Cooperative & Competitive Federalism in India: Meaning & Challenges

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The NITI Aayog, in 2017, had called for Competitive Cooperative Federalism to define the relationship between the Centre and the States. This concept puts the burden of transforming India into the hands of the State governments. In recent times, this concept has gained prominence following the participation of the Chief Secretaries of all States and Union Territories in the presentation of the best practices in each of their jurisdictions. However, NITI Aayog must take the necessary steps to analyse the ground reality so as to provide equal grounds to all the states – including those that are economically and socially marginalized.

This topic of “Cooperative & Competitive Federalism in India: Meaning & Challenges” is important from the perspective of the UPSC IAS Examination, which falls under General Studies Portion.

What is federalism?

  • The term federalism is derived from the Latin word “foedus” which means treaty or pact or covenant.
  • Federalism is the form of government wherein there are at least two levels of governments exists within the country – one at the central level and the other at the local levels.
  • The federal structure is characterized by the lack of full concentration of authority under one single government. Rather, the power of the government decentralized under various levels of government.

What does the Indian Constitution say about federalism?

  • The term “federal” has not been mentioned anywhere in the Constitution of India.
  • However, India, since independence has followed a quasi-federal structure.
  • India’s government model is similar to that of the Canadian model of political structure.
  • The Constitution of India has established the federal structure to the Indian government by declaring it to be a “Union of States”.
  • The Part XI of the Indian Constitution lays down the distribution of legislative, executive and administrative powers between the Central government and the state governments.
  • The legislative powers are categorized under the Union list, State list, and Concurrent list so as to distribute them amongst the Union and the State governments.
  • The Union List consists of 100 items on which the parliament has the exclusive power to legislate on defence, armed forces, arms and ammunition, atomic energy, foreign affairs, war and peace, citizenship, etc. This is the longest among the three lists.
  • The State List consists of 61 items of which the maintenance of police force, regional law, and order, healthcare, land policies, village administration are included.
  • The concurrent list under the seventh schedule of the Indian constitution is a list of powers that is to be considered by both the Central and the State governments. This list mentions marriage and divorce, agricultural land, education, etc.
  • If there is a conflict between the States and the Centre on the aspects of the concurrent list, the Parliament shall triumph.
  • Those subjects that are not mentioned in the list are called residuary subjects.
  • According to the article 248, the power to legislate the residuary powers exclusively rests in the hands of the parliament.
  • The parliament shall legislate on these powers as per the procedures set forth by Article 368.
  • The residuary powers and the fact that the Centre prevailing over the states in case of conflict in the concurrent powers makes the Indian government both federal and unitary in nature.
  • If the above lists are amended or expanded, the legislation should be done by the parliament under Article 368 with the ratification by the majority of the states.
  • As for the executive powers of the government, the Central government and the state governments have their own independent civil servants controlled by their own representatives.
  • The Central Government cannot interfere in the state matters unless the presidential rule is declared in the state.
  • The Union Government’s duty is to make sure that the state governments operate in accordance with the provisions of Article 355 and Article 256 of the Indian Constitution.
  • The State governments cannot violate the Central laws on administrative and executive matters.
  • If they violate the constitution, President Rule can be enforced under Article 356 and the President can take control over the state’s administration.
  • The federalism in India is a part of the basic structure of the Indian constitution. It cannot be changed or removed through the constitutional amendment by the parliament without undergoing the judicial review by the Supreme Court.

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What is cooperative federalism and competitive federalism?

  • The concept of federalism can be classified into two types based on the relationship between the Union Government and the State governments. They are:
  1. Cooperative Federalism
  2. Competitive Federalism
  • The cooperative federalism involves the Centre and States governments cooperating with each other for the overall development of the nation.
  • It involves the participation of all the States in the creation and implementation of the national policies of the country.
  • It is the horizontal relationship between the Centre and the States.
  • The Constitution of India had provided for the cooperative federalism in the inter-state council, Zonal Council, Schedule VII, etc.
  • Schedule VII of the Constitution of India requires the States and the Centre to cooperate with each other.
  • The concept of cooperative federalism is strengthened with the coming of GST.
  • The competitive federalism involves the competition amongst the states and also the Centre for the economic benefits within the economy.
  • This concept became prominent post-1990s economic reforms.
  • When India opened its doors for globalization, there was the increasing competition between the states for the limited resources. This resulted in the imbalance and inequalities between the states.
  • However, in recent times, competitive federalism has become an efficient tool to enhance the economic development of the individual states.

How is the government making use of competitive federalism for the economic development of the country?

  • Competitive federalism is not part of the basic structure of the Constitution of India.
  • However, it had gained prominence in the recent times in the overall government functioning.
  • As per the concept of competitive federalism, the states compete with each other and the centre for the individual economic growth and development.
  • The states compete with each other for funds and investments from external sources.
  • They are funded by the central government based on their performance with the previous funds.
  • The investors opt for those states that are economically well-developed and politically more stable.
  • To enhance the flow of funds and investments, the states work to ensure strong and stable governance and also create a favourable investment environment.
  • The notion of competitive federalism has not yet gained full prominence amongst the states.
  • Only a few are embracing this idea by improving their economic and political stability.
  • Furthermore, one of the directives of the NITI Aayog is to ensure the implementation of the competitive federalism.
  • To ensure the decentralised economic development of the country, the state governments are encouraged to not look towards the Central Government for policy guidelines and fiscal assistance by increasing the share of States’ central tax revenue from 32% to 42 % based on the recommendation by the Finance Commission.
  • The states are given freedom to strategize their expenditure based on their own individual interests.
  • Ease of Doing Business Ranking of states of India has called for the states to ensure a politically and economically stable environment to attract businesses and investments. This, in short, creates a competitive environment.
  • Swachh Bharat Ranking System is another such tool to increase the competitiveness among the states.
  • The Centre sponsored schemes are reformed to enhance the competition between states.

What are the challenges of cooperative and competitive federalism?

Cooperative Federalism:

  • The Indian government is called quasi-federal because it integrates the characteristics of both the Union and the Federal governments.
  • The Centre exercises superior legislative powers through residuary and legislative precedence.
  • These are the powers that the Union enjoys under the Constitution. The States’ legislative powers have routinely yielded to it.
  • This creates an atmosphere of mistrust between the Centre and the States.
  • Taxation powers between the Centre and the States is a contentious issue.
  • Most of the disputes between the Centre and the State on the taxation issues have won by the former due to provisions of the constitution.
  • Under the GST, the states have forgone some taxation powers like octroi entry tax, luxury tax, entertainment tax, etc. however, they still retain the power to levy taxes through panchayats and municipalities.
  • The southern states have been extremely vociferous with regards the sharing of taxes between the States and the Centre as it is mostly subjected to the recommendations of the Finance Commission and action by Parliament.
  • However, under Article 269A(1), the GST Council and not the Finance Commission has the power to make a recommendation with regards to the sharing of taxes obtained from the inter-state trade.
  • The States have votes in the GST Council, giving them the power to have their say on tax matters.
  • However, Articles 270(1)A and 270(2) states that the taxes levied under the GST laws will be shared in the manner prescribed by the Finance Commission, not the GST Council.
  • This creates a clash between the roles and powers of the Finance Commission and the GST Council.
  • Also, in reality, the sharing of revenue the subject matter of the Finance Commission and the Parliament and not the GST Council where the States have a larger say on taxation matters.
  • This does not allow for cooperative federalism.
  • There are no provisions for the affected states to the challenge the recommendations by the Finance Commission when it calls for the mandatory enforcement of the recommendation.
  • If the State is aggrieved by the recommendations given by the finance commission, it has to litigate in the Supreme Court as the GST Council is yet to establish a mechanism for resolving the differences in terms of Article 279A (11).

Competitive Federalism:

  • Despite the increase in the States’ Central Tax revenue, the states are getting lesser revenue than anticipated. Thus the funds for welfare schemes have come down.
  • The competition between the States is increasing the gap between the developed and under-developed states.
  • The States like West Bengal, Assam, Bihar, and Orissa are against the unvarying method of funding because they are economically weaker compared to that of the other states and they now call for special funds to boost their economic growth and investors’ inflow. These states require assistance from the Centre for their increased participation in the competitive federalism.
  • The economic growth and development of India is no uniform in nature. They differ from state to state. The economically weaker states must not be treated as equals to that of the rich states. They must be given special attention by the Central government so that they can cooperate with those state governments for the overall development of the nation.
  • One cannot assume that all states will perform uniformly by giving them financial independence. Some may lack progress with regards to the literacy levels, employment rate, etc., while the others may make use of their already well-developed skilled labour force, capital, infrastructure, etc., to woo the investors into their jurisdiction.
  • This, in other words, create an uneven economic growth and development of the nation.
  • Due to the above-mentioned factors, those states that lack economic development are not able to participate in the competitive federalism.

What can be done to strengthen these concepts in the context of India?

  • In 2017, NITI Aayog had called for Competitive Cooperative Federalism.
  • For the inclusive growth of all states in India, there must be a mix of both the cooperative and competitive federalism.
  • The NITI Aayog had looked at only the big picture policy framework. It must also look at the smaller micro-details at the grass root levels to understand the uneven economic development of the nation.
  • Recently, the Inter-State Council has been reconstituted. This is a non-permanent constitutional body that was set up under the presidential order based on the provisions in Article 263 of the Indian Constitution. It is mandated to investigate and advise on issues related to the dispute between states. This is a step in the right direction.
  • There must be a sound mechanism to ensure cooperation between states on contentious issues on sharing of land, natural resources this will ensure the overall development of the nation.
  • There must be discussions on issues related to WTO obligations, international treaties etc., between the states and the centre for further strengthening the concepts of cooperative federalism and inclusive economic growth.
  • The economically weaker states are complaining about the limitations of the process and procedures of the ease of doing business index. This must be resolved by making the ranking system more transparent and inclusive to strengthen competitive federalism.


Cooperative and Competitive federalism cannot be successful if they are separated from each other. Both these concepts, though different, have the same goal – the economic growth and development of the overall Indian economy. Thus an efficient mechanism must be made to bring them together for achieving the common objectives.

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