How do states and Centre make a codependent relationship work despite political baggage?

The political and economic landscape of any nation is profoundly influenced by the relationship between its central government and its constituent states. This dynamic and co-dependent relationship shapes policy, governance, and the country’s overall development. The architects of the Indian constitution emphasised the concept of ‘Cooperative Federalism,’ aiming to foster a spirit of collaboration between the Centre and the states. Accordingly, Indian federalism is designed to encourage close cooperation between these two levels of government. The constitution clearly outlines the legislative domains exclusive to the Centre, those exclusive to the states, and those that can be jointly legislated by both.

Centre-state financial relations

In terms of financial relations, the central government holds significantly more power than the states, with the development goals of the states being heavily reliant on the financial assistance provided by the Centre. The Union Parliament has the authority to legislate on any matter on the State List under Articles 249, 250, 252, 253, and 356, which further underscores the financial and legislative dominance of the Centre over the states.

• Revenue Sharing: One of the most significant aspects of the Centre-state relationship is fiscal federalism, which involves the distribution of financial resources between the central government and the states. The Centre collects revenue through various taxes, including income tax, corporate tax, and customs duties and a portion of this revenue is then redistributed to the states to fund their developmental projects and administrative expenses. This revenue-sharing mechanism ensures that states have the necessary funds to address local needs while maintaining national economic stability.
• Grants and Loans: In addition to revenue sharing, the Centre provides states with grants and loans for specific projects or to address financial imbalances. These financial aids are crucial for states with limited revenue-generating capacities, helping them to invest in infrastructure, healthcare, education, and other essential services. This financial support fosters regional development and reduces economic disparities between states.

According to reports, state expenditure surpasses that of the Centre – for the current year, the Centre's budgeted spending is ₹45.03 trillion, whereas states collectively aim to spend ₹50.22 trillion. With respect to budgeted capital expenditure for 2023-24, states plan to spend ₹8.85 trillion, exceeding the Centre's ₹8.37 trillion, even after adjusting for the loans component in the Centre's capital expenditure.

Administrative collaboration

The successful implementation of national policies often depends on the collaborative efforts between the Centre and the states. While the Centre formulates policies on broad issues like health, education, and infrastructure, the states are responsible for executing these policies at the ground level. This division of labour ensures that policies are tailored to local conditions and needs, enhancing their effectiveness and impact. The Centre and states also cooperate in creating and maintaining a cohesive regulatory framework. This collaboration is essential in sectors such as environmental protection, labour laws, and commerce, where uniform standards are necessary for the smooth functioning of the national economy. By working together, the Centre and states can, in a co-dependent manner, address regulatory challenges and ensure that national standards are upheld across the country.

Social welfare programmes

Social welfare programs are a critical area where Centre-State cooperation is indispensable. Initiatives like the National Rural Employment Guarantee Scheme (NREGA), the Midday Meal Scheme, and the Pradhan Mantri Awas Yojana (PMAY) require the combined efforts of both levels of government, wherein the Centre provides the funding and overarching guidelines, while the states handle the on-the-ground implementation and monitoring. This partnership ensures that social welfare programs reach the intended beneficiaries and achieve their desired outcomes. Separately, in times of crisis, such as natural disasters or pandemics, the co-dependent relationship between the Centre and states becomes even more pronounced. The Centre’s role in coordinating relief efforts, providing financial assistance, and mobilising resources is complemented by the states’ local knowledge and administrative capabilities. This synergy enables a more effective and efficient response to crises, minimising their impact on the population.

Economic development initiatives

Infrastructure development is a key area where the Centre and states collaborate to drive economic growth, given that national projects like highways, railways, and power grids require coordinated efforts to ensure seamless integration across state borders. The Centre often funds and oversees these large-scale projects, while the states facilitate land acquisition, local approvals, and logistical support. This joint effort helps create a robust infrastructure network that supports economic activities and enhances connectivity. Additionally, both the Centre and states play crucial roles in attracting domestic and foreign investment. While the Centre formulates national policies and provides incentives to investors, states offer local facilitation and infrastructure support. This collaborative approach helps create a favourable investment climate, leading to job creation, technological advancement, and economic diversification. States often compete to attract investments, which can spur innovation and development across the country.

Indeed, the relationship between the Centre and states is a cornerstone of a nation’s governance and development and this co-dependent dynamic enables the effective distribution of resources, the implementation of policies, and the promotion of social welfare. By working together, the Centre and states can achieve balanced and inclusive growth, ensuring that the benefits of development reach all corners of the country. This partnership not only strengthens the nation’s political and economic stability but also fosters a sense of unity and shared purpose among its diverse population.