INTRODUCTION

The rationalisation of GST ushered in a new era of indirect taxation but triggered concerns among several States regarding declining revenue autonomy. Disputes around compensation, centrally-sponsored schemes, disaster relief funding, and Finance Commission recommendations have reached the Supreme Court, raising a fundamental question: Is Indian federalism being structurally reshaped under a single-party political hegemony?

The conversation in the article traces how fiscal and political federalism has shifted from cooperative frameworks in the 1990s to competitive and increasingly centralised dynamics post-2014.

WHY IN THE NEWS

The article is significant because it captures the unprecedented stress on fiscal federalism under GST, the decline of traditional accommodation politics, and the growing disconnect between richer southern States and the Union’s redistributive design. For the first time since liberalisation, States across the political spectrum are questioning the vertical imbalance and the shrinking autonomy embedded in taxation, grants, and centrally sponsored schemes. The issue is compelling because these structural tensions coincide with the rise of a dominant national party, altering how bargaining, negotiation, and regional representation historically shaped Indian federalism.

Shifts in Federalism: From Accommodation to Assertion

1. Federal Coalition Politics: Provided space for regional parties to influence national policy in the 1990s; reforms had federal character, and Centre-State interaction increased.
2. Decline of Accommodation: Rise of single-party majority reduced negotiation; regional anxieties and political identities feel less represented.
3. BJP’s Unitary Political Vision: Emphasises uniformity over accommodation, reducing incentives for coalition-based bargaining.

How Has GST Altered the Fiscal Architecture?

1. Loss of Tax Autonomy: States surrendered sovereign taxation power; they now depend on shared revenues and compensation.
2. Compensation Tensions: Delays triggered mistrust; design issues, particularly Finance Commission-linked vertical imbalance, create sustained stress.
3. Redistributive Principle: Southern States argue that redistributive transfers have become structurally rigid without acknowledging their economic efficiency.

What Is Driving Regional Inequality and Fiscal Stress?

1. Unequal Growth Patterns: Southern States showed high economic growth but lack employment-intensive outcomes; inequality persists.
2. Structural Vertical Imbalance: Centre retains key taxation powers while States bear expenditure responsibilities; this misalignment fuels fiscal dissatisfaction.
3. Urbanisation and Labour Migration: Remittances from poorer northern States sustain the growth of southern economies, deepening interdependence yet also friction.

How Has Single-Party Dominance Reshaped Political Federalism?

1. Reduced Federal Bargains: With weaker regional representation at the Centre, the cooperative ethos has weakened.
2. Rise of Central Schemes: States perceive centralisation in scheme design, financing patterns, and conditionalities.
3. Executive Federalism: More meetings, consultations, and vertical controls replacing political negotiation platforms like the Planning Commission.

Why Are Delimitation and Census Triggering Concerns?

1. Southern States’ Anxiety: Fear losing political weight due to lower population growth relative to northern States.
2. Economic Contribution vs Representation: High-growth States feel the political architecture does not reward efficient governance.
3. One Nation, One Election Debate: Seen as another centralising push, weakening federal political competition.

CONCLUSION

The article concludes that the crisis in Indian federalism is not merely episodic but structural, rooted in post-GST fiscal architecture, weakened accommodation politics, regional disparities, and the rise of a dominant national party. The challenge is to redesign mechanisms of trust, negotiation, and fiscal balance so that India’s federal compact remains resilient to political shocks and centred on cooperative problem-solving.

PYQ Relevance

[UPSC 2024] What changes has the Union Government recently introduced in the domain of Centre-State relations? Suggest measures to be adopted to build the trust between the Centre and the States and for strengthening federalism.

Linkage: This PYQ directly aligns with the article’s core themes of growing centralisation, GST-driven fiscal stress, and weakening accommodation politics between the Centre and States. It links perfectly with the discussion on fiscal imbalance, GST Council tensions, Finance Commission changes, and the impact of single-party dominance on federal bargaining.

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