-driven transfers when a significant part of transfers still fall outside the Finance

Commissions.

3.1.0.SHERE UNION GOVERNMENT”S REVENU EXPENDUTURE ON STATE LIST

Given this pattern of expenditure, there is a need to seriously think about re-prioritisation of

union government expenditure. When most of the current expenditure responsibilities, be it

health, education, or water supply and sanitation are with the state governments, should the

central government make such large expenditure on the areas in the State and Concurrent Lists of

the Constitution?

Some of this expenditure by the central government may indeed be necessary. The optimal levels

of spending need to be determined keeping in mind the allocative and technical efficiency of

government spending.

Since the central government has done away with the earlier setting of a revenue deficit target, it

should also recast the union’s expenditure responsibilities for greater efficiency of public

spending and prudent fiscal management. All this keeping in mind the Constitutional

responsibilities and the fiscal space available at each level of government..

 CHAPTER 4

FINDING AND CONCLUSION

4.1FINDING:

1) Federalism is the most relevant factor of modern constitutionalism. The core objectives
of Indian federalism are unity in diversity, devolution in authority, and decentralization in
administration.Through federalism, the State pursues the goal of common welfare in the
midst of wide diversity in socio-cultural, economic spheres.It is considered one of the
significant challenges to federalism in India.

2) Federalism best thrives as a democratic system when it mitigates the centralization of

power sharing between the centre and the states.

3) The pluralist character of India gives rise to many factors including regionalism. People
from far northeast sometimes feel themselves at a formidable distance from New Delhi
and people in southern part of the country with bigger states feel neglected having been
within larger states.

4) Regionalism or love for one’s area, despite India’s tradition of successful federal rule
over the years since independence, still raises its head in different parts of the country

5) The voice for the demand of more states has become more prominent in recent times,
especially after the formation of Telangana in 2014. Recent demands like four-fold
division of Uttar Pradesh and the creation of Gorkhaland from West Bengal are instances
of aggressive regionalism that pose a threat to the federal structure of India.

6) The agitations for Gorkhaland, Bodoland, and KarbiAnglong have been revived. This is
apart from the new demands for a separate Vidarbha State in Maharashtra, and Harit
Pradesh and Poorvanchal in Uttar Pradesh. The more the number of states the more the
centre will be held hostage to state parties on matters of national importance.

7) For instance, West Bengal threatened India’s Teesta river waters treaty with Bangladesh
because of its possible potential costs for West Bengal. Even growing regional powers
may affect effective foreign policy as the federal government may bow to the will of an
individual state. India had to vote in favour of UNHRC resolution for Sri Lanka in 2012
for a backlash from Tamil Nadu.

8) The Indian Constitution, while expressly vesting the Centre with greater powers of
taxation, also provides for an institutional mechanism — the Finance Commission — to
determine the share of the States in the Central tax revenues by way of correcting this
imbalance.
 9) While deciding the devolution of taxes and the provisions of grants the Finance
Commission is required to address both the vertical imbalance between the Centre and
the States and the horizontal imbalance between states.

10) At present, about 40 percent of Central revenues (tax and non-tax) is transferred to the
States, and this includes the grants they get from the Planning Commission and the
Central Ministries.

11) Despite the enlargement of the shareable pool under the 80th Amendment which includes
all central taxes, the revenue accruals of the Centre and the States have not seen any
major changes.

12) Asymmetrical sharing of revenue and resource crunch at the periphery results in uneven
development across the country. The current Goods and Services Tax measure is feared
by many states to be against fiscal federalism in India. It has amalgamated the various
taxes into a single tax, procurement of which will then be divided among states in a
prescribed ratio. Many states in India demand for more financial autonomy in India.

4.2Conclusion
On the basis of the above-mentioned analysis, the concluding remarks are given in this chapter.
The adoption of federal form of government with strong central tendencies seems to be a feasible
solution for this vast democratic country. Every urge for autonomy is not divisive but most
probably a complementary force; it would not lead to disintegration but a re-integration of Indian
federal union. Practically, therefore, what is needed is a strategy and ethos of tolerance, goodwill
and mutual trust from the central government to the states. Although there may be some
amendments which are not necessary to be restored, there are some other important matters like
the Article 35A and other relevant issues which are necessary to be restored to the state of
Jammu and Kashmir. Thus, there is a need for reappraisal and review of Article 370 of the Indian
Constitution in order to strengthen and reinforce the centre-state relations.

Fleshes out some of the common horizontal themes emerging from the book, and presents the
broad elements of federal vision that have been discussed. The vision calls for five concurrent
shifts in understanding what matters about federal contracts, each central to fashioning a
‘federal’ response to the challenge of legitimacy. In particular, it is suggested how the notion of
‘subsidiarity’ as commonly understood—that political decisions should be made and policies
conducted at the lowest, or most appropriate, level—should be fine‐tuned, reinterpreted, or even
relabelled
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