Abstract

The Constitution of India undoubtedly establishes a federal system of government, characterized by a decentralized sub-national government. The globalization of the economy indicated the necessity and efficiency of a more centralized approach of the government. Following the economic liberalization in 1992, India integrated its economy into global market, necessitating gradual modifications in the interaction model between the Centre and States. Yet, never has an attempt been made to modify the scheme of distribution of fiscal powers between the two federating units. It was only in 2016 with the Constitution (One Hundred and First Amendment) Act, 2016, that the original scheme of the distribution of fiscal powers between the federating units was modified towards a more centralized uniform system. This deviation caused concerns over the loss of fiscal autonomy by the States and posed questions of balance between the Central and State fiscal powers finding solutions in the models of interaction between the federating units. Cooperative federalism has been suggested as a plausible solution to the maintenance of balance in the federal system as envisaged by the Constitution of India. This paper explores the true import of Cooperative federalism and analyses it as an instrument to balance centralization, a necessity for a globally integrated economy, with decentralization, a necessary element of the federal system. The research paper is divided into three parts. The first part is dedicated to establishing the tenets of fiscal federalism in India with focus on the essence of the subnational government's autonomy. The second part explores centralization and decentralization to their varying degrees in the prescriptions of the Constitution of India. This part explores decentralization as one of the key elements of the federal system, arguing that centralization may not always be against the scheme of federalism. The third part discusses the cooperative federalism as an instrument to balance decentralization as an element of federalism with centralization as a necessity for a globally integrated economy.

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