Debate on the relevance of federalism and the possibilities of evolving a viable federal model is currently ongoing in several countries around the region, perhaps most notably in Nepal. Prior to making any final decision during these processes, it will be important for lawmakers in these countries to evaluate the Indian model, to take into account both its successes and ongoing failures. Past experience shows decisively that there is no generic model of federalism, and that each country will need to evolve its own system, one that is relevant to individual domestic conditions. In India, too, this debate is far from finished.
A major element of India's experience with federalism has been that the functioning of federal units with adequate powers at the state level is essential to address the people's socio-economic aspirations. The commonly made argument that lower governmental units are inefficient and corrupt is untenable, since such problems exist at all levels of governance. Likewise, the anxiety that states might opt for secessionism if given autonomous powers has been proven false. For example, during the early 1940s, the Dravida Munnetra Kazhagam (DMK), now a ruling party in Tamil Nadu, was actively pushing for secession, citing Brahminical domination in the Indian state administration. When India adopted a federal Constitution, however, the DMK felt that it needed to advocate for the linguistic wishes of Tamils within the framework of Indian national unity. The party subsequently gave up the call for secession, entered mainstream politics and, on many occasions, has been elected to power. The fundamental issue is thus not the viability of federalism, but rather the distribution and sharing of responsibilities and power between the Centre and the states. On the other hand, imbalanced power-sharing between these two entities creates a chronic state of conflict in the long term.
Given India's broad socio-cultural diversity, Article I of the Indian Constitution declares that the country "shall be a Union of states". Though the Constitution is largely guided by the federal principle, there has actually been a marked drive towards centralisation since Independence itself. There are three main reasons for this: the resistance of some princely states to integrate with the Indian Union; the existence of secessionist political groups; and the interest of the Indian economic elite in an extensive domestic market, which was more feasible under a centralised state. The Constitution also offers a firm delineation of responsibilities vested in the Centre and the states, defining three lists of subjects. The Union is awarded an exclusive right to legislate on 97 issues; the states have the right to legislate on 66; and the concurrent list gives rights to both the Centre and the states to legislate on 47. In this power-sharing pattern, the states have long felt an imbalance – for instance, regularly complaining about the proliferation of so-called centrally sponsored schemes, which operate essentially on state matters. One example of this is the Rural Development Ministry's implementing of the Pradhan Mantri Gram Sadak Yojana, a project of connecting rural habitations, even though it is the states that have constitutionally assigned decision-making powers on this issue.
In India, executive powers, such as those to levy duties or to raise revenue by taxes, are distributed between the Centre and the states. Meanwhile, the Constitution directs the states to carry out developmental and administrative expenditures in which the states oversee such issues as law and order, infrastructure development, health, education, agriculture, etc. However, every one of the most important revenue-raising powers remains or has been centralised. Over the years, a major demand on the part of the states has been to increase the percentage of taxes provided to them by the Centre, from the current 30.5 percent to a full 50 percent. This demand has been consistently pushed aside by the Centre, despite the fact that state-government tax receipts have significantly increased in recent years, to more than 55 percent of total fiscal resources in 2006-07. Perhaps more startling, the combined annual development expenditure of the states is currently one and half times greater than that of the Centre. In dire need of resources, most state governments have had to negotiate with multilateral institutions, including the World Bank and the International Monetary Fund.