Context:

• In the last 11 years, India has experienced a new era of cooperative and fiscal federalism, where the Centre and States have functioned as partners to achieve socioeconomic transformation.
• Prime Minister Narendra Modi’s “Team India” approach has been central to this collaborative effort.

Institutional Transformation - From Planning Commission to NITI Aayog:

• Phygital (physical + digital) governance and state ownership:
  • In 2015, the Planning Commission was replaced by NITI Aayog, symbolizing a shift from top-down policymaking to collaborative federalism.
  • NITI Aayog acts as a bridge between Centre and States, empowering states to set their own development agendas.
• Key platforms for deliberation:
  • Governing Council meeting: Brings political leadership from Centre and States together.
  • Chief Secretaries conference: Senior bureaucrats share administrative challenges and best practices.
• Data-driven governance - Indices and programmes:
  • The Aspirational Districts and Blocks Programme has improved governance and services in 350 districts and 500 blocks.
  • Promoted competitive federalism by inspiring lagging states to improve.

Strengthening States’ Fiscal Capacity:

• Increased share in taxes:
  • Post 14th Finance Commission recommendation, States’ share in the divisible tax pool was increased from 32% to 42%.
  • Between 2014-15 to 2024-25, central tax transfer to states rose from Rs 3.37 lakh crore to Rs 12.23 lakh crore.
• Transfers to poorer states: States like Uttar Pradesh, Rajasthan, and Chhattisgarh saw substantial increase in transfers from 11th to 15th Finance Commission.

GST and Fiscal Federalism:

• GST Council as a federal platform:
  • The GST Council promotes fiscal federalism through consensus-based decision making.
  • States receive 71% of GST revenue, while the Centre receives 29%.
  • From 2017-18 to 2024-25, Centre provided Rs 6.52 lakh crore as GST compensation.
• Revenue forgone by Centre: The Centre has sacrificed 0.5-1% of GDP annually post-GST rollout to support states.

Increased Financial Support through Transfers, Grants, and Loans:

• Enhanced gross transfers:
  • Gross transfers to states as a share of GDP increased from 5.2% to 6.5% post-2015-16.
  • Grants increased by 234%, and loans by 992% over the past decade.
• Union Budget 2025-26 initiative: An outlay of Rs 1.5 lakh crore proposed as 50-year interest-free capital loans to states for capital expenditure.
• State-specific improvements:
  • For Tamil Nadu: Central share in state revenue increased from 25% to 31%.
  • For West Bengal: From 49% to 56% between 2004-14 and 2014-24.

Central Schemes in State and Concurrent List Areas:

• Increased investment in CS and CSS: Between 2015-16 and 2023-24, releases under Central Sector (CS) and Centrally Sponsored Schemes (CSS) increased by 197%.
• Flagship programmes and their impact:
  • Jal Jeevan Mission: Allocation increased by 570%, benefitting 15.44 crore households.
  • PM Jan Aarogya Yojana: Budget rose by 292%; out-of-pocket health expenses fell from 62.6% to 39.4%.
  • PM Awas Yojana-Gramin: Budget surged by 181%; 2.67 crore houses constructed (as of 2024).

Constitutional Framework and Federal Balance:

• Division of powers:
  • The Constitution (Seventh Schedule) provides for Union, State, and Concurrent Lists to ensure division of responsibilities.
  • Despite this, the Centre actively contributes to State List sectors like health, housing, and water, through CS and CSS.
• Ambedkar’s vision of flexible federalism: Federalism is not explicitly mentioned in the Constitution, but B.R. Ambedkar envisioned a model flexible to time and needs, being both unitary and federal.

Conclusion:

• India’s federal architecture has evolved from rigid silos to a dynamic model of cooperative, competitive, and fiscal federalism.
• The last decade exemplifies how such synergy has empowered states, strengthened democracy, and delivered tangible benefits to over 140 crore citizens, especially the 25 crore uplifted from multidimensional poverty.