Hello federalism

The Bharatiya Janata Party's (BJP) ability to deploy President's Rule for political gain hinges on the
appointment of partisan governors.1 Upon assuming power, the BJP continued the tradition of
dismissing state governors appointed by previous central governments of different political
affiliations. Shortly after taking office, the BJP, through the President (a Congress politician
nonetheless), removed nine governors appointed by the previous Congress-led UPA government.

Governors play a crucial role during the President's Rule in India.2 If a governor perceives a
"breakdown of the constitutional machinery" in a state's governance, they can recommend President's
Rule, leading to direct central rule under Article 356 of the Indian Constitution. The interpretation of
"breakdown of institutional machinery" is subjective and has been associated with insurgencies or
political stalemates in states. Such stalemates may arise from a government losing its majority in the
state assembly due to defections or coalition breakdown.

Since the Bommai case3 ruling in 1994, the basis for recommending President's Rule has been subject
to judicial review by the Indian Supreme Court. The BJP has attempted to leverage President's Rule
for political gain on two occasions. In 2016, the party advocated for President's Rule in Arunachal
Pradesh and Uttarakhand. In Arunachal Pradesh, internal strife within the Congress-led government
prompted the BJP-appointed governor to advance the state assembly session, facilitating the formation
of a BJP-led government.4 Similarly, in Uttarakhand, the central government instructed the President
to suspend the state government a day before a scheduled floor test, following defections from the
Congress party.5

However, the Supreme Court intervened in both instances, striking down President's Rule. In
Arunachal Pradesh, the court questioned the justification for advancing the assembly session, leaving
inadequate time for the Congress government to prove its majority. In Uttarakhand, the court
dismissed the central government's authority to impose President's Rule before a floor test occurred in
the state assembly.6 Additionally, the Supreme Court reinstated both Congress governments in
Arunachal Pradesh and Uttarakhand. In doing so, the court acted as a potential safeguard of
federalism, serving as an institutional veto player and reinforcing the jurisprudence
established since its landmark Bommai judgment in 1994. It is noteworthy that prior to these
cases, the court had never ordered the reinstatement of even one dismissed state government,
let alone two.7

1 Vaishnav, Milan. "The BJP in power: Indian democracy and religious nationalism." Retrieved August 21
(2019): 2022.
2 Sethy, Rabindra Kumar. Political Crisis and President's Rule in an Indian State. APH Publishing, 2003.
3 S. R. Bommai v. Union of India ([1994] 2 SCR 644
4 https://www.livelaw.in/breaking-supreme-court-restores-congress-government-arunachal-pradesh/
5https://www.hindustantimes.com/india/centre-imposes-prez-s-rule-in-uttarakhand-a-day-before-floor-test/
story-WL3F0BcoVpljs4sRbx6JbI.html
6 https://www.livelaw.in/uttarakhand-hc-strikes-presidents-rule-rawat-restored-cm-floor-test-april-29/?
infinitescroll=1
7 P.D.T. Achary, “Why the Modi Government’s Decision to Impose President’s Rule in Uttarakhand is
Unconstitutional,” https://thewire.in/28341/the-imposition-of-article-356-in-uttarakhand-in-unconstitutional-on-
many-grounds/
The most evident instance of unilateral decision-making in policy occurred with the abrupt
announcement of demonetization on November 8, 2016, which rendered 500 and 1,000 rupee
notes invalid as legal tender and introduced new 1,000 and 2,000 rupee notes. This move had
immediate adverse effects on the economy, depleted state government revenues, and
contravened both democratic principles and the spirit of cooperative federalism. 8

Proponents argue that demonetization was intended to deliver a shock and had to be executed
discreetly, aiming to endure short- and medium-term hardships for long-term benefits,
particularly in eradicating black money. However, many analysts contend that the initiative
was primarily aimed at undermining political opponents rather than combating black money. 9
This sentiment was shared by numerous opposition Chief Ministers, including the then Chief
Minister of Uttar Pradesh, who foresaw political motivations, especially with the Uttar
Pradesh assembly elections looming. Subsequent election campaigning and the results in
March 2017 seemed to validate this perspective.10

The centralising agenda of the government is evident in its advocacy for simultaneous
general and state elections. This proposal was initially presented in the BJP's general election
manifesto and further elaborated in a working paper by the NITI Aayog, the government's
policy think tank.11 The idea of simultaneous elections had been previously suggested by the
Law Commission of India in 1999, and historically, general and state assembly elections used
to coincide until 1967. This practice was disrupted when Indira Gandhi advanced general
elections by a year in 1971 to consolidate her authority within the party.

The current government contends that simultaneous elections are beneficial because the
Election Commission's Model Code of Conduct suspends most development programs during
election periods, which can last from two to four months for state assembly elections and
even longer for general elections.12 This suspension of programs can extend to seven months
or more in a year due to multiple elections. Proponents argue that simultaneous elections
would optimize campaign and organizational costs and enhance security measures.

However, the claim made in the NITI Aayog paper by Debroy and Desai that simultaneous
elections would not lead to centralization is contradicted by comparative evidence. The paper
opens with the lines “It won’t be unreasonable to state that the Indian polity is perennially in
an election mode”.13 In most parliamentary federal systems such as Australia, Austria,
Canada, and Germany, general and subnational elections do not typically coincide. In quasi-
federal systems like Spain, Italy, the United Kingdom, and Belgium, while regional elections

8 “Ban on INR 500 and INR 1000 currency notes- Economic implications”
https://www2.deloitte.com/in/en/pages/tax/articles/economic-implications-ban-on-500-and-1000-notes.html
9 Beyes, Peter, and Reema Bhattacharya. "India’s 2016 demonetisation drive: A case study on innovation in
anti-corruption policies, government communications and political integrity." In OECD Global Anti-Corruption
Integrity Forum. 2017.
10 https://timesofindia.indiatimes.com/elections/assembly-elections/uttar-pradesh/news/uttar-pradesh-elections-
2017-results-all-you-need-to-know/articleshow/57585921.cms
11 https://legalaffairs.gov.in/sites/default/files/simultaneous_elections/NITI_AYOG_REPORT_2017.pdf
12 https://indianexpress.com/article/explained/govt-committee-simultaneous-elections-explained-8918921/
13 https://legalaffairs.gov.in/sites/default/files/simultaneous_elections/NITI_AYOG_REPORT_2017.pdf
may occur concurrently, they are often considered "second-order" with lower turnout.14
Evidence from India also suggests that when general and state assembly elections are held
together, voters are less likely to engage in split-ticket voting, potentially favouring national
parties over state ones, as observed in the outcome of the 2014 general elections.

The NITI working paper acknowledges that synchronising general and state assembly
elections may need to be phased in gradually. Ultimately, the proposal settles for a
compromise whereby half of the state assembly elections would coincide with general
elections, while the other half would be scheduled midway between two general elections.
Comparative evidence indicates that the anti-incumbent sentiment toward the central
government is typically highest when state assembly elections occur midway between general
elections.15 Conversely, when state assembly elections align closely with general elections,
their outcomes more closely mirror the national election results. Therefore, while the
proposal would streamline the election campaign and outcomes on a national level, it may not
necessarily bolster the incumbent central government's position. The responsibility now falls
on the Election Commission to delve deeper into this proposal, studying its intricacies and
providing recommendations on its potential implementation.

The Fourteenth Finance Commission (2015–2020) introduced a "trust-based" paradigm of

Center–state relations in India.16 It advocated for a shift from tied transfers to untied transfers,
ending the plan-non-plan dichotomy, and providing support through devolution of tax shares.
Additionally, it recommended supplementing the resources of local bodies and redesigning
the Inter-State Council. The Commission rejected special debt-relief packages in favor of a
rule-based approach to fiscal discipline and eliminated the distinction between general and
special category states.17 It also proposed an independent fiscal council for monitoring fiscal
rule compliance and removed "fiscal discipline" as a condition for the distribution of tax
shares.

The Commission's report aimed to decentralize fiscal resources by increasing the share of
states in shared tax receipts from 32 percent to 42 percent. This increase aimed to grant state
governments more autonomy and flexibility in designing and implementing development
programs.18 The Commission hoped that this financial autonomy would foster healthy

14 Mueller, Sean. "Federalism and the concept of political territoriality: towards an analytical
framework for comparative territorial politics." Europe en formation 1 (2012): 95-120.
15 Roy, Prannoy, and Dorab R. Sopariwala. The verdict: Decoding India's elections. Penguin Random
House India Private Limited, 2019.
16 Bhasin, Niti. "Centre-State Financial Relations: A Study on the Role of Finance Commission."
VISION: Journal of Indian Taxation 4, no. 1 (2017): 68-78.
17 Akιn, Çiǧdem, Bruno Carrasco, Sudipto Mundle, and Abhijit Sen Gupta. "Fiscal Responsibility and
Budget Management Act in India: A review and recommendations for reform." (2017).
18 Kavita Rao, “Goods and Services Tax: The 13th Finance Commission and the Way Forward,” Economic
and Political Weekly 45 (48) (2010): 71–77
economic competition among states, leading to improved provision of public services and
reducing incentives for subnational governments to exploit fiscal resources indiscriminately.

The Fourteenth Finance Commission made significant changes to the horizontal distribution
of shared tax receipts, notably by omitting the "fiscal discipline index" used in previous
Commissions.19 While some critics viewed this as potentially encouraging fiscal profligacy
among states, it eliminated a source of perverse incentives for fiscal mismanagement by
removing the distinction between plan and non-plan revenues. This move aimed to
discourage states from manipulating deficit estimates on non-plan accounts to secure grants.
Unlike previous Commissions, the Fourteenth Finance Commission included plan
expenditures in its projections for states, integrating block grants previously allocated by the
Planning Commission. However, this change disadvantaged special category states, which
had received preferential treatment in terms of funding.20 Consequently, the recommendation
effectively ended the special status of these states.

The Fourteenth Finance Commission (FC) adopted an approach aimed at providing funds on
a more economically rational basis.21 Furthermore, the Commission recommended post-
devolution revenue deficit grants for 11 states without differentiation based on general or
special category status, thereby assisting backward SCS without discriminating against
backward "general category" states. Most special category states, except Arunachal Pradesh
and Sikkim, qualified for deficit grants, and three general category states—West Bengal,
Kerala, and Andhra Pradesh—also stood to benefit.22

The Modi government accepted the recommendations of the Fourteenth Finance Commission
on February 24, 2015. However, one implication of the new scheme, as argued by the Prime
Minister himself in a widely publicized letter to the Chief Ministers, is that increased
devolution would reduce the fiscal space for the center. However, the actual effect differed;
the revenue forgone due to higher devolution to states was offset by savings from delinking
or reducing central support for various Centrally Sponsored Schemes (CSS).23 Consequently,
the increase in total transfers to states was marginal. Additionally, in line with the
Commission's recommendation to enhance resources for rural and urban local bodies, the
Modi government drastically reduced the budget allocated to the Union Ministry of
Panchayati Raj.

The Commission's devolution scheme marked a qualitative shift by increasing the

decentralising component (united transfers through tax devolution) in total transfers and
minimising centralising components (non-statutory grants).24 The share of statutory grants,

19 https://iegindia.org/working-paper/fiscal-space-and-expenditure-priorities-post-14th-finance-commission-a-
study-of-five-indian-states/
20 https://prsindia.org/theprsblog/central-transfers-to-states-role-of-the-finance-commission?page=34&per-
page=1
21 https://prsindia.org/policy/report-summaries/report-15th-finance-commission-2021-26
22 https://www.civilsdaily.com/story/finance-commission-issues-related-to-devolution-of-resources/
23 https://prsindia.org/policy/report-summaries/report-15th-finance-commission-2021-26
24 https://www.thehindu.com/opinion/lead/the-unions-reins-on-financial-transfers-to-states/article67818520.ece
falling between these two poles, saw only a marginal increase. With the implementation of
the FC recommendations, the center's ability to utilize discretionary grants to influence state
spending priorities or favor politically significant states significantly diminished. 25 This shift
was notable, especially considering past instances where the center made significant financial
promises to states for political reasons, as seen in the case of Bihar ahead of the state
assembly elections in 2015.

25 https://www.niti.gov.in/sites/default/files/2019-01/Strategy_for_New_India_2.pdf