The Status Quo of Cooperative and Competitive Federalism in India

Amitabh Abhijit, NLIU, Bhopal

Editor: Sarthak Mishra


The quasi-federal structure of the Indian nation settled in after the country became free of colonialism and gained independence from the British. This style of federalism is responsible for the introduction of its cooperative as well as competitive variants in the country. The concept of cooperative federalism professes a horizontal relationship between the Central as well as the State governments. This essentially means that the legislature at the Union as well as the State levels cooperate to serve the larger public interest. Such an arrangement, if executed successfully, would be a significant leap in enabling the participation of States in determining national policies.

On the other hand, competitive federalism, the States share a vertical relationship with the Central government while competing amongst themselves. Essentially, States individually work towards attracting funds and investment to aid their developmental activities. This leads to the formation of a free market scenario amongst the States wherein they play the role of the sellers and the investors become the buyers.

Initiatives Promoting Cooperative Federalism

In recent years, the ruling government has been emphasizing the need for implementing cooperative federalism in India and NITI Aayog has been at the forefront of this initiative. Achieving the true potential of cooperation between the Union and the States in India would put the country in favour of an all-round inclusive development strategy. In its constant endeavour to formulate a shared vision of national planning, the NITI Aayog has been aiming to involve the States as equal stakeholders in the decision-making process. Regional development, under such circumstances, would not only soar the high skies but contribute to the furtherance of unity and national interest simultaneously.

In 2018, NITI Aayog held its fourth Governing Council meeting wherein Prime Minister Narendra Modi accentuated the role of NITI Aayog in promoting cooperative federalism and providing a platform for optimal Centre-State relations to advance the issue of inclusive development in India. Several important developments took place since then in pursuance of this goal which includes the following: 

  1. In accordance with the first meeting of NITI Aayog in 2015, Prime Minister Narendra Modi instituted a sub-group consisting of Chief Ministers of Madhya Pradesh, Bihar, Andhra Pradesh, Gujarat, West Bengal, Sikkim, and Uttar Pradesh to ensure policy coordination on issues relating to agriculture an MNREGA.
  2. NITI Aayog established programmes for Centre-State partnership including the Development Support Services to States (DSSS) and the Sustainable Action For Transforming Human Capital (SATH) aimed at improving State’s social sector indicators by providing them with technical support.
  3. In order to provide a level-playing field, NITI Aayog for remote regions, such as the North East and Island States, that require exceptional help in identifying their constraints and achieving the goals of sustainable development.
  4. Dr, Rajiv Kumar, Vice Chairman of NITI Aayog, .

Competitive Federalism in India

It can be contended that Competitive federalism holds certain disadvantages that may reflect during its implementation. It could contribute towards an imbalance of power between the States themselves and between the States and the Union. It could also increase existing disparities between the States as investors choose the more developed regions. Lastly, such a policy could go against the idea of unity and may foster unsavoury relations between the Centre and the States as well as between the States themselves.

However, from a broader perspective, when competition accompanies cooperation, the results can be safely assumed to be fairly comprehensive in nature.  Moreover, under such an arrangement each State could take complete advantage of its unique features as a result of its location or any other factors. For instance, the North-Eastern States flourish in the tourism industry due to their mountainous terrain and distinctive culture.

There have been considerable developments in the context of competitive federalism which include:

  1. The affirmation of the recommendations made by the 14th Finance Commission along with a 42% devolution of the divisible pool to States allows them to formulate policies and implement them in a suitable manner.
  2. States are now entitled to a 42% share as per the suggestions of the Finance Commission. This leads to tremendous growth in the States’ financial reserves which can be used to aid their programmes.
  3. A State-wise ranking system in terms of Ease of Doing Business and Swachh Bharat scheme fosters a sense of competition among the States while statistically representing their achievements and shortcomings in different sectors.
  4. Former Chairman of NITI Aayog, Arvind Panagariya urged the States to reimagine India by directing the State governments to facilitate the implementation of projects and encourage investment for the same through incentivization.

Probable Way Forward

Cooperation as well as Competition on a national level is not a small feat to achieve and thus it requires a mutual understanding between the Central and State governments. While prosperous States may be able to execute both policies effectively but economically backward States would require the Centre’s support to achieve their goals. Structural reforms on land and labour laws are extremely necessary for unlocking the true potential of the States’ economy.

The has already ushered a new regime of economic reforms and led to a growing consensus on fiscal federalism through cooperation. It is also argued that a judicious distribution of the Central government’s fund allocations to States would be a positive step for furthering the cause of Cooperative and Competitive Federalism in the country.

However, this strategy is yet to be implemented as many State Governments consisting of  oppositions to the ruling party did not receive their compensation for the loss of revenue caused by GST. This led to a serious loss of resources as the States resorted to using Public Sector Undertaking (PSU) funds in order to clear their dues. This issue must be addressed by the Central Government so as to ensure cooperation with these States in a comprehensive manner.

On the other hand, better competition between the states may be the gateway to decentralised economic development which is considered to be rather crucial in a federation of states to maintain the status quo. Establishing ranking systems relating to different areas is a very preliminary step but it is still a move in the right direction. Attracting lucrative investments through incentivization is ostensibly the next strategy that State governments will be opting for based on the unique characteristics of their geography and demography.

Dr.Nirmala Sitharaman, the finance minister of India, mentioned the growing necessity of Centre-State cooperation for facilitating effective implementation of agricultural reforms, strengthening medical education and help the tourism industry, in her speech with respect to the 2020-21 Budget.  Instillation of a more transparent system in the formulation of national and state budgets could also prove be extremely fruitful as it would lead to greater stakeholder participation and much more inclusive relations between the Central and the State governments.

It is also necessary that the State’s inputs in the decision-making process must not be overlooked as we lose a whole different perspective on the policies. The dynamic aspects of both systems need to be properly synchronized with each other in order to develop the Indian nation as a whole.


To sum up, Cooperative, as well as Competitive federalism, may not be mutually exclusive but the policies made in accordance with them are aimed towards the same objectives. It is imperative to favour inclusivity and integration over sovereignty as India catches up to international politics. Competition balanced out by Cooperation holds the power of redefining Federalism in India.

NITI Aayog’s role in planning a framework of policies that inculcate these features is a crucial element in achieving the sustainable development goals set by the Central as well as the State governments. Lastly, a level-playing field must be provided for the States to compete in a truly fair fashion. Incorporation of policies pertaining to Cooperative and Competitive federalism is bound to contribute majorly towards the larger interest of national development.

Amitabh Abhijit is a student at National Law Institute University, Bhopal. He can be reached here

Photo Credits: Amitabh Kant, chief executive officer of Niti Aayog, speaks during a panel discussion. (Dhiraj Singh/Bloomberg)

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