Understanding Contemporary Indian Federalism

Competing Perspectives, New Challenges and Future Directions

Chanchal Kumar Sharma, Wilfried Swenden

• Publisher: Taylor & Francis
• Year: 2018
• Print ISBN: 9780815366171
• eBook ISBN: 9781351259705
• Edition: 1
• Topic: Social Sciences
• Subtopic: Ethnic Studies
• Index: Social Sciences

This volume analyzes centre-state dynamics in India placed against the backdrop of the election of a Narendra Modi-led Bharatiya Janata (BJP) government to central power in 2014. It reflects on how centre-state relations have been shaped by the legacy of nearly two decades of broad-based coalition government at the centre and the concurrent and ongoing liberalization of the Indian economy. To this purpose, the volume engages with several relevant questions linked to the political economy of Indian federalism and its ability to manage ethno-linguistic difference. Did liberalization strengthen the economic or political autonomy of the Indian states? What impact did party system change have on the capacity of parties in central government to influence the actions of state governments? How did party system change and liberalization influence the fiscal and financial autonomy of the states and the capacity of the centre in planning and social development? Did both processes strengthen the autonomy of Chief Ministers in foreign policy-making? What are the strengths and weaknesses of Indian federalism in ethno-linguistic conflict management and what do the recent split of Andhra Pradesh or the proposed formation of Bodoland tell us about the dynamics underpinning the management of ethno-linguistic difference in contemporary India? The chapters originally published as a special issue of India Review.

Continuity and change in contemporary Indian federalism

Chanchal Kumar Sharma

and Wilfried Swenden

Introduction: The dynamics of center-state relations — a research agenda

This Special Issue seeks to improve our understanding of the dynamics of center-state relations in contemporary India on the basis of a number of case-studies that largely adopt a longitudinal and/or comparative theoretical approach. Three fundamental research questions warrant a detailed analysis of the emerging dynamics of federal governance in India:

First, what has been the contribution of Indian style federalism to stabilizing and consolidating its developing and multi-ethnic democracy?¹ We argue that understanding the role of federalism and consociational arrangements in the survival of the world’s largest functioning democracy is critical because the voluminous literature on federalism offers limited guidance on how to design and implement successful democratic federalism.² Can a study of Indian federalism add to the long-running debate and a wide range of contending propositions over the purported empirical connection between democratic consolidation in a developing country and levels of ethnic fragmentation? ³ Is there an “Indian” model of federalism, and if so, might this model be partly responsible for why India has sustained democracy with low levels of economic development and high levels of ethno-linguistic fragmentation?⁴

Our second research question seeks to explore how the delicate balance between centralization and state autonomy is being reconfigured in the context of the ongoing process of economic reforms since 1991 and the entrenchment of coalition government at the center since 1996, presaged by the breakdown of the one-dominant party system in 1989. The rise of regional parties to key positions in the national governing coalition on the one hand and the increasing salience of states in boosting national economic growth while charting their own paths of development on the other, prompts us to hypothesize that, in the new politico-economic environment, states have acquired greater bargaining power and can determine the outcomes of intergovernmental interactions. Yet, has this really been the case, or does the reality provide a more mixed and nuanced picture? After, all, change is often slow to materialize and path-dependent. Changing the formal structure of Indian federalism may have been difficult, given that altering the Indian constitution requires super-legislative majorities which are harder to mobilize in a fragmented party system than in a one party dominant one. Economic liberalization and deregulation have been incremental processes too as they ran into occasional resistance from small retailers, agricultural producers or large industrial companies which profited for long from the license-permit raj. Furthermore, it is not a foregone conclusion that states have benefited uniformly from the “pluralization” of the Indian party system and/or the liberalization of the economy. Some states may have not gained (much) representation in the central government in the era of coalition government whereas relatively resource-poor and underdeveloped states may have seen a reduction in intergovernmental solidarity payments whilst facing stringent financial rules to satisfy international credit markets.

Our third inquiry attempts to situate the debate on the impact of market transition and democratic expansion on the internal workings of Indian federalism in the new political context when, for the first time since 1989, one party has managed to capture an overall majority at the center. Indeed, the Hindu nationalist BJP (Bharatiya Janata Party) gained an overall parliamentary majority in the 2014 general elections with about 31 percent of the polity-wide vote. Although the party seeks to unite the Indian electorate around the majoritarian notion of a Hindu nation, its combative Prime Minister and former Chief Minister Narendra Modi has been touting the idea of cooperative federalism. Our Special Issue provides a first cautious assessment of the institutional and policy shifts that have occurred since 2014, and seeks to explain how the return of one-party majority government has had at once a centralizing (in political terms) and decentralizing (in economic terms) effect on the functioning of the Indian multi-level polity. To what extent does an ideological commitment towards a majoritarian strong Indian state undermine the seemingly contradictory commitment toward a more co-operative and decentralized federation?

To consider the dynamics of center-state relations in this new party political and economic environment, this Special Issue proposes a set of thoroughly executed and theoretically grounded case studies of Indian federalism along various dimensions such as federal institutions, territorial finance, intergovernmental interactions, public policy, state and nation-building and ethnic conflict regulation. We opt for case-studies, because federalism is much about context.⁵ Therefore, case studies of various dimensions of federal practice in India can yield better results than cross-country statistical comparisons. Furthermore, we recognize that party system change and liberalization were not sudden developments. For instance, state elections had thrown up durable alternative options to Congress much earlier than 1996, whereas a pro-liberal discourse had been gradually gaining strength since 1975 and it was Rajiv Gandhi’s bold liberalization attempt in 1985 that led to a considerable expansion of pro-liberal constituencies.⁶ Therefore, although our focus is on the period since 1996, the meaning of “continuity and change” in this period cannot be properly understood without harking back to the period before. Indeed, institutions typically do not change rapidly; they are “sticky, resistant to change, and generally only change in ‘path-dependent’ ways”⁷ Furthermore, paradigmatic changes (party system change and liberalization) may not necessarily be linked to critical junctures alone, but are often preceded by processes of more incremental or gradual change.⁸

Multiple dimensions of India’s federal landscape: An overview of the contributions

As alluded to in the previous section, the dynamics of Indian federalism underwent significant change in the past two decades due to the transformation of the Indian party system and economic liberalization. This section provides an overview of the major issues. The first of these, “the pluralization of the party system” is not explained as such, but the various contributors to this Special Issue reflect on its implications for the dynamics of center-state relations in India.

Pluralization of the party system

The significance of the party system for understanding the dynamics of federalism was emphasized a long time ago by William Riker. For Riker the structure of political parties (by which he meant the extent to which a party system is nationalized or decentralized) parallels the structure of federalism and “one can measure federalism by measuring parties” (or rather its party system). When parties are fully centralized, so is federalism. When parties are somewhat decentralized, federalism is only partially centralized.⁹ India’s party system has undergone significant change, initially with the rise of state-based or non-polity-wide parties playing a more significant role in state politics; but especially since 1996 also with a more durable role in national politics, given that all federal governments between 1996 and 2014 were (minority) coalition governments,¹⁰ in which some state or non-polity-wide-parties played their part. Although the BJP has an overall majority in the federal parliament since May 2014, it would not have been able to command this status without pre-electoral seat-sharing arrangements with at least some of the state parties, a few of which were awarded ministerial seats in return.

Scholars have focused extensively on what triggered the transformation of the Indian party system from a one party dominant system into a fragmented multi-level party system. In part, they point at the gradual de-institutionalization of the Congress party and its inability to attract support across a wide range of social groups.¹¹ However, the demise of the one party dominant system is not the result of Congress’s de-institutionalization alone. States displaying strong sub-national identities (such as Tamil Nadu, the North Eastern states, Jammu and Kashmir and Punjab for instance) featured state-specific parties even before India gained independence. Following independence, universal suffrage, growing literacy and agricultural advances eventually led to the upliftment of lower caste groups who demanded direct political representation through the creation of specific lower caste parties, often with a state-specific base instead. They no longer accepted the “tokenist” approach which characterized much of Nehru’s India. The churning of lower caste groups also triggered a rise of Hindu nationalism (largely led by upper-caste groups); fueling the growth of the BJP¹²

What has been understood much less clearly is how these party systemic changes have been linked with federalism. If one can ‘measure federalism’ by measuring “India’s party system,” as Riker suggests, then surely Indian federalism should have become much more decentralized as a result of the fragmentation of its party system.¹³ Although India purposefully adopted what Jennings called “a federation with strong centralizing tendencies”¹⁴ and functioned as a highly centralized federation for approximately four decades, with the rise of regional or state parties, and eventually, their entry into central coalition government one would expect the Indian state to have moved into a more decentralized direction. The various contributions to this Special Issue show that the pluralization of the Indian party system did not necessarily produce a decentralization of the Indian state in a formal sense: constitutional amendments to this effect became harder to implement in a context of federal coalition government in which the key polity-wide party (Congress or the BJP) did not endorse a more federalized constitutional set-up or the state-based parties expressed different regional priorities, reflecting their distinctive electoral base and resource strength. However, traces of the decentralization of the Indian polity in practice can be found, for instance, in the less frequent use of President’s Rule, the rising scope for policy divergence in welfare policy, the assertion of some Chief Ministers in para-diplomacy or the diminishing impact of discretionary grants in the total pool of grants to the states. The lack of a more solid or formalized basis for decentralization in India implied that some of these decentralizing tendencies can be undone more easily following the return of majority government in 2014.

Political economy insights into intergovernmental interactions

Decentralized spending with centralized financing through grants, from a public finance perspective, serves to help central governments implement redistributive programs. The presumption in this perspective is that governments act in their constituents’ interests. However, from a public choice perspective, government is a self-interested, Leviathan-like entity, and intergovernmental grants create perverse incentives for governments to increase their size beyond the necessary, producing wastage. A plethora of empirical literature reveals that the party in power allocates grants not (only) to maximize welfare gains, but (also and sometimes especially) to maximize partisan gains. The empirical contribution by Chanchal Kumar Sharma can be situated within this strand of literature.

He demonstrates how party system change has influenced the distribution of discretionary grants from the center to the states. Herein, we see a notable change in center-state dynamics over time, even if there was very little change in the formal constitutional framework on the basis of which the center has gained authority to disperse such grants. Based on sophisticated multi-level regression models Sharma finds that under Congress party dominance (1972–1989), states ruled by Congress’ Chief Ministers received 44 percent higher shares of total discretionary grants and 37 percent higher shares of centrally sponsored schemes (central development schemes) than states ruled by opposition parties. The allocation of central grants to Congress ruled states increases with a decline in the proportion of the state’s parliamentary seats controlled by the national ruling party. In other words, central grants here intend to solidify and strengthen Congress support where it is comparatively weak. The arrival of coalition government at the center (analyzed here between 1996 and 2012) generated a more complex picture because the formateur (lead party in central government) was required to invent ways to deal with coalition partners and outside supporters, in addition to the opposition parties. Even in this much more complex coalition-setting, affiliated states received disproportionately favorable grant allocations overall. However, the formateur party channeled more funds for flagship programs to non-affiliated states, to draw the attention of state voters to the central government’s initiatives. By managing the flagship programs well, the central government attempted to boost the image of the Prime Minister’s party in these states, while containing the rising influence of regional leaders and state parties.

Many of the discretionary grants which Kumar Sharma discusses in his analysis would have been routed through the Planning Commission. A para-constitutional body, the Planning Commission was set up during the Nehru administration to develop five year economic plans for the country as a whole and within that remit to oversee annual plans for each of the Indian states. In their contribution Wilfried Swenden and Rekha Saxena analyze the effect of the Planning Commission on center-state dynamics in post-independent India. Indian federalism, so they argue, is centralized yet also interdependent by design since the states implement a large set of policies in which the center legislates. Yet, intergovernmental relations in India have been weakly institutionalized: the Inter-State Council and Rajya Sabha (second chamber) have played at best a limited role in articulating state interests at the center. Although not designed as an intergovernmental body per se, through the creation of the National Development Council, the Planning Commission was expected to give a voice to the states in the discussion and preparations of the five year plans and in its discretionary grant-making activities to the states more generally. Based on document analysis and semi-structured interviews with some stake holders, Swenden and Saxena show that the Planning Commission provided little systematic input to the states, which a majority of state actors felt eroded their autonomy. The rise of coalition government and economic liberalization put the Planning Commission under pressure, and as the authors discuss led to periodical adjustments in its internal operation and tasks. Yet, it was the BJP majority government elected in 2014 which scrapped and replaced the institution with the NITI (National Institution for Transforming India) Aayog. The authors consider the implications of this recent institutional change for Indian federalism, more in particular does the NITI genuinely hold the promise of a more “co-operative” let alone “collaborative” federalism? They show that the introduction of ‘Regional Councils’ within the realm of the NITI can increase state involvement in strategic policy matters, but that otherwise, the NITI remains a body subsumed under the central government. Furthermore, they argue that the removal of considerable grant-making authority to the Ministry of Finance could lead to further centralization (though not corroborated by the current—but temporary and partial- practice of extending the Finance Commission grant formulae to a range of erstwhile “discretionary” Planning grants), whilst an opportunity was missed to integrate the NITI within the Inter-State Council to put the “shared” rule dimension of Indian federalism on a more solid institutionalized footing.

The effect of party politics on federalism is felt most intensely in those sectors of government which are open to direct party political influence. It follows that the implications of a paradigmatic change from a state-led and planned economy to a more liberalized and open economy can be more easily discerned in those sectors of government which have remained comparatively isolated from party political influence. In her contribution Indira Rajaraman seeks to do so by critically analyzing the continuity and change in Indian fiscal federalism. For one, the interests of states in this matter are not purely driven by party political interests, but reflect material concerns given their variegated levels of financial self-sufficiency or autonomy. Furthermore, the bulk of central grants to the states in India is not discretionary in nature, but non-discretionary or statutory, and allocated based on recommendations of the Finance Commission, an independent, temporary and expert-driven body appointed by the President of India. Rajaraman shows that in the short run, economic liberalization put disproportionate stress on the finances of the central government due to lower receipts from customs duty, a shortfall which it only recuperated by its aggressive use of a ...

Table of contents

• Cover
• Half Title
• Title Page
• Copyright Page
• Contents
• Citation Information
• Notes on Contributors
• 1 Continuity and change in contemporary Indian federalism
• 2 A situational theory of pork-barrel politics: The shifting logic of discretionary allocations in India
• 3 Rethinking central planning: A federal critique of the planning commission
• 4 Continuity and change in Indian fiscal federalism
• 5 States as laboratories: The politics of social welfare policies in India
• 6 Paradiplomacy of India’s chief ministers
• 7 Does ethnofederalism explain the success of Indian federalism?
• 8 Indian federalism at the crossroads: Limits of the territorial management of ethnic conflict
• Index