Sharma, Chanchal, and Wilfried Swenden. "Modi-fying Indian Federalism? Center–State Relations under Modi’s Tenure as Prime Minister". Indian Politics and Policy, Vol.1, No.1 (2018): 51-81.

Sharma, Chanchal, and Wilfried Swenden. "Modi-fying Indian Federalism? Center–State Relations under Modi’s Tenure as Prime Minister". Indian Politics and Policy, Vol.1, No.1 (2018): 51-81.

• The election of a BJP-majority government in 2014 marked the end of two decades of minority governments. The BJP victory was, however, still very much dependent upon electoral pacts with regional partners, like Shiv Sena, reflected in the inclusion of these coalition partners in the Cabinet. This could signal a new era of BJP electoral dominance (53).
• Since 1989, state governments within India have gained a lot of power relative to the center. This was because of the increased power and independence of regional political parties, at the state and federal level, as well as new limitation on President's Rule and other powers of the central government, with President's Rule specifically restricted by the 1994 S. R. Bommai v. Union of India Supreme Court case (53).
• The liberalization of India, which also occurred during the 1990s, further empowered state governments by reducing the economic intervention of the central government. This move gave state governments more legislative to design their own economic policies (53).
• The role of the central government in the Indian economy is now reduced to regulation, which is still significant, certain debt and deficit limitations on state budgets, and the provision of some social welfare, spending on which has increased greatly in the 21st Century to help address inter-state disparities (53-54).
• The authors set out two possible predictions for the future of relations between the central government and state governments in India:
• India is likely to undergo significant centralization during the Modi government, and potentially under subsequent BJP governments. The rise of the BJP in national and state government undermines the core factor that drove decentralizing in the 1990s: the rise of regional political parties. Since its party structure now has the power, the BJP may start to centralize power again (54).
• The Hindu nationalist ideology of the BJP gives it motivation to concentrate and centralize power, especially limiting the autonomy of Kashmir or the Northeast states. Narendra Modi also has a personal reputation for centralization; his government in Gujarat was extremely centralized, and he may seek to impose the same model on India as a whole (54).
• There is good reason to doubt claims that India will become more centralized under the BJP, as neither Prime Minister Modi nor other BJP leaders have shown an interest in centralizing government. On the contrary, they seem to support the increased decentralization of economic initiative to states. Moreover, any centralization would likely face strong opposition from the voter base and could lead to the collapse of BJP-led coalition governments in several states (54-55).
• On the other hand, the BJP's economic liberalism means that states are likely to preserve or expand the economic authority they acquired in the 1990s. The BJP is not as concerned with inter-state inequality as Congress, meaning that they may be willing to cut social spending in the federal budget, leaving the provision of social welfare almost entirely up to the initiative of state governments (54).
• Sub-national government can exercise three different types of autonomy: political, meaning the ability to legislate on specific issues; fiscal, the ability to collect taxes independent on the center; and administrative, the responsibility for organizing the implementation of policies (55).
• Prime Minister Modi has discussed India adopting a model of 'cooperative-competitive federalism', two different concepts of center-state relations (56).
• The 'cooperative' element means that the relations between the central government and Indian states to become more cooperative, meaning that both sides will formulate policy together, each side being able to exercise a veto power in negotiations. It is hoped that this approach will generate policy solutions supported by both levels of government (56).
• The 'competitive' element is the decentralization of administrative, fiscal, and political autonomy to states, combined with a general retreat of the central government from these areas. This situation makes state governments more responsible for their own success or failure, particularly in terms of being able to compete with other states for limited potential revenue streams (56).
• There are many elements of this plan that would undermine state autonomy, however. Making states more fiscally responsible would increase competition for a more limited stream of federal revenue, potentially making states more subservient to the central government in hope of getting financial rewards. This could manifest itself in central government favoritism towards states controlled by the BJP (56).
•  The BJP has greatly centralized the internal party structure in recent years under Narendra Modi and Amit Shah, having the central party structure take control of the process for nominating candidates at all levels, making local party organs less involved in choosing their leadership (58).
• The Modi government tried to impose President's Rule on Arunachal Pradesh and Uttarakhand, both in 2016. In Arunachal Pradesh, the Modi government tried to dismiss an uncooperative Congress government to forcibly advance elections that the BJP was expected to win. In Uttarakhan, the government was dismissed because the Governor claimed that the defection of several Congress parliamentarians constituted no-confidence in the state government. In both cases, the Supreme Court rejected the decisions and reinstated both Congress governments (59-60).
• Like previous Indian governments, the Modi administration began its tenure by dismissing Congress governors and replacing them with BJP candidates; the governor in India is a federal employee charged with reporting on state governments to the central government (59).
• The decision of the Modi administration to suddenly withdrawal old 500 and 1,000 rupee notes from circulation without consulting state governments represented a coercive imposition of central authority. It had a deep impact on states, particularly on the ability of political parties to run state elections without the supplies of illicit currency represented by these notes, yet they were not consulted. This demonstrates a lack of respect for state-center relations (60).
• The government has moved to have state and federal elections coincide, as they did prior to 1967, as a means of the reducing the number of total months of campaigning, during which essentially all government functions shut down. This move would link political choices in state and federal elections, improving the position of the BJP among its supporter base in state elections (60-61).
• The current period of unrest in Kashmir began in the 1980s due to Indira Gandhi's attempts to centralize power and erode the state's autonomy. This discontent became embedded during the Rajiv Gandhi administration after the rigging of state elections in 1987, leading to the growth of a violent insurgency (62).
• The Vajpayee government sought to establish a better relationship with the Kashmir state government, the under the People's Democratic Party. The BJP promised to conduct itself in Kashmir in accordance with the values of humanity, democracy, and respect for distinct Kashmiri identity (62).
• Despite adopting much more radically Hindu nationalist policies after the collapse of the coalition government in 2004, the BJP and People's Democratic Party decided to again form a coalition government in March 2015. This agreement occurred on the condition that the BJP uphold Article 370 and promise to review a possible repeal of the Armed Forces Special Powers Act (62).
• Since 2015, the BJP has increasingly agitated for Hindu nationalist policies within Kashmir, calling for the banning of cow slaughter or the sale of beef in the state, to appeal to Hindu voters. Although the BJP has not taken steps to repeal Article 370, it certainly is willing to stoke tensions in Kashmir for electoral gains elsewhere. The continuation of the coalition government has eroded public support in democracy, leading to much lower voter turnouts (62-63).
• The Modi government signed accords with the Nationalist Socialist Council of Nagaland Isaac-Muivah, committing to a ceasefire and dialogue with the group. This is a continuation of Manmohan Singh's policies, and faces the same issues of militarism within the Council and the fear of other ethnic groups at Naga power (63-64).
• The Modi government has tried to both devolve expansive revenue-raising and taxation powers to state governments, and impose a stringent policy against central government bail-out or subsidization of state governments. These changes have been difficult to realize in practice, leading the government to instead just insist on more stringent fiscal rules (64).
• The 14th Financial Commission, a government advisory body on budgetary issues, advised the Modi government to give states more revenue without strings attached, give more money to local governments, reject state appeals for debt restructuring, and create more stringent rules regarding state deficits (64).
• The Finance Commission recommendations adopted by the Modi administration develop additional autonomy to state to design, fund, and implement programs for economic development. This greater flexibility in the use of funds is meant to promote more state initiative in development, with states expected to prioritize the best programs (64-65).
• The devolution of additional control over tax revenues to state governments will not result in a significant decrease of central government revenue because most lost revenue will be balanced by expenditure reductions from the cancellation of central government-funded development programs (66).
• This transfer of tax revenue has reduced the ability of the central government to reward or punish state governments through budgeting since the central government now lacks the funds necessary to grant or withhold major development projects based on state government loyalty (66-67).
• Responsibility for funding local governments, as per the recommendation of the Finance Commission that their budgets be doubled or tripled, has been passed almost entirely to state governments, with central government direct funding to local governments being cut by 97.19% by the Modi government (66).
• The Goods and Services Tax Bill, passed in 2017, seeks to eliminate obstacles to inter-state commerce by harmonizing all VATs across states removing tariffs for inter-state commerce and making existing duties easier to pay. The Bill is expected to increase economic growth and Indian economic competitiveness by simplifying internal commerce (68).
• Although the Bill greatly decreases the non-tax revenues of state governments and reduces their ability to impose new duties, it was created through a consultative process between states and the central government, during which the central government has agreed to distribute more of its collected revenue to state governments (68-69).
• There are some who object to the continued amount of flexibility and complex rules present in the internal tariff and duty regime under the Goods and Services Tax Bill. This is because the Bill is a result of a compromise between states and the central government, and so contains considerable freedom for states to impose different rates of taxation on inter-state commerce (69).
• The creation of a unified system of taxation for internal commerce has helped to correct economic inequalities between states. Under the previous system, wealthier states imposed taxes on imported goods based on origin of products, imposing additional taxes of commodity producers in poor states; tax revenues that poorer states were unable to impose on companies from richer states (69).
• On 15 August 2014, India Day, Prime Minister Modi announced the abolition of the Planning Commission, the body that had previously generated 5-year plans and approved the 5-year plans of state governments. It would be replaced by the NITI Aayog, a body for coordinating the implementation of jointly-funded programs between states and the central government (70).
• Although the original purpose of the Planning Commission had largely disappeared after liberalization, it still played a major role in overseeing the implementation of major social welfare programs, like the Mahatma Gandhi National Rural Employment Guarantee. In this role it frequently ignored the interests of states and failed to adequately coordinate its actions, especially distribution of funding, with state governments (70-71).
• The NITI Aayog also acts as a government think-tank advising the Prime Minister. In this capacity, it has proposed the direct transfer of federal funds to local governments on the basis of competitive bidding, for example on the funding of urban improvement projects (71-72). As of yet, these have only been implemented on a small scale (73).
• This plan intends to both bypass corrupt or ineffective state governments and allow the central government to take direct credit for successful development projects, again undermining state governments (73).
• Regional Councils, composed of meetings of Chief Ministers and their staff from similar areas, have the potential to represent state authority in opposition to the central government, but these meetings are coordinated and their agenda is determined by the central government. Moreover, their findings or opinions can just be ignored (72)
• The Modi government has mainly used these councils to ask for regional opinions and assistance regarding the implementation of central government programs. Interestingly, Congress and Communist politicians have been allowed to chair a minority of the councils (72).
• In July 2016, Prime Minister Modi called for the convocation of the Inter-State Council, which had been disbanded for a decade prior, to discuss issues of center-state relations and the introduction of a universal identification scheme. While this has been a welcome move for Indian federalists, the Council is still directly accountable to the Prime Minister and does not possess any independent agenda-setting authority (73-74).
• India has become a more centralized polity under the Modi administration, with the central government retaining most policy-making authority for itself. Although initiatives like the NITI Aayog or Regional Councils have allowed states to give input into federal policy, the role of states in actual decision-making remains small (74). Decentralization has continued on fiscal issues due to continued liberalization, but the government has plans to partially subvert state power in these domain by pursuing future projects on direct transfers to citizens and direct federal funding of specific local government projects (74-75).