December 31, 2025 03:38 PM IST First published on: Dec 31, 2025 at 03:38 PM ISTWritten by Kaustubh TiwariThe Supreme Court of India arrived at a watershed moment by postulating the constitutional principle of fiscal federalism, conceptually undergirded by the framework of “collaborative” and “uncooperative” federalism, in Mohit Minerals (2022). Collaborative federalism envisages a cooperative and dialogical relationship between the constituent or federal units (the Centre and the states), through negotiations and coordination, to set aside differences arising in the pursuit of common developmental interests and shared constitutional ideals — albeit with the Union having the last word.AdvertisementRadically, on the other hand, uncooperative federalism envisages competitiveness and dissension among the federal units. Decontextualising the contours of unequal distribution of power within the constitutional structure, uncooperative federalism perceives the federal units as possessing equal powers, even if certain constitutional provisions profess a centralising drift. It treats federal units as a necessary bulwark against each other in order to preclude the abuse of dominant power. Far from the collaborative approach to federalism, contestation among unequal power holders in a federal polity is viewed as strengthening federalism and democracy. The fundamental achievement of uncooperative federalism, as observed by the Supreme Court, lies in its licensed dissent — dissent through exploiting regulatory gaps and dissent through civil disobedience by passing resolutions against the dominant power holder within constitutional bounds. In a nutshell, not dialogue but dissent is the essence of uncooperative federalism.Pertinently, fiscal federalism holds a crucial place in India’s financial governance, where the unilateral fiscal fiat of the Union can be resisted by the states through the adoption of constitutional mechanisms of uncooperative federalism and licensed dissent. Therefore, evaluating the Viksit Bharat — Guarantee for Rozgar and Ajeevika Mission (Gramin) Act, 2025 (“the Act”), wherein states are called upon to work alongside the Union in realising the constitutional ideal of guaranteed employment involving fiscal federalism, becomes imperative.Undoubtedly, the architecture of the Act marks a moment of immense rupture for fiscal federalism in India. The creation of a national-level steering committee (under Section 14) by the Centre — which is tasked, inter alia, with recommending normative State-wise fund allocations for the implementation of the Act — comprises only senior central government officials. The normative allocation of funds (under sections 4 and 22) is to be determined by the central government in a 60:40 ratio (except for certain states), based on objective parameters set unilaterally by it, and any excess expenditure incurred during implementation is to be borne by the state governments in the manner prescribed by the central government. Interestingly, this cost- sharing mechanism marks a motley departure from the Mahatma Gandhi National Rural Employment Guarantee Act, 2005 (MGNREGA), under which the Union shouldered nearly 90 per cent of the fiscal burden. Further, the power to notify and operationalise the Act lies solely within the exclusive and discretionary domain of the central government.AdvertisementOn separating the grain from the chaff, it becomes abundantly clear that the Act portends grave consequences for fiscal federalism in India. One of the paramount concerns emerging from the design of the Act for collaborative federalism is the degree of participation or involvement of the federating units (states) in the entire decision-making process, particularly in fulfilling their fiscal liabilities arising under the Act. Such participation appears largely superficial, as the Centre enjoys discretionary power to operationalise the Act, unilaterally determine objective parameters for normative fund allocation, impose fiscal burdens on the states that may cross the 50 per cent threshold during implementation of a centrally sponsored scheme, appoint only senior central government officials to the indispensable national-level steering committee, and reduce the state-level steering committee to a body with merely operational guidance and coordination functions. This centralisation of power profoundly impacts the fiscal rights of the states.In all the instances mentioned, there is not even a modicum of a collaborative approach to federalism in the pursuit of common constitutional objectives. With no substantive participatory role either in decision-making or in determining normative allocations, the states are expected to dance to the tune of the central government while discharging financial obligations accruing from arbitrarily determined parameters. Further, the problem is compounded when states are compelled to accept central diktats in discharging their own fiscal liabilities by utilising their funds in a manner prescribed by the Centre. In some cases, states may even end up contributing and spending more than the Centre under the Act. Delayed compensation and unemployment allowances (under section 22(8)) are two startling examples.most readOne tendentious feature that the Act entrenches is the unequal degree of liabilities imposed on the Centre and the states. The fiscal liability of the states appears far more crippling and onerous than that of the Centre, which inherently disturbs the delicate fiscal equilibrium and diminishes the fiscal autonomy of states while performing their statutory roles. This grievously undermines fiscal federalism, as State coffers are effectively held at ransom by the central government under the Act.There is a pressing need for a collaborative approach to fiscal federalism vis-à-vis the VB-G RAM-G Act, wherein all stakeholders participate meaningfully in the decision-making process — particularly when states are statutorily bound to contribute near-equal funds alongside the Centre towards a centrally sponsored scheme. A lesson may be drawn from the participatory model contemplated under the GST regime. After all, Indian federalism is a dialogue between cooperative and uncooperative federalism, where federal units are at liberty to employ varying means of persuasion ranging from collaboration to contestation. Therefore, the absence of any genuine collaborative approach in the VB-G RAM-G Act risks imposing a disproportionate financial burden on the states by the dominant power holder, namely the central government, and alerts us to an unpropitious unfolding of fiscal federalism — one where federal units are meant to be coequal power holders in India’s federal constitutional polity.The writer is an advocate practising at the Delhi and Madhya Pradesh High Courts