The Centre is notional, the States the real entities

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Context

The results of the general election 2024 indicate a shift towards greater democratisation, with regional parties gaining prominence. This development could strengthen federalism in India, a diverse nation where Centre-State relations have been contentious.

Centre-State Relations and Controversies:

Complaints from States: Opposition-ruled States have raised concerns about unfair treatment by the Centre, including inadequate transfer of resources, delayed funds for schemes like MGNREGS, and stepmotherly treatment in various administrative matters.
Supreme Court's Stance: The Supreme Court has urged amicable resolutions to Centre-State conflicts, highlighting the growing need for cooperative federalism, which had been emphasized during the introduction of GST in 2017.

Diversity Among States and Need for Autonomy:

Diversity Among States: There is a huge diversity among the States — Assam is unlike Gujarat and Himachal Pradesh is very different from Tamil Nadu. A common approach is not conducive to the progress of such diverse States.
Need for Autonomy: States need greater autonomy to address their issues in their own unique ways. This is both democracy and federalism. A dominant Centre forcing its will on the States, leading to the deterioration in Centre-State relations, does not augur well for India.

Financing and Conflict:

Financing Issues: States face three broad kinds of issues. Some of them can be dealt with by each State without impacting other States such as in education, health and social services. But infrastructure and water sharing require States to come to an agreement. Issues such as currency and defence require a common approach.
Role of the Centre: The Centre has been given a predominant role in raising resources due to the efficiency in collecting taxes centrally. Among the major taxes, personal income tax (PIT), corporation tax, customs duty and excise duty are collected by the Centre. GST is collected by both the Centre and the States and shared.
Finance Commission: A Finance Commission is appointed to decide on the devolution of funds from the Centre to the States, and the share of each State. The Centre sets up the Commission and has mostly set its terms of reference. This introduces a bias in favour of the Centre and becomes a source of conflict between the Centre and States.

UPSC Mains Questions:

Q.Examine the role of the Finance Commission in ensuring equitable resource distribution among Indian States. How can its processes be improved to enhance federalism in India?

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