Context: In the course of fighting against pandemic, one of the striking features of governance has come in the form of the role played by States such as Maharashtra, Kerala, Tamil Nadu, Rajasthan, and Karnataka in shaping their policies to address their direct, local concerns.

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  • Even before the Union government launched itself in the fight by invoking the Disaster Management Act, 2005, many State governments invoked the Epidemic Diseases Act, 1897, and came up with a  series of measures to combat COVID-19.
    • These policies have been tailored to the reality faced on the ground by the respective state governments. 
    • They have communicated these decisions to the public with clarity and consideration.
  • In doing so, they have acted not merely as laboratories of democracy, but also as founts of reasoned authority.

Challenges posed by the Federal System

As State governments have taken up positions of leadership, at multiple occasions, they have found themselves exposed to the limitations of existing federal arrangement namely,

  1. Inability of the states to access funds and tailoring of welfare packages on their own.
  2. Red tapism owing to the Public Finance Management System that has stifled payment systems vis-a-vis the purchase of health-care apparatus such as ventilators and personal protective equipment. 
  3. The economic uncertainty due to all out disruption of supply chains not only of essential items and services but also of other systems of production and distribution.

Constitutional Interpretation of Federalism

Features of Federalism


The Constitution reads it plainly as creation of two distinct levels of government.

  • One at Central level  and at the State level.

The Seventh Schedule to the Constitution divides responsibilities between these two layers.

  • The Union government is tasked with matters of national importance, such as foreign affairs, defence, and airways, etc.
  • The responsibilities vested with the States are concerned with  public health and sanitation, agriculture, public order, and police, etc.
    • In these realms, the States’ power is plenary in nature.

The federal architecture is fortified by a bicameral Parliament.

  • Significantly, the bicameralism is not achieved through a simple demarcation of two separate houses, but through a creation of two distinct chambers that choose their members differently
    • A House of the People [Lok Sabha] comprising directly elected representatives.
    • A Council of States [Rajya Sabha] comprising members elected by the legislatures of the States.

Making States financially autonomous.

  • The power to tax has been divided between the two layers of government to ensure that the authority of the two layers of government did not overlap
  • While the Centre has been accorded the power to tax all income other than agricultural income and to levy indirect taxes in the form of customs and excise duties,State governments have been entrusted with power to tax the sale of goods and the entry of goods into a State.

Rationale: States need to be guaranteed fiscal space to enable them to shape their policies as per the needs of their people.

How has federalism unfolded in practice ?

Despite this constitutionally drawn arrangement, the history of the country's constitutional practice has unfolded in a paradoxical manner. 

  • Overall, It is of no doubt that at the level of the States real development has fructified. But at the same time, the Union has repeatedly displayed a desire to treat States as mere appendages of the Centre (SC in S.R. Bommai v. Union of India)
  • At several instances, efforts have been made to centralise financial and administrative power, to take away from the States their ability to act independently and freely.

Areas of the strain in the Cooperative Federalism

  • Strain in matters of Finance
    • The 14th Finance Commission recommended  an increase in the share of the States in total tax revenues from 32% to 42%. 
      • In theory, this should have enabled the States to significantly increase their fiscal space, but in reality, this has not materialised fully. 
      • The increase in the share of the States in total tax revenues from 32% to 42% has been entirely offset by a simultaneous decline in share of grants and by a relative increase in the States’ own contribution towards expenditures on centrally sponsored schemes.
    • Next in line, with the coming of the Goods and Services Tax regime, which is yet to fulfill its core objective of  uniformity in the Tax structure has made the states’ internal sovereignty inoperative on the other hand.
      • It has made the very survival of the States dependent on the grace of the Union.
      •  The tension between Union and states has mounted over four month’s worth of Goods and Services Tax compensation to the States that is yet to be released.
  • Strain in General Legislation and Administrative affairs
    • There have been criticisms regarding passage of a slew of legislation as money bills.
    • in a bid to bypass the Rajya Sabha’s sanction, even though these laws scarcely fit the constitutional definition. 
    • Similarly, the role of the Governors has been questioned vis-a-vis constitutional obligations. 
    • Abrogation of part of Article 370 and the division of Jammu and Kashmir into two Union Territories without securing consent from the State Legislative Assembly has caused strain on the Centre-State relation.

Way Forward

The limitation posed by federalism signals an urgent need to decentralise administration, where States and local bodies are allowed greater levels of autonomy to manage their affairs.

  • A central executive unit is unsuited to manage its diverse and heterogeneous polity.
  • It is also in line with  the promise of Article 1 of the Constitution, of an India that is a Union of States.
  • The Union government should be in a position to coordinate, rather command.


Public Finance Management System (PFMS)


  1. The Public Financial Management System (PFMS), was earlier known as the Central Plan Schemes Monitoring System (CPSMS).
  2. It was started off during 2009 as a Central Sector Scheme of Planning Commission aimed at tracking of funds disbursed under all Plan schemes of the Government of India.
  3. It is a web-based software application.
  4. It is developed and implemented by the Office of Controller General of Accounts (CGA), Ministry of Finance.

The Mandate 

  • To facilitate a sound Public Financial Management System for the Government of India (GoI) by establishing an efficient fund flow system cum payment and accounting network.
  • It also sought to report expenditure at all levels of Programme implementation on a real time basis.
  • The scope was further enlarged in 2013  to cover DBTs under both Plan and non-Plan Schemes.
    • The distinction became obsolete with the abolition of plan and non-plan expenditure in 2017.


  • At present, the ambit of PFMS coverage includes Central Sector and Centrally Sponsored Schemes as well as other expenditures including the Finance Commission Grants under article 275 of the Constitution.
  • It also provides various stakeholders with a real time management information system and as part of the Digital India initiative.
  • It is also in sync with the Core banking system in the country.

Definitions as defined by the National Development Council

  1. Centrally Sponsored Schemes: The schemes  that are funded directly by the central ministries/ departments and implemented by states or their agencies, irrespective of their pattern of financing, unless they fall under the centre’s sphere of responsibility i.e. the union list. 
    1. This assistance is deliberately in areas that are State subjects, with the centre wishing to motivate the States to take up such programs.
  2. Additional Central Assistance (ACA) linked schemes provide central assistance to the states for the state plan schemes. 
    1. This assistance is meant for special programs as per the needs of the State, sectoral priorities and cover subjects not on the union list. 
    2. The ACA linked schemes are funded by the ministry of finance and administered by the sectoral ministry concerned.
  3. Central Sector Schemes are those that are implemented by a central agency and 100% funded by the center on subjects within the union list.

7th schedule of the Constitution

As per Article 246 of the constitution, the 7th schedule deals with the division of powers between the union and the states. It comprises three lists:

  1. Union List 
    1. It has details of the subjects on which Parliament may make laws. Totally, it has 100(Originally 97) items like Defence, Citizenship, InterState Trade and Commerce etc.
  2. State List 
    1. It houses those subjects on which the state legislature is authorised to make laws.Presently, It has 61 (originally 66) items like Police, Agriculture, Local government etc.
  3. Concurrent List
    1. It has such subjects in its kitty on which both Parliament and state legislatures have jurisdiction to make laws upon.
    2. It has 52(Originally 47) subjects like Criminal Procedure, Marriage and Divorce, Education, etc.
    3. However the Constitution has provided federal supremacy to Parliament on the subjects in the concurrent list, if a conflict arises.


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