Centre–State Relations (2024–26): Fiscal Federalism, Governor’s Role & Administrative Frictions

 Centre–State Relations (2024–26): Fiscal Federalism, Governor’s Role & Administrative Frictions

1. Why in News?

During 2024–26:

  • States raised concerns over:

    • GST compensation and revenue sharing

    • Centrally Sponsored Schemes funding patterns

    • Delays in tax devolution

  • Governor–State government conflicts resurfaced in some states.

  • Federal balance debates intensified.

Federalism moved from theory to confrontation.

2. Constitutional Framework of Federalism

India is described as a:

“Union of States” (Article 1)

Key Features:

  • Division of powers (Seventh Schedule)

  • Union List

  • State List

  • Concurrent List

Article 246 governs distribution of legislative powers.

UPSC frequently tests this.

3. Fiscal Federalism

Revenue sharing based on:

  • Article 270 → Distribution of taxes

  • Finance Commission recommendations (Article 280)

GST framework changed fiscal landscape.

States’ dependence on central transfers remains significant.

4. GST & State Autonomy

Issues include:

  • Compensation cess debates

  • Voting structure in GST Council

  • States’ limited independent taxation powers

GST strengthened cooperative federalism but reduced fiscal autonomy.

5. Governor’s Role in States

Articles:

  • Article 153 → Governor for each State

  • Article 163 → Council of Ministers to aid and advise

  • Article 200 → Assent to Bills

Debate revolves around:
Discretionary powers vs constitutional limits.

6. Administrative Tensions

  • Use of central investigative agencies

  • Implementation of central schemes

  • Control over All India Services

All India Services governed under Article 312.

UPSC can test this.

7. Types of Federalism

  • Cooperative federalism

  • Competitive federalism

  • Quasi-federal system (term often used for India)

UPSC loves conceptual classification.

8. Prelims Angle

Possible traps:

  • Which Article deals with distribution of taxes?

  • Who recommends tax devolution formula?

  • Governor acts under which Article while giving assent?

  • India is federal or unitary? (Technically quasi-federal with unitary bias.)

Statement-based question highly likely.

9. Mains Angle

  • Has GST weakened fiscal autonomy of states?

  • Role of Governor in federal conflicts

  • Need for reform in Centre–State relations

10. RBI Grade B Angle

  • Fiscal coordination

  • Impact of state borrowing

  • Public debt sustainability

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