India’s recent growth story is now much analyzed, and quite well understood. Despite some temporary controversy over the relative impacts of economic reforms in the 1980s and 1990s – hesitant and piecemeal in the first of those decades, deeper and more systematic in the subsequent period – the new consensus is not very different from the old, namely, that an overall shift in economic policy toward greater reliance on the market for resource allocation, including greater openness to the global economy, has been an important factor in increasing India’s average growth rate from its previous low levels. This recognition of the role of market competition does not diminish the Indian government’s past importance in building physical infrastructure and human capital, and in providing stability and safety nets. Nevertheless, the reform of India’s governance is one of two major strands of current policy debates, the other being areas where further “liberalization” of the economy is needed (e.g., small scale industry reservations, privatization, and matters pertaining to openness to foreign capital). Debates about India’s governance include old concerns about corruption, affirmative action (e.g., the latest controversy over quotas in higher education) and social safety nets (e.g., the new Employment Guarantee Scheme), as well as newer worries about growing regional inequality. Managing the public finances appropriately has been an obvious part of the reform story, since fiscal deficits have been a continuing problem for well over a decade. Within the broader context of governance, issues of federalism and decentralization have been addressed in a somewhat piecemeal fashion. Thus, the need for fiscal consolidation has focused considerable attention on the states’ situations in this regard, and the central government, central bank, and central Finance Commission have all made efforts to ameliorate aspects of the states’ fiscal crisis. At the same time, the decentralization to local governments, put in motion by the 73rd and 74th amendments to the Constitution, has been proceeding unevenly, and with mixed success. States have made various kinds of efforts to attract investment, done various deals with multilateral agencies, and wrestled with potentially major tax reforms, all the while struggling with fulfilling their constitutional responsibilities to constituencies such as the rural poor.

Underlying all the developments in economic policymaking, and concerns about governance, therefore, is the working of India’s federal system. It is important to understand what this system is, what it does, and how it has been changing in response to the forces put in motion by India’s renewed struggle to fulfill its “tryst with destiny” by substantially improving the well-being of all its citizens in a tangible manner. In particular, many of India’s fiscal federal institutions evolved in the context of a planned economy, with the state playing a dominant role and that of the private sector and markets heavily circumscribed, and largely closed to the outside world. Economic liberalization with state control receding and markets coming into their own, and globalization together require a comprehensive reassessment of these institutions.

In today’s time we have seen multiple examples where this federal system of India had been challenged. We’ve seen example of west-bengal and telangana states of India who denied to no-permit entry of Central Bureau of Investigation (CBI), where CBI holds power of independent investigation from the Indian constitution and as per that CBI officials need not seek any kind of permit to enter into any of Indian states. CBI when required can be into any Indian state because it comes under its investigation needs. Another recent example is the on-going dispute between Maharashtra’s and Bihar’s police, where two different FIRs had been launched for the same case of Indian Bollywood actor Sushant singh’s death. Here, Mumbai police’s investigation has been repeatedly alleged to delay the investigation process. Things were stretched into far ends when Bihar police’s investigation team was forcibly taken off from their scheduled press meeting. Another example was set when Bihar police’s IPS officer who came Mumbai in regards to FIR filled in Patna was held and sent into 14 days quarantine. Now this is seen as a fight between two Indian state police and their prestige, such activities seriously damage India’s federal integrity of state and the union.