💥Join UPSC 2027,2028 Mentorship (July Batch) + XFactor Notes & Microthemes PDF
Talk to Mentor

Civilsdaily

Login

Subject: Federalism

  • Cauvery Water Regulation Committee directs Karnataka to release 3,500 cusecs a day to Tamil Nadu

    Why in the news?

    The Cauvery Water Regulation Committee (CWRC) has directed Karnataka to release 3,500 cusecs of water per day for 15 days to Tamil Nadu amid drought conditions. Meanwhile, the Tamil Nadu Chief Minister has urged the Prime Minister to review the Centre’s stand on the proposed Mekedatu Dam project, further intensifying the inter-state water dispute.

    Key Highlights

    • CWRC directive: Karnataka has been directed to release 3,500 cusecs per day for 15 days to Tamil Nadu.
    • Reason: The order was issued due to drought conditions and the need to ensure downstream water availability.
    • Parallel dispute: Tamil Nadu has sought a review of the Centre’s position on the Mekedatu Dam project proposed by Karnataka.
    • Possible appeal: Karnataka may challenge the CWRC’s direction before the Cauvery Water Management Authority (CWMA).

    About the Cauvery River

    • Originates at Talakaveri in the Brahmagiri Hills, Karnataka.
    • Flows through Karnataka, Tamil Nadu and Puducherry, with a small catchment in Kerala.
    • Empties into the Bay of Bengal.
    • Total length is about 805 km.
    • Left-bank: Harangi, Hemavathi, Shimsha, Arkavathi.
    • Right-bank: Kabini, Bhavani, Noyyal and Amaravathi.

    Cauvery Water Management Mechanism

    Cauvery Water Management Authority (CWMA)

    • Constituted in 2018 under the Ministry of Jal Shakti.
    • Implements the Supreme Court’s 2018 judgment on Cauvery water sharing.
    • Supervises reservoir operations and ensures implementation of water-sharing arrangements.

    Cauvery Water Regulation Committee (CWRC)

    • Functions under the CWMA.
    • Monitors reservoir levels, rainfall and inflows.
    • Recommends monthly water releases among basin States.

    What is the Mekedatu Project?

    • Proposed by Karnataka on the Cauvery River near Mekedatu.
    • Intended to provide drinking water to Bengaluru and generate hydroelectric power.
    • Tamil Nadu opposes the project, arguing that it could affect downstream water availability and violate the Supreme Court’s allocation.

    Constitutional and Legal Provisions

    • Article 262: Empowers Parliament to legislate on inter-State river water disputes.
    • Inter-State River Water Disputes Act, 1956: Provides for adjudication of river water disputes through tribunals.
    • Supreme Court Judgment (2018): Modified the Cauvery Water Disputes Tribunal award and directed the establishment of the CWMA.

    “[2013, GS2, 10 marks] Constitutional mechanisms to resolve the inter-state water disputes have failed to address and solve the problems. Is the failure due to structural or process inadequacy or both? Discuss.”

    [2020] Which of the following Protected Areas are located in Cauvery basin?

    1.Nagarhole National Park
    2.Papikonda National Park
    3.Sathyamangalam Tiger Reserve
    4.Wayanad Wildlife Sanctuary

    Select the correct answer using the code given below:
    a) 1 and 2 only
    b) 3 and 4 only
    c) 1, 3 and 4 only
    d) 1, 2, 3 and 4

  • The fiscal tightrope for State Governments

    Why in the News?

    Kerala and Tamil Nadu recently released White Papers describing their outstanding government debt as alarming. This has revived the debate on whether State debt reflects fiscal mismanagement or a structural mismatch between States’ welfare responsibilities and their limited fiscal capacity.

    Why do State governments face a persistent fiscal squeeze despite bearing the bulk of welfare spending?

    1. Vertical fiscal imbalance: The Union government holds the larger share of taxation powers. State governments bear a larger share of overall government spending. Vertical fiscal imbalance: mismatch between a government tier’s revenue powers and its expenditure responsibilities.
    2. Welfare-heavy State budgets: State spending is concentrated in health, education, agriculture, and irrigation. These sectors directly affect livelihoods.
    3. Kerala and Tamil Nadu’s social spending record: Per capita State social expenditure was 30% higher in Kerala and 20% higher in Tamil Nadu than the all-India average (2020-23). It was 35% lower in Bihar and 40% lower in Uttar Pradesh.
    4. Kerala’s own tax effort: Kerala’s per capita own-tax revenue was 1.5 times the national average, driven mainly by SGST and sales tax.
    5. Skewed devolution: Kerala received 1.92% of Union tax devolution in 2023-24. Its population share was 2.6%.
    6. Composition of Kerala’s expenditure: Salaries took up about a fifth of the budget, pensions 15.3%, and interest payments 16.5%. Only 10% of expenditure went to capital expenditure. Capital expenditure: spending that creates productive assets, as against revenue expenditure on salaries, pensions and subsidies.

    Does Kerala’s fiscal stress reflect mismanagement, or an unresolved conflict between protecting welfare gains and financing future growth?

    1. The retrenchment trap: Cutting pensions or retrenching employees would create fiscal space. It would also erode Kerala’s social sector strengths.
    2. The investment deficit: Kerala needs large-scale, State-directed investment in infrastructure, higher education, research, and public transport. This investment is necessary to compete in knowledge-intensive sectors.
    3. Outmigration of talent: Educated youth are leaving Kerala in large numbers. The State cannot create matching educational and employment opportunities.
    4. The affluence paradox: Kerala’s weak public fiscal capacity coexists with visible private affluence, large houses, expensive cars, and a high density of gold shops. This gap threatens to widen inequality.

    Is Kerala’s fiscal constraint a resource problem or an allocation problem?

    1. Low credit-deposit ratio: Kerala’s credit-deposit ratio was around 66% in 2023. The national average was 76%, and Maharashtra and Tamil Nadu exceeded 100%. Credit-deposit ratio: share of a bank’s deposits that it lends out as credit in the same region.
    2. Unutilised savings: Deposits in excess of credit disbursed in Kerala rose from ₹1,388 billion in 2016 to ₹1,906 billion in 2020 and ₹2,792 billion in 2026.
    3. Foregone investment: Kerala’s actual public investment stood at ₹1,134 billion. Potential additional investment financeable from this surplus stood at ₹1,404 billion.
    4. Doubling potential: Kerala’s capital expenditure could have at least doubled between 2016 and 2026 had surplus savings been channelled into investment.

    What does China’s local government financing model reveal about the limits of India’s system?

    1. China-local government bonds (LGBs): Chinese provinces and lower-level governments finance the bulk of investment-led growth through local government bonds. These draw on large domestic bank savings.
    2. China-local government financing vehicles (LGFVs): Off-budget borrowing through LGFVs supplements fiscal transfers. LGFV: an entity set up by a local government to raise off-budget debt for infrastructure projects.
    3. China-centrally coordinated planning: Local borrowing and investment are coordinated through central government planning, keeping decentralised borrowing aligned with national goals.
    4. China-low cost of local borrowing: Chinese local governments borrow from their banking system at around 2%.
    5. India-costlier State Development Loans (SDLs): Indian States pay 6.5% to 7.5% interest on SDLs. SDL: a market security issued by State governments to raise loans. This rate is 0.25 to 0.75 percentage points higher than the Union government’s borrowing rate.

    Should State debt be treated as a liability or as an investment in citizens?

    1. Domestic ownership of debt: State and Union bonds are largely held by domestic commercial banks and insurance companies.
    2. Debt as debt to own people: These institutions channel citizens’ savings into government bonds. The government’s debt is effectively owed to its own people, not external creditors.
    3. Welfare-expanding borrowing: A government that borrows to expand welfare and opportunity serves a larger public purpose than a tight-fisted government.
    4. The reform gap: No fiscal structure currently allows State governments to access domestic savings easily and cheaply for planned development projects.

    Conclusion

    State government debt is not primarily a symptom of profligacy. It reflects a structural mismatch between the Union’s concentration of taxation powers and States’ disproportionate share of welfare and development spending. India worsens this mismatch, unlike China, by failing to channel abundant domestic savings into cheaper, State-directed investment. Fiscal reform must lower the cost and ease the terms of State borrowing, not merely discipline State expenditure.

    PYQ Relevance

    [UPSC 2015] Though the federal principle is dominant in our Constitution and that principle is one of its basic features, it is equally true that federalism under the Indian Constitution leans in favour of a strong Centre. Discuss.

    Linkage: It examines the constitutional design of Indian federalism, including financial powers and Centre-State fiscal relations. The article argues that States bear major expenditure responsibilities but have limited revenue and borrowing autonomy, highlighting the fiscal imbalance within India’s federal structure.

  • Constitutional mechanisms to resolve the inter-state water disputes have failed to address and solve the problems. Is the failure due to structural or process inadequacy or both? Discuss.

  • Many State Governments further bifurcate geographical administrative areas like Districts and Talukas for better governance. In light of the above, can it also be justified that more number of smaller States would bring in effective governance at State level? Discuss.

  • Though the federal principle is dominant in our Constitution and that principle is one of its basic features, but it is equally true that federalism under the Indian Constitution leans in favour of a strong Centre, a feature that militates against the concept of strong federalism. Discuss.

  • The concept of cooperative federalism has been increasingly emphasized in recent years. Highlight the drawbacks in the existing structure and the extent to which cooperative federalism would answer the shortcomings.

  • From the resolution of contentious issues regarding distribution of legislative powers by the courts, ‘Principle of Federal Supremacy’ and ‘Harmonious Construction’ have emerged. Explain.

    As per Ivor Jennings, India is “a federation with a strong centralising tendency.” The 7th Schedule is a reflection of this tendency.

    Contentious Issues regarding Distribution of Legislative Powers

    Concurrent List repugnancy – Eg- Education (Concurrent List, Entry 25) – Centre’s NEET law vs Tamil Nadu’s opposition to it.

    Residuary powers with the Union

    Under Article 249, Rajya Sabha can empower Parliament to legislate on State List subjects. Eg- Essential Commodities Act (food items, agricultural produce).

    During National Emergency (Art. 250) or President’s Rule (Art. 356), Parliament can legislate on State subjects.

    Principle of Federal Supremacy

    In cases of irreconcilable conflict, Union law prevails over State law.

    Judicial Validation–

    Union of India v. H.S. Dhillon (1972) – Parliament has residuary powers.

    State of Karnataka v. Union of India (1977) – Union’s primacy in matters of national importance.

    State of West Bengal v. Union of India (1963) – SC upheld Parliament’s power to acquire State property.

    Zameer Ahmed Latifur Rehman Sheikh v. State of Maharashtra (2010) – SC ruled that a central money laundering law overrides conflicting State law under Article 254(1).

    Protects national unity and uniformity in crucial subjects.

    Principle of Harmonious Construction

    Courts attempt to reconcile conflicts so that both Union and State laws can function simultaneously.

    Judicial Validation–

    In C.B. Boarding and Lodging v. State of Mysore (1970), the SC upheld the State’s power to levy tax on lodging houses, even though taxation on income was a Union subject.

    State of Rajasthan v. G. Chawla (1959) – Both Centre and State laws upheld through harmonious interpretation.

    Hoechst Pharmaceuticals v. State of Bihar (1983) – Repugnancy avoided through reconciliation.

    Preserves federal balance and safeguards state autonomy.

    “Federalism is not a monolith; it is a dialogue between self-rule and shared rule.” Both Union & States are creatures of the Constitution

  • Indian Constitution exhibits centralising tendencies to maintain unity and integrity of the nation. Elucidate in the perspective of the Epidemic Diseases Act, 1897; The Disaster Management Act, 2005 and recently passed Farm Acts.

    According to Paul Brass “Indian federalism is highly centralized, designed more to maintain unity than to promote autonomy.”

    Centralising Tendencies in the Indian Constitution

    Legal (Constitutional & Legislative)

    Residuary Powers (Art. 248, Entry 97 Union List) – Vested in Parliament, not States.

    Dominance of Union List (Art. 246) – 100 subjects; State List is narrower.

    Concurrent List (Art. 254) – Union law prevails in case of conflict.

    Emergency Provisions (Arts. 352, 356, 360) – Centre can override State powers.

    Parliament can legislate on State subjects under Art. 249.

    Governor’s Role (Art. 200, 201)

    Administrative

    All-India Services (Art. 312)

    Office of Governor – Agent of Centre in States

    Union’s directions to States (Arts. 256-257) – States bound to ensure compliance with Union laws.

    Deployment of Armed Forces

    Financial

    Centralised Finance – Major revenue sources (income tax, customs, excise, GST) with Union.

    Borrowing restrictions (Art. 293) – States require Centre’s consent to borrow.

    Cess and surcharges (Art. 270) not shared with States (Eg- Education Cess, Health Cess)

    GST regime – Erodes States’ fiscal autonomy.

    Centralising Tendencies in Indian Constitution

    Epidemic Diseases Act, 1897

    Public Health is a State List subject (Entry 6, List II), but the Centre can issue uniform guidelines.

    Empowers Centre to declare any disease as epidemic.

    Union can issue regulations for prevention and containment.

    Authority to restrict movement and detain individuals during epidemics.

    Centre can override conflicting State laws.

    Disaster Management Act, 2005

    Law and order and public health are primarily State subjects, but Act was used to declare nationwide lockdowns, interstate movement controls, and essential supply chains during COVID-19.

    State Disaster Management Authorities (SDMA) include central representatives.

    Union controls allocation and distribution of resources across States.

    Centre can override States’ decisions in disaster response.

    National Response Force primarily drawn from central armed forces.

    Farm Acts, 2020 (repealed in 2021)

    Though Agriculture is a State List subject, Parliament legislated under Concurrent List (Entry 33).

    Weakened State APMC mandis by allowing farmers to sell outside their jurisdiction.

    Dispute resolution mechanisms

    Gave Centre greater control over regulation of essential commodities.

    Enhanced central role in agri-marketing and e-marketing of produce.

    Analysis of Centralising Tendencies

    “Federalism is not a monolith; it is a dialogue between self-rule and shared rule.” Thus, such Acts must be exercised with consultation and cooperation.

  • How far do you think cooperation, competition and confrontation have shaped the nature of federation in India? Cite some recent examples to validate your answer.

    As per Rajeev Bhargava, Indian federalism is “multi-layered federalism”, involving cooperation, competition and confrontation.

    Cooperation – Building Cooperative Federalism

    GST Council (2017-present)– Example of Centre-State cooperation in indirect tax reform.

    NITI Aayog– Platform for policy collaboration on health, education, climate, and SDGs.

    COVID-19 Pandemic (2020-21)– Joint management of lockdowns, vaccination drives, and health protocols.

    National Education Policy 2020– Designed through Centre-State consultations.

    Competition – Driving Competitive Federalism

    Ease of Doing Business rankings by DPIIT– States competing to attract investment.

    Investment Summits – Gujarat (Vibrant Gujarat), UP (GIS 2023)

    NITI Aayog Indices – Eg- SDG Index, Health Index etc

    Tourism branding – Kerala (eco-tourism), MP (wildlife), Odisha (sports tourism)

    Confrontation – Political and Constitutional Tensions

    Delhi vs Union (2018 & 2023 SC rulings, GNCTD Amendment Act 2023)– Tussle over control of services and administration.

    Farm Laws (2020-21 protests)– States like Punjab opposed Union laws encroaching on agriculture.

    NEET & Education policy– Tamil Nadu contesting Centre’s dominance in education, a Concurrent List subject.

    Governor-State conflicts– Frequent in Kerala, West Bengal, and Tamil Nadu over assent to bills.

    Fiscal confrontations– Disputes over GST compensation cess (2020-22).

    Centrally sponsored schemes– States complain of shrinking fiscal autonomy due to high tied grants.

    “Federalism is not a monolith; it is a dialogue between self-rule and shared rule.” Both Union & States are creatures of the Constitution

  • Explain the significance of the 101st Constitutional Amendment Act. To what extent does it reflect the accommodative spirit of federalism?

    The 101st Constitutional Amendment Act, 2016 introduced the Goods and Services Tax (GST) with effect from July 1, 2017. It was a landmark tax reform aimed at creating a “One Nation, One Tax, One Market” framework.

    Significance of the 101st Amendment Act

    Unified Taxation System – Subsumed 17 central & state taxes and 23 cesses, removing cascading effects.

    Expansion of Tax Base – Taxpayers increased from 66 lakh (2017) to over 1.5 crore (2024).

    Revenue Growth – Tax base rose from over a decade (CAGR 14.4%); average monthly collections near .

    Economic Efficiency – Eliminated cascading effects of taxation and reduced compliance costs.

    Household Savings – Reduced overall tax burden, saving families ~4% on monthly expenses.

    Ease of Doing Business – Unified national market and reduced transport time by 33%, improving efficiency.

    Digital Governance – GSTN ensured transparency, compliance, and reduced evasion.

    GST Reflecting the Accommodative Spirit of Federalism

    Institutionalised Cooperative Federalism – The GST Council (Art. 279A) is a federal forum of Union and State Finance Ministers deciding by consensus (3/4th majority).

    Pooled Sovereignty – Both Union and States share taxing powers under Article 246A, representing co-ownership of fiscal authority.

    Balanced Federal Approach – Dual GST (CGST + SGST) integrates economies while maintaining State autonomy.

    Fiscal Balance – Provided States 5-year compensation for revenue loss, cushioning transition.

    Special Provisions – Petroleum, alcohol, electricity kept outside GST, respecting States’ revenue needs.

    Challenges

    Complex multi-tier rate structure increases compliance burden.

    Frequent rate revisions affect business stability.

    GST Council decided to do away with the compensation cess

    Revenue shortfalls weaken State finances.

    Centre’s Dominance – Weighted voting gives Centre 33%.

    Way Forward

    Revive National Anti-Profiteering Authority to ensure rate cuts are passed on to customers

    Periodic technological upgrades in GSTN.

    Strengthen dispute resolution mechanism within GST Council.

    As the Supreme Court (Mohit Minerals, 2022) clarified, GST Council recommendations are not binding, reaffirming that India’s federalism is based on cooperation, not coercion.