The interplay between political and fiscal federalism: Indian scenario

As a state-nation, where the we-feeling of the disjunct units is harmonised for the statewide political community, the Indian federal system is designed to harmonise diversity. The research objective is to establish that a certain degree of financial autonomy as self-rule and shared rule for the states and cohesion in the intergovernmental financial relationship is indispensable for achieving the goals of federalism for India, i.e., distributive justice. It shows that the argument of creating an efficient and integrated market through tax harmonisation, which restricts the states’ autonomy, also impedes the social interests of its citizens. Further, amidst the global push for decentralisation by the supranational governing bodies and the rise in citizens’ demand for regionalism, this research revisits federalism as a bottom-up institution to preserve the interests of citizens. To achieve its objective, the paper will present the historical events and perspectives relevant for framing the Indian federal structure in its present shape and form. It analyses the financial relationship between the Centre and the states in the post-independent India till the present time. This exploration reveals that federalism was moulded for India to attain a consensual and peaceful political arrangement and not to attain economic efficiency solely.