The Supreme Court of India's landmark articulation of fiscal federalism principles is facing a severe test with the enactment of the Viksit Bharat — Guarantee for Rozgar and Ajeevika Mission (Gramin) Act, 2025. Legal experts warn that the Act's centralised architecture, which mandates significant financial contributions from states, undermines the collaborative federalism framework endorsed by the judiciary and risks imposing a crippling fiscal burden on state governments.
Supreme Court's Federalism Doctrine: Collaboration vs. Contestation
In its 2022 judgment in the Mohit Minerals case, the Supreme Court laid down a dual framework for understanding India's federal structure. The Court conceptualised collaborative federalism, which envisages a cooperative, dialogical relationship between the Centre and states to achieve shared constitutional goals, with the Union having the final say.
Simultaneously, it recognised uncooperative federalism. This model views federal units as possessing equal powers and acting as necessary checks against each other to prevent the abuse of dominant authority. Its core achievement, as per the Court, is licensed dissent—where states can exploit regulatory gaps or pass resolutions within constitutional bounds to resist unilateral central diktats, especially in fiscal matters.
Centralised Design of VB-G RAM-G Act Raises Red Flags
A critical evaluation of the VB-G RAM-G Act reveals a structure that appears to sideline this federal balance. The Act establishes a national-level steering committee under Section 14, tasked with recommending state-wise fund allocations. Crucially, this committee is composed exclusively of senior central government officials, with no mandated representation from state governments.
The normative fund allocation, dictated under Sections 4 and 22, is determined by the central government in a 60:40 ratio (Centre to State) for most states, based on parameters it sets unilaterally. Furthermore, any excess expenditure incurred during implementation must be borne by the states as prescribed by the Centre. This marks a stark departure from schemes like the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA), where the Union historically shouldered nearly 90% of the fiscal burden.
The power to notify and operationalise the Act rests solely with the central government, and the state-level steering committees are reduced to bodies with mere operational guidance functions.
States Face Disproportionate Fiscal Liability and Eroded Autonomy
The design of the Act presents several grave concerns for fiscal federalism. The participation of states in the decision-making process is largely superficial. With no substantive role in determining fund allocation norms or operational parameters, states are compelled to dance to the Centre's tune while fulfilling heavy financial obligations.
The problem intensifies as states are forced to utilise their own funds in a manner dictated by the Centre. In certain scenarios, such as delayed compensation and unemployment allowances under Section 22(8), states may end up contributing and spending more than the central government under this centrally sponsored scheme.
This creates an unequal and onerous liability for states, disturbing the fiscal equilibrium and diminishing their fiscal autonomy. Effectively, state coffers are held at ransom, grievously undermining the principles of federal financial governance.
The Urgent Need for a Genuinely Collaborative Model
There is a pressing need to reorient the approach to the VB-G RAM-G Act towards genuine collaborative fiscal federalism. All stakeholders, especially states that are statutorily bound to contribute near-equal funds, must have a meaningful participatory role in the decision-making process.
A lesson can be drawn from the participatory model of the GST regime, where states have a voice through the GST Council. Indian federalism is a dialogue between cooperation and contestation. The current absence of collaboration in the VB-G RAM-G Act risks imposing a disproportionate financial burden on states by the dominant central power, signaling an unpropitious turn for India's federal constitutional polity.
