MODULE 2

Federalism – Detailed Notes

1. Meaning of Federalism
 Federalism is a system of government in which powers are
divided and shared between a central/national
government and regional/state governments, both
operating independently within their own spheres.
 It aims to balance unity with diversity, ensuring both
national integration and regional autonomy.
 The essence of federalism lies in “division of power”,
“constitutional supremacy”, and “independent
functioning” of each level of government.
2. Definition
 K.C. Wheare:
“Federalism is the method of dividing powers so that the
general and regional governments are each within a sphere co-
ordinate and independent.”
 Dicey:
Federalism is a political contrivance intended to reconcile
national unity with the maintenance of state rights.
3. Essential Features of Federalism
1. Dual Government:
o Federalism establishes two sets of governments — one at
the national (central/federal) level and the other at the
regional (state/provincial) level.
o Example: In the U.S., power is shared between the
Federal Government and the States.
2. Written Constitution:
o The Constitution is written so that powers, functions, and
limitations of each level of government are clearly
defined.
o Examples: U.S. Constitution (1789), Canadian
Constitution (1867), Indian Constitution (1950).
3. Supremacy of the Constitution:
 o The Constitution is the supreme law of the land, and
both levels of government must act according to it.
o Any law inconsistent with the Constitution is void.
4. Division of Powers:
o The Constitution divides powers between the central and
regional governments.
o Example: India — Union, State, and Concurrent Lists;
U.S. — Enumerated and Reserved powers.
5. Rigid Constitution:
o Amendment procedures are difficult to ensure that
neither level can unilaterally alter the distribution of
power.
o Example: Article V of the U.S. Constitution requires two-
thirds majority in Congress and ratification by three-
fourths of states.
6. Independent Judiciary:
o The judiciary acts as the guardian of the Constitution,
settling disputes between the Centre and States.
o Example: U.S. Supreme Court and Indian Supreme Court.
7. Bicameralism:
o Federal legislatures often have two houses — one
representing the people and the other representing the
states.
o Example: U.S. Senate (states) and House of
Representatives (people).
4. Objectives of Federalism
 To maintain unity in diversity.
 To promote decentralization of power.
 To protect the rights of states and prevent tyranny of the
centre.
 To ensure efficient governance by dividing responsibilities.
 To maintain constitutional balance between autonomy and
national interest.
5. Types of Federalism
A. Dual Federalism ("Layer Cake Federalism")
 Clear separation between the powers and responsibilities of
the Centre and the States.
 Minimal interference or overlap.
 Example: United States (before the New Deal).
B. Co-operative Federalism ("Marble Cake Federalism")
 Both Centre and States work together on shared subjects.
 Emphasizes coordination, not competition.
 Example: India (post-liberalization), Australia, Canada.
C. Competitive Federalism
 States compete for central resources, investments, and
developmental projects.
 Encourages innovation, efficiency, and fiscal discipline.
 Example: U.S. during economic reforms, India post-1991
reforms.
D. Fiscal Federalism
 Deals with financial relations between the Centre and States
— taxation powers, grants, revenue-sharing, etc.
 Example: Canada’s “Equalization Payments” and India’s
Finance Commission.
6. Advantages of Federalism
1. Promotes local autonomy and self-governance.
2. Ensures better policy experimentation — states can act as
“laboratories of democracy.”
3. Protects minority and regional interests.
4. Prevents concentration of power.
5. Allows diverse policies suited to different regions.
6. Strengthens democratic participation and accountability.
7. Disadvantages of Federalism
 1. May lead to conflicts of jurisdiction between the Centre and
States.
2. Possibility of inefficiency due to duplication of authority.
3. Encourages regionalism and sometimes separatist
tendencies.
4. Slower decision-making in emergencies.
5. Financial dependency of states on the Centre.
8. Models of Federalism (Comparative Perspective)
(i) United States
 Dual federalism model.
 Constitution: Rigid, written, and supreme.
 Powers: Enumerated for the Centre; Reserved for States (10th
Amendment).
 Judiciary: Supreme Court ensures federal supremacy
(McCulloch v. Maryland, 1819).
 Nature: Decentralized and State-autonomous.
(ii) Canada
 Quasi-federal structure — more unitary bias.
 Division of powers: Sections 91 (Federal) and 92 (Provincial).
 Residual powers: With the Centre (Peace, Order, and Good
Government Clause).
 Nature: Federal in form but unitary in spirit.
(iii) Australia
 Co-operative federalism.
 Constitution provides a division of powers, but financial
dominance of the Centre leads to cooperation.
 Section 109: Federal law prevails in case of conflict.
 Inter-Governmental Councils promote coordination.
(iv) Germany
 “Bundesstaat” model (co-operative federalism).
  States (Länder) participate in federal law-making through the
Bundesrat.
 Fiscal federalism ensures equitable sharing of revenue.
(v) Switzerland
 Confederation turned federation.
 Cantons retain large autonomy; Confederation handles
defense, currency, foreign affairs.
 Direct democracy strengthens local participation.

Legal Features of Federalism

1. Introduction
Federalism is not only a political arrangement but also a
constitutional and legal structure. It is the legal framework
that divides powers, responsibilities, and authorities between two
levels of government — the Central (Federal) and State
(Regional/Provincial) governments.
The Constitution is the legal foundation of a federal system,
which defines:
 The scope of power of each level,
 The relationship between them, and
 The mechanisms for resolving disputes.
Thus, the legal features of federalism ensure that both levels of
government operate within the limits prescribed by the
Constitution.
Legal Autonomy of Governments
 Both Centre and State governments are legally autonomous
within their jurisdictions.
 Neither is subordinate to the other; both derive authority from
the Constitution.
Legal Effect:
 Each can make laws and execute them within their sphere.
  Encroachment by one on another’s jurisdiction can be legally
challenged.
Examples:
 India: Article 246 defines exclusive powers.
 U.S.: States enjoy “police powers” and local governance
autonomy.
 Canada: Provinces have exclusive authority over education,
property, and civil rights.
Judicial Review and Constitutional Remedies
 The judiciary has the legal power to review legislation to
ensure that both levels of government act within their
constitutional limits.
 This provides a legal check on misuse of power.
Examples:
 U.S.: Judicial Review established in Marbury v. Madison (1803).
 India: Supreme Court can strike down laws violating the
Constitution (Article 13, 32).
 Canada: Judicial Committee of the Privy Council historically
resolved Centre–Province disputes.

Co-operative Federalism – Detailed Notes

1. Introduction
Federalism is a constitutional mechanism that divides power
between the Central (Federal) and State (Provincial)
governments.
In a rigid or dual federal system, each government functions within
its own sphere with little or no overlap. However, modern
governance requires interdependence and coordination between
various levels of government.
Thus, the concept of Co-operative Federalism emerged — where
both levels of government work in partnership for achieving
common national objectives. It represents a shift from conflict to
cooperation in a federal structure.
2. Meaning and Definition
 Co-operative Federalism refers to a model of federalism
where the Union and State governments coordinate their
actions, share responsibilities, and work together in
policymaking and administration.
 It is based on the principle of “unity in diversity”,
emphasizing collaboration and consensus rather than
competition or confrontation.
Scholarly Definition:
According to K.C. Wheare, cooperative federalism is a system where
“the federal and regional governments are not independent of each
other, but are rather interdependent, working harmoniously for the
welfare of the people.”
3. Constitutional Basis of Co-operative Federalism (India)
The Constitution of India provides several provisions that encourage
and institutionalize cooperative federalism:
a. Article 263 – Inter-State Council
 Empowers the President to establish an Inter-State Council to
promote coordination and cooperation between the Centre
and States.
 It can discuss subjects of common interest and make
recommendations for better policy coordination.
b. Article 280 – Finance Commission
 Constitutes a Finance Commission every five years to
distribute financial resources between the Centre and the
States equitably, thereby promoting fiscal cooperation.
c. Article 275 – Grants-in-Aid
 Enables the Centre to provide financial assistance to States
for specific purposes, ensuring balanced regional development.
d. Seventh Schedule – Concurrent List
 The Concurrent List allows both Centre and States to legislate
on common subjects like education, forest, labor welfare,
etc., promoting cooperative law-making.
e. Planning and Development Bodies
 NITI Aayog, established in 2015, replaced the Planning
Commission and acts as a platform for cooperative
planning, ensuring states’ participation in national
development.
 Zonal Councils under the States Reorganisation Act, 1956,
promote cooperation among states of a region.
f. GST Council (Article 279A)
 A constitutional body ensuring fiscal federalism and joint
decision-making between the Centre and States on indirect
taxation.
4. Mechanisms Promoting Co-operative Federalism
1. NITI Aayog:
o Acts as the premier institution fostering cooperative and
competitive federalism.
o Encourages states to participate in policy framing,
resource allocation, and developmental priorities.
o Works on a bottom-up approach instead of top-down
planning.
2. GST Council:
o Composed of Union and State Finance Ministers.
o Ensures decisions on tax rates and revenue sharing
through consensus.
o A major example of fiscal cooperation in the Indian
context.
3. Finance Commission:
o Recommends distribution of taxes and grants, ensuring
financial equity between Centre and States.
4. Inter-State Council & Zonal Councils:
o Provide platforms for discussing inter-governmental
issues and resolving disputes amicably.
5. Centrally Sponsored Schemes (CSS):
 o Require joint implementation by both Centre and States
— examples include MGNREGA, Swachh Bharat Mission,
and Smart Cities Mission.
5. Characteristics of Co-operative Federalism
1. Mutual Respect and Trust:
o Both levels of government must respect each other’s
constitutional roles and work harmoniously.
2. Partnership Model:
o The Centre and States are partners, not hierarchically
superior or inferior.
3. Common Objectives:
o Focuses on shared national goals such as poverty
reduction, education, healthcare, and environmental
sustainability.
4. Shared Responsibilities:
o Encourages collaboration in policymaking,
implementation, and resource utilization.
5. Institutional Collaboration:
o Various constitutional and non-constitutional bodies
facilitate continuous dialogue and coordination.
6. Importance of Co-operative Federalism
 Ensures National Unity and Integrity:
Promotes coordination in addressing national challenges such
as disasters, pandemics, or economic crises.
 Balanced Regional Development:
Allows weaker states to access resources and technical
assistance from the Centre.
 Improved Governance:
Avoids duplication of efforts and enables efficient policy
implementation.
 Fiscal Harmony:
Ensures equitable distribution of financial resources and tax
revenues.
  Democratic Participation:
Encourages participatory decision-making by involving states
in national planning.
7. Examples of Co-operative Federalism in India
o GST Implementation (2017): Both Centre and States
jointly decided GST structure and rates. Reflects a major
example of fiscal partnership.
o NITI Aayog Initiatives: Cooperative policy-making on
sustainable development, agriculture, and social welfare.
o COVID-19 Pandemic Response: Joint efforts by
Central and State governments in healthcare, lockdown
management, and vaccination drives.
o Disaster Management: Coordinated mechanisms
between the National Disaster Management Authority
(NDMA) and State Disaster Management Authorities
(SDMAs).
8. Challenges to Co-operative Federalism
1. Financial Imbalance:
o States depend heavily on the Centre for funds, leading to
reduced autonomy.
2. Political Differences:
o Different political parties at Centre and States may hinder
cooperation.
3. Centralization of Power:
o Increased use of centrally sponsored schemes and control
over taxation sometimes undermines true federal spirit.
4. Lack of Institutional Strength:
o Inter-State Council and Zonal Councils meet infrequently,
reducing their effectiveness.
5. Unequal Economic Capacity:
o Richer states often have greater influence in decision-
making, marginalizing smaller or poorer states.
9. Co-operative vs. Competitive Federalism
Aspect Co-operative Federalism Competitive Federalism
Partnership and
Nature Competition among states
collaboration
Economic efficiency and
Focus Collective development
performance
Approa
Consensus-based Market-based
ch
Objecti National unity and inclusive
Efficiency and innovation
ve growth
Exampl GST Council, NITI Aayog Ease of Doing Business
e meetings rankings

Competitive Federalism – Medium Notes

1. Meaning and Concept
 Competitive Federalism refers to a system of governance
where different levels of government — primarily the States
— compete with each other and sometimes with the Centre,
to attract investment, improve governance, and deliver better
services.
 It is based on the idea that competition leads to efficiency,
innovation, and better performance.
 The concept encourages healthy rivalry among states to
achieve greater economic growth, development, and public
welfare.
2. Evolution of Competitive Federalism in India
 The concept gained prominence after the economic reforms
of 1991, which promoted liberalization and reduced central
control over the economy.
 States were encouraged to compete for investment,
improve infrastructure, and simplify governance processes.
 The 14th Finance Commission (2015) and the
establishment of NITI Aayog further strengthened the
principle by linking financial devolution to performance and
outcomes.
3. Key Features
o Decentralization of Power: States are given more
autonomy in policy formulation and financial
management.
o Performance-Based Resource Allocation: Central
transfers, incentives, and grants are linked to the
performance of states rather than population or need
alone.
o Market-Oriented Governance: Encourages states to
improve the business environment, attract industries, and
compete globally.
o Benchmarking and Ranking: Various central initiatives
rank states based on performance indicators, such as:
 Ease of Doing Business Index
 NITI Aayog’s Health Index
 School Education Quality Index (SEQI)
 Aspirational Districts Programme
o Encouragement of Innovation: States adopt
innovative policy measures to outshine others in
governance, education, health, and industrial growth.
6. Importance of Competitive Federalism
 Promotes Good Governance: Encourages states to deliver
efficient administration and public services.
 Drives Economic Growth: Attracts domestic and foreign
investments through policy innovation.
 Enhances Accountability: States are held responsible for
their performance in governance and development.
 Encourages Innovation: Each state experiments with new
ideas and models suited to its socio-economic needs.
 Strengthens Federal Autonomy: States become more self-
reliant, reducing overdependence on the Centre.
7. Challenges
 Regional Inequality: Developed states often attract more
investment, widening the gap with less-developed ones.
  Fiscal Imbalance: Poorer states may lack the resources to
compete effectively.
 Political and Bureaucratic Hurdles: Over-centralization or
political rivalry may undermine cooperation.
 Risk of Short-Termism: Excessive focus on rankings may
divert attention from long-term structural reforms.
8. Relationship with Co-operative Federalism
 Co-operative and Competitive Federalism are
complementary, not contradictory.
 Competitive federalism promotes efficiency and innovation,
while co-operative federalism ensures coordination and
national unity.
 Together, they form the two pillars of modern Indian
federalism, balancing competition with collaboration.

Transition from Competitive to Co-operative Federalism –

Medium Notes
1. Introduction
Federalism in India has continuously evolved since independence.
Initially, India followed a centralized or quasi-federal structure,
but over time, it has moved through phases of competitive and
then co-operative federalism.
While competitive federalism focused on rivalry and
performance-based competition among states, the current
shift emphasizes collaboration, coordination, and partnership
between the Centre and States to achieve national goals.
This transition marks India’s journey towards a more inclusive,
participatory, and balanced federal system.
2. From Centralized to Competitive Federalism
 In the early decades after independence, the Centre held
dominant control over planning, finance, and legislation.
 With economic liberalization in 1991, the states gained
more autonomy, leading to competitive federalism — where
states competed for investment, infrastructure, and
development.
  States began to formulate independent economic policies to
attract industries, improve governance, and achieve higher
growth rates.
 This competition fostered efficiency but also created
imbalances and regional disparities.
3. Emergence of Co-operative Federalism
 Over time, policymakers realized that competition alone could
not ensure balanced and sustainable development.
 National issues like poverty, health, education, climate change,
and disaster management require joint efforts between the
Centre and States.
 Hence, a new model — Co-operative Federalism —
emerged, promoting collaboration over competition.
The 14th Finance Commission (2015) and the establishment of
NITI Aayog marked a turning point in this transition.
4. Key Factors Driving the Transition
1. Abolition of the Planning Commission and Creation of
NITI Aayog (2015):
o NITI Aayog replaced centralized planning with a bottom-
up approach that includes all states in decision-making.
o It serves as a platform for cooperation, coordination,
and consensus-building.
2. Finance Commission Reforms:
o The 14th Finance Commission increased the states’
share of central taxes from 32% to 42%, giving them
greater financial autonomy.
o This strengthened fiscal cooperation and reduced
dependency.
3. Implementation of GST (2017):
o The Goods and Services Tax Council (Article 279A)
became a model of co-operative decision-making, where
both Centre and States jointly decide tax rates and
structures.
4. Centrally Sponsored Schemes (CSS):
 o Reforms in funding and shared responsibilities
encouraged joint execution of social welfare schemes.
5. Crisis Situations:
o National challenges like COVID-19, natural disasters,
and climate change demanded Centre–State
collaboration, reinforcing the cooperative spirit.
5. Key Differences Between Competitive and Co-operative
Federalism
Aspect Competitive Federalism Co-operative Federalism
Collaboration and
Rivalry among states for
Nature coordination among
performance
governments
Objecti Efficiency, innovation, Unity, inclusive growth,
ve investment national goals
Approa Top-down performance-based Consensus-based decision-
ch competition making
Exampl Ease of Doing Business GST Council, NITI Aayog,
es rankings, Smart Cities Mission Finance Commission
Outco Economic dynamism but Balanced and participatory
me regional inequality development

6. Advantages of the Transition

 Promotes Unity in Diversity: Encourages all states to work
together for shared objectives.
 Strengthens Democratic Governance: Ensures
participative decision-making.
 Enhances Fiscal Balance: Equitable distribution of financial
resources.
 Improves Policy Implementation: Collaboration ensures
effective delivery of welfare programs.
 Addresses National Challenges: Joint response to complex
issues like pandemics, environment, and digital economy.
7. Challenges
 Political conflicts between Centre and States may still affect
cooperation.
 Fiscal constraints and uneven capacities among states can
hinder true collaboration.
 Central overreach through laws and financial control
sometimes undermines state autonomy.
 Lack of regular consultation in inter-governmental forums like
the Inter-State Council.

Distribution of Legislative and Financial Power in a Federal

System
1. Introduction
Federalism is a political system in which power is divided between a
central (national) government and regional (state/provincial)
governments.
This division is not merely administrative but constitutional,
meaning both levels derive their authority from the Constitution
itself.
The most significant feature of any federal constitution is the
distribution of powers between these two levels. The goal is to
maintain unity in diversity, allowing local autonomy while
preserving national integrity.
The power distribution generally covers two aspects:
1. Legislative Powers – relating to the authority to make laws.
2. Financial Powers – concerning taxation, expenditure, and
revenue-sharing.
Without a well-defined and balanced distribution, federalism cannot
function effectively, as either centralization or excessive
decentralization would threaten the federation’s survival.
2. Principles Governing the Distribution of Powers
In designing a federal constitution, the following principles are
considered:
 1. Supremacy of the Constitution – The written Constitution
acts as the final authority for determining the division of
powers.
2. Division of Subjects – Powers are divided through lists or
schedules, defining which level can legislate on which subject.
3. Predominance of National Interests – Some flexibility is
given to the Centre to ensure unity in emergencies.
4. Autonomy of Units – States or provinces must enjoy genuine
legislative and financial independence in their sphere.
5. Judicial Interpretation – The Supreme or Federal Court
ensures that both levels act within their limits.
3. Distribution of Legislative Powers
A. Meaning
Legislative power refers to the competence to make laws. In a
federal system, it is essential to clearly define which level of
government can legislate on which subjects to avoid jurisdictional
conflicts.
B. Methods of Distribution
Different federations adopt different models:
1. Threefold Division (as in India) – Union, State, and
Concurrent Lists.
2. Dual Division (as in U.S. and Canada) – Federal and
State/Provincial powers.
3. Enumerated + Residual Approach – Certain powers are
specifically enumerated; remaining (residuary) powers are
given either to the Centre or States.
C. Distribution of Legislative Powers in India
Basis of Distribution
The legislative powers are distributed based on the subject matter of
legislation. The distribution ensures that both levels of government
can function independently within their respective spheres.
3. Threefold Distribution (Seventh Schedule)
1. Union List (List I)
 o Contains 100 subjects on which only Parliament has
exclusive power to legislate.
o Examples: Defence, foreign affairs, atomic energy,
banking, currency, and communication.
o Ensures uniformity across the nation on vital issues.
2. State List (List II)
o Contains 61 subjects on which only State Legislatures can
make laws.
o Examples: Police, public order, public health, agriculture,
and local government.
o Reflects the principle of regional autonomy.
3. Concurrent List (List III)
o Contains 52 subjects on which both Parliament and State
Legislatures can legislate.
o Examples: Education, marriage, contracts, forests, and
labour welfare.
o In case of conflict between Union and State laws, Union
law prevails (Article 254).
4. Residuary Powers
Under Article 248, subjects not mentioned in any of the three lists
belong to the Parliament. This ensures that the Union can legislate
on emerging or unforeseen issues like space law and cybercrime.
5. Parliament’s Power to Legislate on State Subjects
In certain circumstances, Parliament can make laws on matters in
the State List:
o Article 249: Parliament can legislate on a State subject
in national interest if Rajya Sabha passes a resolution (by
2/3 majority).
o Article 250: Parliament can legislate on State subjects
during a National Emergency.
o Article 252: Parliament can legislate for two or more
States by consent.
o Article 253: Parliament can legislate for the entire
country for implementing international treaties.
Doctrine of Pith and Substance:
Courts apply this doctrine to determine the true nature of legislation
and to resolve overlapping jurisdiction between the Union and
States.
D. Legislative Distribution in Other Federations
1. United States
 The U.S. Constitution (1787) follows a dual federalism
model.
 Article I, Section 8: Enumerates federal powers (e.g.,
defense, currency, commerce).
 Tenth Amendment: All powers not delegated to the Federal
Government are reserved to the States or the people.
 Concurrent Powers: Both levels can legislate (e.g., taxation,
criminal law).
 Supremacy Clause (Article VI): Federal laws override
conflicting State laws.
2. Canada
 The Constitution Act, 1867 (formerly BNA Act) creates a
more centralized federation.
 Section 91: Federal powers (defense, trade, banking, criminal
law).
 Section 92: Provincial powers (property, civil rights, local
matters).
 Residual powers: Belong to the federal government, unlike
the U.S.
 Peace, Order and Good Government (POGG) clause
strengthens federal authority.
3. Australia
 The Australian Constitution (1901) divides powers as:
o Exclusive Powers (Section 52): Commonwealth only
(e.g., defense, customs).
o Concurrent Powers (Section 51): Both levels can
legislate (e.g., trade, taxation).
 o Residual Powers: Remain with States.
 Section 109: Federal law prevails in case of conflict.
 Over time, judicial interpretation (by the High Court) has
strengthened the Commonwealth.
4. Germany
 The Basic Law (1949) provides for exclusive, concurrent,
and framework legislative powers.
 The Bund (Federal) government legislates on defense,
currency, and foreign affairs, while Länder (States) handle
education and police.

4. Distribution of Financial Powers

A. Importance
A sound federal system must ensure financial independence of both
governments.
If one level is financially dependent on the other, real autonomy is
lost.
Hence, the constitution must clearly define taxation powers,
revenue allocation, and grants mechanisms.
B. Financial Distribution in India
Principles of Financial Distribution
The distribution of financial powers between the Union and the
States is based on the following principles:
 Independence within spheres: Both levels can raise
resources and spend independently.
 Coordination and cooperation: Mechanisms exist to ensure
equitable sharing of revenues.
 Flexibility: To adapt to changing economic needs and national
priorities.
Sources of Revenue
A. Taxes Levied and Collected by the Union (Article 268A &
269)
  Includes customs duties, corporation tax, income tax (except
on agricultural income), and excise duties on non-alcoholic
goods.
 These are collected and retained by the Union.
B. Taxes Levied by the Union but Shared with the States
(Article 270)
 Examples: Income tax, Union excise duties, and now GST.
 The Finance Commission recommends how these revenues
are to be divided.
C. Taxes Levied and Collected by the States
 Includes land revenue, taxes on agricultural income, excise
duty on liquor, stamp duty, vehicles, and entertainment taxes.
 These are retained by the States for their expenditure.
D. Taxes Levied by the Union but Collected by the States
(Article 268)
 Includes stamp duties and duties of excise on medicinal and
toilet preparations.
 These are collected by the States but appropriated by
them.
4. Grants and Financial Assistance
 Article 275: Grants-in-aid are given to certain States to cover
costs of development or welfare projects.
 Article 282: Both the Union and States can make grants for
public purposes, even beyond their legislative competence.
 Finance Commission (Article 280): Plays a crucial role in
recommending how revenues are distributed and grants are
allocated.
5. Borrowing Powers
 Union (Article 292): Can borrow on the security of the
Consolidated Fund of India.
 States (Article 293): Can borrow within India, but require
Union consent if they are indebted to the Union government.
6. Role of the Finance Commission
  Established under Article 280 every five years.
 Functions include:
o Recommending distribution of taxes between Union and
States.
o Determining principles for grants-in-aid.
o Suggesting measures to improve fiscal stability.
7. Goods and Services Tax (GST)
The 101st Constitutional Amendment (2016) introduced
GST — a uniform tax replacing multiple indirect taxes.
It is levied by both Union and States through:
 CGST (Central GST)
 SGST (State GST)
 IGST (Integrated GST) for inter-state trade.
The GST Council (Article 279A) ensures cooperative
decision-making between Centre and States.
C. Financial Distribution in Other Federations
1. United States
 States have independent taxing powers (e.g., property,
sales, and income tax).
 Federal government raises revenue from corporate and
income taxes.
 No formal constitutional mechanism for sharing revenue, but
federal grants-in-aid are provided for programs like
healthcare and education.
2. Canada
 Federal dominance in taxation due to customs and excise
duties.
 Provinces collect income tax and sales tax but rely heavily on
federal transfers.
 The Equalization Payment System ensures uniform
development among provinces.
3. Australia
  Financially centralized system.
 The Commonwealth collects most taxes (especially income
tax).
 States depend on federal grants under Section 96.
 The High Court rulings (e.g., Uniform Tax Case, 1942)
increased federal dominance.
4. Germany
 The Bund and Länder share tax revenues.
 Certain taxes (e.g., VAT, income tax) are jointly collected
and distributed.
 The Financial Equalization System (Finanzausgleich)
ensures fair resource distribution among Länder.
5. Mechanisms for Coordination
To maintain harmony in legislative and fiscal matters, federal
constitutions provide institutional and judicial safeguards:
1. Inter-State Council (India, Article 263) – Promotes
coordination on policy matters.
2. Finance Commission – Balances fiscal resources.
3. Judiciary – Acts as the guardian of federal balance by
interpreting the Constitution.
4. Conferences and Councils – e.g., GST Council, NITI Aayog,
and Federal-State Conferences.
6. Judicial Role
The judiciary is the ultimate arbiter in disputes concerning division
of powers.
 In India: Supreme Court decides Centre-State disputes (Article
131).
 In U.S.: Supreme Court ensures federal supremacy while
protecting States’ rights.
 In Canada and Australia: Constitutional courts have
expanded federal control through interpretation.
Key Indian cases:
  State of West Bengal v. Union of India (1963): Reaffirmed Union
supremacy in certain matters.
 S.R. Bommai v. Union of India (1994): Upheld federal structure
as part of the Constitution’s basic structure.
 Union of India v. H.S. Dhillon (1972): Clarified residuary powers
under Article 248.
7. Challenges in Distribution of Powers
1. Overlap in Jurisdiction – Particularly in concurrent subjects
like education and environment.
2. Financial Dependency of States – Excessive central control
weakens true federalism.
3. Political Centralization – National parties and central
schemes sometimes reduce state autonomy.
4. Unequal Development – Economic disparities lead to fiscal
imbalance among States.
5. Evolving Nature of Governance – Globalization and
technology require flexible federal cooperation.
8. Conclusion
The distribution of legislative and financial powers lies at the heart
of federal governance. While the Centre ensures unity, the States
maintain diversity and local responsiveness. A successful federation
requires coordination, cooperation, and mutual trust, not
competition.
In the modern era, the concept of co-operative federalism—
where both levels of government work jointly in policy-making and
fiscal management—represents the future of federal governance.
Hence, a federal constitution must continually evolve to balance
autonomy with unity, ensuring both stability and flexibility in
governance.