IGNOUMATIC

Globalization, characterized by the increasing interconnectedness of economies, societies, and cultures across national boundaries, has significantly influenced the nature of federal relations in India, particularly the dynamic between the Centre and the States. Since the economic liberalization policies initiated in 1991, globalization has altered the way the Indian federal structure operates by shifting economic priorities, decentralizing fiscal responsibilities, and promoting competition among states.

1. Decentralization of Economic Power

Before liberalization, the Indian economy was highly centralized, with the Union government controlling key sectors such as industry, trade, and foreign investment. However, globalization demanded a more market-oriented approach and a redefinition of roles. Economic liberalization led to a gradual decentralization of economic authority. States were encouraged to attract foreign direct investment (FDI), promote exports, and improve infrastructure independently.

This new economic environment prompted states to take greater initiative in managing their economies. States like Gujarat, Tamil Nadu, Maharashtra, and Karnataka became proactive in designing investment policies, hosting investor summits, and building infrastructure to attract global investors. Thus, states became direct participants in the global economy, reducing their earlier dependence on the Centre for financial and developmental initiatives.

2. Emergence of Competitive Federalism

Globalization fostered competitive federalism, where states began to compete with each other for private investment, technology, and resources. The emphasis shifted from centralized planning to market-driven growth, with states competing to create favorable investment climates.

The Centre began ranking states on various parameters such as ease of doing business, infrastructure, and governance efficiency. This performance-based approach encouraged state governments to innovate and become more efficient, thereby reshaping their relationship with the Centre from a hierarchical to a more collaborative and competitive one.

3. Changes in Fiscal Federalism

The discourse on fiscal federalism also changed due to globalization. With the introduction of the Goods and Services Tax (GST), which replaced numerous state and central taxes, both levels of government now share a common tax base. While this has improved tax compliance and harmonized the tax regime, it has also curtailed some of the states’ fiscal autonomy.

Moreover, globalization reduced the Centre’s control over planning and resource allocation. The dismantling of the Planning Commission in 2015 and the establishment of the NITI Aayog marked a symbolic and functional shift towards a more consultative approach in policymaking. NITI Aayog promotes cooperative federalism, allowing states a platform to voice their development priorities in national planning.

4. Increased Role of Sub-National Diplomacy

Globalization has enhanced the role of sub-national entities in international affairs. Several Indian states have established State Industrial Promotion Boards, and their chief ministers have undertaken foreign visits to attract investment. These activities represent a new form of “paradiplomacy”, where sub-national units interact with foreign governments, investors, and organizations independently of the central government.

For instance, Tamil Nadu, Andhra Pradesh, and Gujarat have sent delegations abroad to seek investment and develop infrastructure partnerships. This reflects a diversification of foreign relations beyond the Centre and underscores the evolving federal dynamic in a globalized world.

5. Impact on Governance and Policy Innovation

Globalization has influenced states to reform governance structures and adopt new policies in line with international best practices. States began implementing policies in areas like education, health, urban governance, and technology to align with global development goals and to make themselves more attractive to investors.

Programs such as Smart Cities Mission, Digital India, and Make in India involve extensive collaboration between the Centre and the states, blurring the lines between national and sub-national governance. States have tailored these programs to suit local conditions, demonstrating increased autonomy in development planning.

6. Challenges and Tensions

Despite the benefits, globalization has also created new tensions in Centre-State relations. While rich and industrialized states have benefited disproportionately, poorer states have struggled to compete, exacerbating regional inequalities. This uneven growth has led to friction over resource allocation, special category status demands, and complaints of discrimination.

Moreover, the Centre’s tendency to centralize decision-making in the name of uniformity (e.g., through GST Council decisions or centrally sponsored schemes) is seen by some states as encroaching on their autonomy. The debate over language policies, distribution of revenue, and allocation of central grants continues to fuel demands for greater decentralization.

7. Political Dimensions

The impact of globalization on Centre-State relations is also political. In many cases, the Centre’s policies have been perceived as favoring states governed by the ruling party at the national level. This has led to accusations of political bias and misuse of central agencies. Globalization, while decentralizing economic power, has not necessarily led to political decentralization. Tensions remain over issues such as federal appointments, the role of the Governor, and central legislation on subjects traditionally handled by the states.

Conclusion

Globalization has significantly altered the discourse on Centre-State relations in India by transforming the economic and governance landscape. It has led to increased autonomy for states in economic matters, promoted competitive federalism, and encouraged policy innovation. However, it has also exposed and sometimes widened inter-state disparities, brought about fiscal dependencies through centralized reforms like GST, and occasionally intensified political tensions. Going forward, maintaining a balance between national cohesion and state autonomy will be essential for a truly cooperative and inclusive federal structure in the era of globalization.