Union or Illusion?

Any standard textbook on the Indian political system says, referring to article 1(1) of the Indian Constitution, “India, that is Bharat, shall be a Union of States”. The Constitution uses “India” and “Bharat” as names for the country. It establishes India as a union of states, meaning that the states are not independent entities but rather parts of a larger, unified whole. The territory of India comprises the states’ territories, union territories specified in the First Schedule, and any other territories that may be acquired. The First Schedule of the Constitution lists the states and their territories, as well as the union territories.

Though India is often referred as a federal state as it has a written constitution, independent judiciary, a division of power structure between Union and State governments, India is not a federal state in true sense as ‘Indian federation’ has not emerged as a result of any agreement by the states and most importantly no state has the right to secede from the Union of States. India’s governance structure, as enshrined in the Constitution, is claimed to be a unique blend of centralisation and decentralisation, which is often termed as ‘co-operative federalism’, which advocates for collaboration between the Union and State governments to ensure effective governance and the delivery of public services. It is claimed that the roots of federalism in India can be traced back to the colonial era when the Government of India Act, 1935, laid the foundation for a federal system by introducing provincial autonomy. Post-independence, the framers of the Indian Constitution adopted a quasi-federal structure, where the balance of power was tilted in favour of the Union government to maintain national unity and integrity in a diverse and newly independent nation.

Academically, no ‘Central government’ exists in India. It’s a misnomer that gives the impression that the states are subordinate to the centre. Probably, this term has been engineered by the ruling elites to continue with the colonial structure of governance which was built on unrestrained siphoning of resources from the colonies to the home country. It appears that the rulers of independent India wanted to create a parallel governance process in all important respects to external colonisation and differentiated it only by its geographical location. Hence, the term ‘central government’ is repeatedly used in Indian political discourse instead of ‘union government’ which captures the true political structure of India—a ’Union of States’. Many political economists mention these de facto governance structures of post-colonial rulers of independent India as ‘internal colonialism’.

Lenin gave an idea of ‘internal colonialism’ when he, in 1896, described the Tsarist autocracy’s creation by force of the Russian Empire as an ‘internal market’ for capital centred in St Petersburg and Moscow, writes Peter Calvert (2001) in his seminal essay, ‘Internal colonisation, development and environment’. The current debates on South North and East West divide between different regions of India may perhaps be analysed from this perspective. The increased tension between the Union and state governments since 2014 is an indicator of the breakdown of Union-state relations. Here are a few major issues.

Technology Facilitating Political Centralisation

Technological changes have significantly helped the centralisation of political power. It has ensured direct targeted transfers of various benefits to citizens. According to political analysts, this has occurred through two key policy and technological changes in the Indian context. First, the universal identification program (Aadhar) and the proliferation of ‘Jan dhan’ bank accounts have integrated the Indian population into the formal banking system. This effectively bypasses local intermediaries and other local actors who may otherwise claim credit for economic delivery. Second, through a bevy of innovations in branding, carried out through carefully targeted advertising, media management, and control over the party organisation, the party leader is able to more efficiently claim credit for welfare delivery than ever before.

Interestingly, centralisation is occurring in parallel to a vibrant system of local political intermediaries who negotiate access to the state on behalf of citizens. As budget and welfare allocations are decided in a centralised manner in India by party and government leadership, the technological innovations have generated a closer relationship between allocation decisions and credit-claiming, creating more centralised political attribution. Moreover, party tickets are still distributed in a highly centralised manner decided by party leadership (there are no primaries for any major party), and thus, the re-nomination of candidates is subject to the larger aims of the party leadership. This means that, irrespective of local performance, centralised parties with “low intra-party democracy” are generally unlikely to re-nominate the same candidate to prevent the entrenchment of local power. This pattern is true at the state level as well. In India’s largest state, Uttar Pradesh, the proportion of first-time MLAs has been at least 60 percent in each election since 1977, with 78 percent of MLAs being elected for the first time in the most recent state elections. These processes ensure that local leaders cannot divert political attribution from the central leader, observes Neelanjan Sircar.

However, during COVID-19, state administrators realised the importance of decentralisation of political power. A study by the researchers of the Centre for Policy Research has pointed out at least three specific limitations. First, the inability of States to access funds and structure their welfare packages was a major problem. Second, the curbs imposed by a public finance management system that was mired in officialdom. This has prevented States from easily and swiftly making payments for the purchase of health-care apparatus such as ventilators and personal protective equipment. Third, the colossal disruption of supply chains not only of essential goods and services but also of other systems of production and distribution, which had placed States in a position of grave economic uncertainty. These limitations demonstrated an urgent need to decentralise administration, where States and local bodies acting through such governments were allowed greater managerial freedom. Under such a model, the Union government would command less but coordinate more, they argued.

Centralisation of Education

Initially, education was in the State list which was then moved to the Concurrent list in 1975 during the Emergency period. Now attempts are initiated to transfer it to the Union list, potentially diminishing the authority and autonomy of individual states. In 2020, the Ministry of Human Resource Development (MHRD) was renamed the Ministry of Education (MoE), and a new apex body, the National Education Commission (NEC), was created with the Prime Minister as its head. Educationists have decried this and demanded the decentralisation of education. Decentralisation in this context denotes the process through which power to formulate policies and make decisions is transferred from the Union government to state governments, empowering the latter to independently determine education policies, administration, curriculum, and assessment.

In 2005, India offered the higher education sector under the WTO General Agreement on Trade in Services (GATS). Offering higher education under tradable services was a major policy shift. As derivatives, several Educational Bills were pushed during the United Progressive Alliance (UPA)-II to put higher education on the “reform” trajectory as per the needs of the WTO terms. These were, however, shelved after the Standing Committees of the Rajya Sabha received negative feedback from stakeholders. The Modi-II Government pushed the National Education Policy 2020 (NEP 2020), bypassing the Parliament. While the entire country, and the education sector in particular, was struggling with unforeseen situations created by COVID-19 and schools and higher education institutions were closed, on 29 July 2020, the Cabinet passed the 66-page NEP 2020 document.

In 2023, the Karnataka State Government announced its decision to scrap the National Education Policy (NEP) and to replace it with a new state education policy (SEP) from the next academic year. A year ago, the Tamil Nadu State Government too constituted a committee to devise a unique state education policy. The Tamil Nadu government has refused to implement the PM SHRI scheme, which requires adherence to the NEP and the three-language formula. Stalin accused the Centre of using education funds as a weapon against states that oppose its policies. Tamil Nadu Chief Minister MK Stalin has accused the BJP-led Union government of diverting Rs 2,512 crore meant for Tamil Nadu’s school children to other states as political retribution for the state’s refusal to implement the National Education Policy (NEP) 2020 and its three-language policy. The West Bengal government also expressed its strong reservation on several provisions of the National Education Policy (NEP). Speaking at the national conference on NEP, the Bengal education minister said that attempts at centralisation of education would marginalise the role of states in a diverse country like India. “Proposals like consolidation of higher education systems, centralisation of education by creating National Level Councils, despite Education being in the concurrent list of the Constitution, will only defeat various goals set in the NEP, 2020 and marginalise the role of the states,” he said.

Shifting education from the state list to the concurrent list has not improved the skill of the students. The Economic Survey 2024-25, tabled in Parliament on January 31, 2025, has brought to light the alarming mismatch between the educational qualifications of India’s workforce and the jobs they occupy. According to the Survey, a mere 8.25 per cent of graduates are employed in roles that align with their qualifications, highlighting a growing concern over the skills gap in the country’s job market.

Fiscal Centralisation

States cry foul over unfair tax sharing, forced dependence on Union government schemes, and GST woes, raising fears of a fractured federation, writes eminent economist CP Chandrasekhar. Aggressive efforts to force a distorted fiscal regime on States is undermining the States’ ability to pursue their development agendas, he observes. States governed by parties that are not part of the National Democratic Alliance (NDA) coalition ruling at the Centre claim to be feeling the heat even more because they face discrimination in the distribution of discretionary transfers from the Union to the States.

In a recent meeting with the Chairman of the 16th Finance Commission, the West Bengal government urged the commission to increase the vertical devolution of taxes to States from the current 41 per cent to 50 per cent. The State government also proposed significant changes to the criteria for weightage in horizontal allocation. The government has proposed to include “urbanisation” as one of the criteria for horizontal devolution of States’ share of Union taxes during the meeting with the members of the Finance Commission.

The distribution of power between the Union and States as put forth by the Seventh Schedule of the Constitution, has created a fiscal gap and led to a vertical fiscal imbalance. As per this financial relation, greater revenue-raising powers are with the Union, whereas much of the expenditure responsibilities, mainly those about welfare and development, are with the States. As per the Finance Commission 15 Report, the States had only 37.3 per cent of the resources but were responsible for 62.4 per cent of the incurred expenditure. This reflects the large vertical imbalances arising between the Union and the States due to effective commitment of expenditure compared to the revenue powers. Gradual increases in cess and surcharge are causing the divisible pool to shrink as these are not shareable with the States. This is the reason why the growth in grants-in-aid to States is higher than the tax devolution to the States. Between FY 2011-12 and FY 2019-20, the cess and surcharges increased by 4.7 times, from Rs. 92,537 crore to Rs. 436,809 crore. With this increase, cess and surcharges as a part of gross tax revenue increased from 10.5 per cent in FY 2011-12 to 20.2 per cent in FY2019- 20 (RE).

Related to the problem of cesses and surcharges is the issue of proliferation of Centrally Sponsored Schemes (CSS), most of which are only partly funded by the Union government. Many of these schemes operate in the subjects listed in the State List. Though numerous committees appointed by the Government of India recommended restricting the CSS to areas of national importance, all that has been done so far is grouping them under 28 broad umbrella heads without any effective reduction in their number. In view of the genuine grievances of States regarding the increasing number of CSS eroding their autonomy, there is an urgent need that the FC-XVI addresses this issue.

Observations

Political analysts have observed that the economic reforms that began in 1991, providing some fiscal space for States, the autonomy regarding resource mobilisation and expenditure policies is not absolute. The freedom established since the 1990s has also shrunk with the introduction of goods and services tax (GST), which has curtailed the available avenues for States to mobilise resources, making them more dependent on the Union government. In the long run, increasing scratches in Centre-State relations will pose a significant challenge to the country’s federal system.

States’ access to resources is seemingly conditional on having a “double-engine sarkar”, even as governments’ space for economic policy is shrinking. Announcements of measures, which parties outside the BJP-led National Democratic Alliance see as attacks on federalism, have increased in frequency. A recent example is the “One Nation, One Election” call for simultaneous elections to different levels of government, which has been identified as a “blatant attempt to undermine” the country’s federal structure.

The tension between the Southern States and the Union government has increased in the recent past. A post by a Tamilian on the social media platform X has sparked fresh debate on the Union-State financial relationship, particularly regarding Tamil Nadu’s economic contributions to the Union government. He questioned the Union government’s frequent announcements about the financial assistance provided to Tamil Nadu while seemingly ignoring the revenue the State generates for the Union government. He said, ‘Tamil Nadu gives more than what it receives’ and argued that in a federal structure, financial exchanges should be seen as reciprocal rather than one-sided assistance.

Indian political structure now resembles the political system of Myanmar (Burma), which is ruled by the largest ethnic group, the Bamar or Burman community which constitutes 69 percent of the country’s population. 135 indigenous ethnic groups in Myanmar are grouped into eight national races: Burman, Kachin, Kayah, Karen, Chin, Mon, Rakhine and Shan. These non-Burman ethnic minorities live in border States, while Burmans live in the central region. Burma’s political establishment, however, has insisted on political and cultural assimilation, with centralised control and a nationalist cultural agenda promoting the Burmese language and Buddhism at the expense of other languages and religions. For over 50 years, ethnic peoples in Burma have been fighting for degrees of autonomy varying from the maintenance of their States within a federal union to outright independence. They seek to sustain their languages and cultures while retaining control over political and economic life in their regions. Denied of their basic rights, these ethnic minorities have revolted against the State, and the country is on the verge of disintegration. Hope the Indian political establishment learns lessons from Burma’s present crisis.

Views expressed are personal