Essay on Impact of Globalization and Challenges for Indian Federalism



Globalization as a process is as old as the civilization itself but gained lot of prominence only during the last two decades. It has major impact on the administrative systems of all the countries in the world especially the developing nations. India also became a part of the process when we opened up our economy to the rest of the world in 1991 after the domestic financial crisis due to America's war with Iraq.

Independent India's federal project was as much a product of its colonial legacy as of its response to the exigencies of national building. The founding fathers expected their institutional framework to address simultaneously the complex diversity of the country and the building of a new nation. Tendencies towards pluralism and decentralisation have co-existed with centralising features leading some to qualify Indian federalism as quasi-federalism.

With the formation of the Planning Commission and the Indian State's adherence to a socialistic planning economic development, the Central Government came to exercise tremendous powers. However, the Indian Constitution also laid the basis for accommodating diversity and cultural pluralism. The Constitution enshrined minority rights and provided autonomy to each religion's community in its private sphere.

Over the past five decades, Indian federalism has had to face the challenge of balancing territorial with non-territorial requirements of the Indian nation. Centralisation has had to contend and coexist with progressively crystallising regional and cultural pluralisms. Several factors have contributed to this sharpening of diverse identities.

These include; the linguistic reorganisation of the states; the granting of constitutional rights to minorities with regard to cultural and educational privileges, the exclusive jurisdiction of regional governments in the two crucial domains of education and agriculture; the extension of affirmative action policies in education and employment to the Scheduled Castes and Tribes, special educational provisions for the local ethnic minorities; and the struggle for autonomy and independence in Kashmir, Punjab and the North-East.

Although globalisation is a much-contested concept, there is general agreement that, in the past two decades, there has been a substantial increase in the international flow of people, capital, goods and ideas. Often, it has been suggested that globalisation has resulted, on the one hand, in the decline of the sovereignty of the nation-state and on the other hand, a downward movement of political power, giving rise to the coupled forces of 'globalisation'.

There are differing impacts of globalisation on the Indian polity and there have been three different responses of Indian federalism to these challenges.

First, it is suggested that the deregulation of the economy has a skewed impact on the economic development of the country; while the developed regions would rapidly take off, the under developed and backward regions would lag behind. If the Indian state is to pursue its goals of equity and balanced development, it is imperative that the powers of the national government be increased. E.g. why government demands centralisation to have uniform policies to competitiveness and better service delivery

Second, globalisation creates a legitimacy vacuum. While the nation-state presides over its own dismantling of economic sovereignty, it does not abandon its control or internal sovereignty. In order to enhance its domestic sovereignty, it is compelled to create local democratic structures, which result in furthering the legitimacy of the state.

It is suggested that the constitutional recognition of the third layer of Indian federalism, the Panchayati System, is precisely a reflection of this concern. E.g. New localism, think global, act locally.

Third challenge faced by Indian federalism is the rapid rise of civil society organisations. It is proposed that while some of these associations generate parallel and horizontal structures of democratic governance, internally and internationally, others threaten the operation of democracy.

With gradual deregulation of the Indian economy, there has quite naturally emerged competition between the Indian states to secure investment, especially from foreign sources. It has had an adverse impact in accentuating regional imbalances, increasing the gap between have and have-not states.

If the Indian state is committed to economic development, it cannot afford to have a two-tier system without introducing major, centrally managed corrective interventions. While the forward states make extensive progress in their growth, the backward states have to be assisted in their social and economic development, not only for its own sake, but because of the likely positive implications for their governance. E.g. Cooperative fiscal federalism (GST)

One of the guiding principles of any federalism is that unequal states should have equal powers. Regional disparities, on the one hand, impact upon the bargaining power of the units vis-a-vis each other as well as vis-a-vis national and international actors; on the other hand they have negative effects on the social and political participation of these units' populations.

Immediately after independence we opted for a federal system with Centre and States expected to work within their own spheres and cooperate with each other to achieve the objective of welfare maximization. Constitution of the country was the guiding principle as far as the centre-state relations were concerned.

In actual practice, due to prevailing political environment India was basically a unitary form of government till 1967. Major change took place with the formation of governments at the state level by regional political parties in north India. It led to friction between the Centre and the States in financial, administrative and legislative spheres. It was a period of confrontational federalism and it continued till the end of 80's.

Beginning of 1990's led to a major change in the direction of centre-state relations with cooperative federalism replacing confrontational federalism that was prevalent during the last two decades prior to 1990. One of the major reasons responsible for this change was the advent of globalization in Indian context.

The Following Points Illustrate the Impact of Globalization on Indian Federalism

1. It led to decentralization of powers to the states with the centre providing more powers to the states in the administrative, financial and legislative spheres.

2. Success of globalization depends on implementation of policies at the local level. So the focus has shifted from planning to execution. Since execution can only be done at the local level, centre has ceded the space to the states and local self governments.

3. Attracting foreign investment is key to success of globalization and it solely depends on the initiation and implementation of uniform policies by the centre and the states. The phase of confrontational federalism had resulted in divergent policies between the centre and the states, whereas globalization has resulted in convergence of policies.

4. Economic development is heavily dependent on political stability and peace and harmony. As part of globalization, both the centre and states have become active partners in ensuring the above. Since the beginning of 1990's, the number of times Art 356 was used had come down drastically compared to the period previously.

5. Globalization has also resulted in emphasis on development at the cutting edge level i.e. at the local level. It has resulted in the emergence of concepts like New Localism, Peoples' Empowerment and so on.

6. During the initial years of globalization, there was unhealthy competition between the states to attract foreign investment. It has resulted in states adopting short term policies like lowering tax rates to attract foreign investment. But over a period of time, they have realized the fact that those short term measures can only result in deterioration in finances without bringing the desired results. Now they have started emphasizing on development of infrastructure as it can only ensure overall development in the long run.

7. Institutions like planning commission played a key role during the pre-liberalization days and in some instances states ruled by opposition political parties have accused the central government of misusing planning commission to further its own ends. But the situation has changed with the advent of globalization with states as well as the center realizing the fact that both are equal and active partners in the developmental process.


Globalisation is not a homogeneous process. It has several trajectories. Although the state might abandon its sovereignty in the economic areas, it constantly strives to reinforce its domestic sovereignty. Thus, the sovereignty of a state can be unbundled and examined from internal and external perspectives. On the one hand, in order to preserve the Indian state's fundamental objectives of equity and growth, Indian federalism might be compelled to move towards enhancing the role of the Central government.

This would see to be essential to counter the accelerating inter-regional economic and social disparity resulting from market-based development. On the other hand, a trend towards decentralisation is evident in the installations of the constitutionally approved third tier of the local government. A decentralisation of powers might also be necessary to accommodate the active participation of the voluntary and non­governmental organisations.