The federal feud that has broken out over how taxes are to be shared between different states should hopefully lead to the recognition of a stark problem—India does not have adequate institutions to manage conflicts between states. The southern states have been complaining that the terms of reference of the Fifteenth Finance Commission are, in effect, punishment for their better economic performance. That is why this newspaper believes that the Narendra Modi government needs to breathe life into the moribund Inter-State Council.
The Inter-State Council is a constitutional body that has representatives of the Union government as well as chief ministers of states. The council is chaired by the prime minister, and it also has a few Union ministers as permanent invitees. The Inter-State Council is thus quite different from the new GST council, whose members are the finance ministers of states rather than their elected political heads. It is also different from the Finance Commission, whose members are technocrats tasked with providing a framework for the distribution of taxes.
The Inter-State Council was set up in 1990 following the recommendations of the Sarkaria Commission. The constitutional roots of the council are to be found in Article 263, which recommends that the President of India set up such a council to deal with federal issues. It is important to note that the very first reason the Constitution gives for setting up the institution is that it will be useful when it comes to “inquiring into and advising upon disputes which may have arisen between states". The other two are to discuss subjects for which the components of the Indian union have common interests, and to figure out how to coordinate policy.
Any reasonably complicated federation is bound to have some frictions. A supranational federation such as the European Union has the economic and financial affairs council to coordinate tax policies. The Australian states came together in 2005 to set up the council for the Australian federation to jointly represent their interests in Canberra. The premiers of Canada’s 13 provinces and territories meet as part of the council of the federation. The German federation operates with a strong second house that represents the interests of the states.
Most of the institutional architecture of Indian federalism is focused on relations between the Union government and the states. Even Articles 258 and 258A, which made their entry into the Constitution after the Seventh Amendment in 1957, can be seen as an attempt to provide space for state governments to legislate in areas that are usually the territory of the union, and vice versa. There is far less institutional space to settle inter-state frictions, especially since the Rajya Sabha is no longer treated as a council of states but as a parking lot for unelectable leaders of political parties.
This newspaper has recently argued that the political idea of a country with as many centrifugal forces as India should not be held hostage to regional grandstanding. Federalism is essential, but not at the cost of political unity. A close analysis of economic data by Mint’s Tadit Kundu also showed that the federal situation is actually more nuanced than the North versus South debate that has dominated the popular narrative. Yet, it would be short-sighted to ignore the obvious. Regional divergence could lead to further inter-state tensions—and matters could get worse once the delimitation of parliamentary constituencies is unfrozen in 2026.
A rejuvenated Inter-State Council will thus have an important role to play in the coming years, especially since its members are the political leaders of their respective states. The council is as yet just a discussion group, but it should have a greater say in federal coordination in the future. The GST council has an innovative voting structure, with the Union government having a third of the vote while the states share the rest equally, irrespective of the size of their population or economy. That is one option for a more empowered Inter-State Council.
That is for the future. As of now, the harsh reality is that the Inter-State Council has had just 12 meetings since it was set up in 1990. There was a gap of a decade between the 10th meeting in 2006 and the 11th meeting in 2016, and the council met again in November 2017. If the Inter-State Council is to emerge as the key institution to manage inter-state frictions, it first needs to have a regular meeting schedule. The council also has to have a permanent secretariat which will ensure that the periodic meetings are more fruitful.
There is an institutional gap in the Indian union right now—and it needs to be filled before inter-state frictions get out of control.
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