Faculty of Commerce and Management, SGT University

Indian Economy
B.Com & B.Com(H) - Sem III
Faculty : Dr. Nitesh Rawat
Module – III

Federal Structure of India

Understanding India’s Governance Structure

The Indian political governance system is known as a ‘federal structure’. In a federal structure, power
and responsibility are distributed across different layers of Government. In the case of India, the power
to raise money as well as the power to spend is distributed across the Union Government, State
Governments and Local Governments. These three levels of Government have the power to raise
resources through various taxes and non-tax sources, and spend these resources on different
sectors/issues.

India’s need for a federal structure arose due to the vastness and diversity of the country. These two
factors mean that the governance requirements in terms of policies and implementation vary across
regions. The federal structure provides different tiers of Government the necessary flexibility to work on
areas best suited to them. However, this multi-tier governance system also results in a complex
structure in terms of the division of responsibilities and power to raise resources, and leads to overlaps
across different tiers.

This section aims to simplify issues related to the Indian federal structure, and with that objective in
mind, it has been divided into three sub-sections:

1. Division of responsibilities across the three tiers of Government

2. How different levels of Government carry out their responsibilities

3. Division of resource raising powers across the three tiers of Government

Division of responsibilities across the three tiers of Government

Figure 1: Division of Responsibility

The main responsibilities of the three tiers of Governments are discussed in further detail below.

Union Government

 Defence: The security of the country, both internal and external, is the responsibility of the
Union Government of India. To this end, the Government manages the army, navy, air force,
and other forces like - Central Reserve Police Force (CRPF), Central Industrial Security Force
(CISF), etc.

 International Relations: International relationships with other countries and multilateral

organisations are the prerogative of the Union Government of India. Though State Governments
can also work in this area, they generally need approval from the Centre.

 Ports: These include ports for international transport as well as inland (within the country)
waterways.

 Railways: The Union Government has full responsibility for the country’s railway system.
  National Highways: All roads in India are categorised as National highways, State highways, and
others. Of these, the Union Government is responsible for national highways. These roads
generally connect State capitals, bigger cities and pass through more than one State.

 Airways: Aircraft, air-navigation, and all matters related to airways are under the jurisdiction of
the Union Government.

 Monetary Policy: Matters related to monetary economy (such as issuance and withdrawal of
notes), regulation of financial institutions, etc. are the responsibility of the Union Government.
To this end, it has established many institutions, including the Reserve Bank of India (RBI) and
Securities and Exchange Board of India (SEBI), and delegated some of those responsibilities to
these institutions.

State Governments

 Public order: While public order can have a more legal and philosophical meaning, for simplicity,
it can be taken to mean maintenance of peace and prevention of any actions by individuals or
groups that impinge on the human rights of others. The responsibility of maintaining public
order is on state governments.

 Police: Police forces are the state instrument meant to maintain public order, as well as enforce
law and justice.

 Public health: Issues related to health, including prevention of diseases.

 Hospitals and dispensaries: hubs of health services, both for cure and prevention

 Sanitation: Issues related to sanitation, such as waste collection and management, water supply
and so on.

 Agriculture: All matters related to agriculture, including agricultural education and research,
protection against pests and prevention of plant diseases.

Combined Responsibilities of Union and State Governments

 Justice: Matters related to enforcement of law, including courts, except the Supreme Court.

 Education: All matters related to education, including technical, medical education and
universities.

 Trade Unions: Issues related to labour.

 Forests: Policies related to forests.

Local Bodies

In India’s three-tier governance system, the Union and State Governments are complemented by Local
Governments. Local governance in India takes place in two very distinct forms, depending on whether
the locality is Urban or Rural.

An Urban Local Government / Body is the layer of Government that has the responsibility of
development in cities and towns. Urban Local Governments are further classified into three types:
 1. Municipal Corporations / Nagar Nigam: For large urban areas

2. Municipal Councils / Municipalities / Nagar Palika: For smaller urban areas

3. Town Area/Notified Area Councils / Nagar Panchayats and suburban Government Bodies: For
areas in transition from a rural to an urban area

The Rural Local Government / Panchayati raj system is a three-tier system with elected bodies at the
village, taluka and district levels. These bodies are also known as Panchayati Raj Institutions (PRIs).

1. District / Zilla panchayats

2. Block / Mandal / taluka panchayats

3. Gram panchayats

Most of the financial powers and authorities to be bestowed on local bodies are at the discretion of
State legislatures. Consequently, the powers and functions vested in local bodies vary from State to
State.

The Twelfth Schedule of the Constitution lists the various functions of Urban Local Bodies. Of these,
some functions are obligatory in nature and some are discretionary, as given in Figure 2:

Figure 2: Responsibilities of Urban Local Bodies

There is a lot of difference in the assignment of obligatory and discretionary functions to Urban Local
Bodies across the States. For instance, while functions such as planning for social and economic
development, urban forestry, protection of the environment, and promotion of ecology are obligatory
for the municipalities of Maharashtra, these are discretionary in Karnataka.

For Panchayati Raj Institutions, an indicative list of 29 items has been given in the Eleventh Schedule of
the Constitution. Rural Local Bodies are expected to play an effective role in planning and
implementation of works related to these 29 items.