Too often, our discussions of federalism focus on the intricacies of institutional arrangements, political, administrative, fiscal arrangements. But underlying all these debates is a more fundamental idea: federalism is a principle of accommodation. It is this principle of federal restraint that shapes the nature and structure of institutions, their organisational form and processes.The true challenge of federalism in today’s India is that it is precisely this core federal principle – that you can be many and you are still one – that is being challenged.It is often said of Indian federalism, as designed and architected in the Indian Constitution, that it is deeply centralising or “quasi-federal”. Indeed, Dr B.R. Ambedkar himself argued that the Indian constitution is both unitary and federal, and can move between the two depending on the time and circumstance.But that centralised design was anchored in the recognition that, in a country of many political identities united by a shared Indian identity, federal accommodation was essential. It allows me to be a little bit Tamil when I feel like it, a little bit Sardarni – especially when I have to roar loudly and get my children to do their homework – and a happy Malayali eating appams and mutton stew whenever I choose.The core of who we are as Indians is inextricably linked to the idea and principle of federal accommodation. And the institutional and political federal arrangements designed in the constitution emerged out of this idea. Federalism is thus uniquely tied to our sense of nationhood and our sense of national identity.Centralisation and the contemporary contextA unitary, majoritarian political ideology is inherently uncomfortable with federal accommodation. It is no accident, then, that federalism is under challenge today. At its core is a competing idea of citizenship: one that recognises people can hold multiple political identities while belonging to a single Indian political community versus an ideology that privileges “one-ness” and “one-ness” alone.All forms of centralisation that we are experiencing today need to be debated and understood from this perspective. It isn’t as though states’ rights have not been trampled over in the past. Indeed, right from our founding moment, there have been grumblings among states, often with good reason, challenging the attempt to misuse the centralising powers baked in to the constitution and trample over the powers of the states.Federal restraint could persist in India because there was a shared commitment to accommodating India’s multiple identities through federal principles. Once that commitment weakens, restraints weaken with it. The abrogation of Article 370 and the downgrading of a state are not merely institutional or procedural changes. They represent a fundamental assault on the idea that the state must recognise and protect subnational political identities, rather than subsume them within a broader majoritarian one.Also read: Union Against Centre: The Political Language of Federalism in IndiaOn the surface, today’s centralisation resembles earlier patterns. The office of the governor, for example, has long been used in ways that strain federal arrangements. The difference is that, although the Supreme Court has sought to impose checks, those restraints are now increasingly being circumvented.The fiscal realm: pushes and pullsThe same dynamic is visible in fiscal federalism. For decades, the Union has used its power to collect and redistribute taxes – through the Finance Commission, Planning Commission and centrally sponsored schemes – to shape policy in areas constitutionally assigned to the states, including school education, public health and agriculture.Centrally sponsored schemes became a means for the Union government to influence policies in state subjects – where secretaries of the government of India could essentially sit with a danda (stick) and tell the state governments what to do. Deploying the powers they held through these schemes and other resources to push one-size-fits-all policies.States often saw the Planning Commission and its plan funds as another mechanism through which the Union intervened in constitutionally assigned state subjects.Over time, the Finance Commission expanded tax devolution to the states, most notably when the 14th Finance Commission increased the states’ share from 32% to 42% in 2015.This expansion of the divisible pool became a game changer. The Union responded by relying more heavily on cesses and surcharges, which are not shareable with states, thereby shrinking the divisible pool. It then changed the sharing ratio of centrally sponsored schemes from varying ratios of 60:40, 75:25 and 90:10 to a uniform 60:40.Also read: The Shifting Political Economy of Centrally Sponsored SchemesMore recently, new schemes with ever-new acronyms [“VB G RAM G” for example] represent further moves towards centralisation and uniformity, reducing the capacity of states to implement policies based on their own needs, priorities and democratic mandates.The ‘double engine’ discourseThese Acts of centralisation have a new political grammar. They are being justified through a phrase we need to recognise and challenge: the idea of a “double engine sarkar”. The argument is that the Union needs more resources, and that the Union and the states need to be aligned for the sake of development. It fundamentally challenges the federal principle at the core.Accommodation is about dialogue, deliberation, differences, pulls and pressures. Those dialogues and disagreements have always shaped India’s institutional and fiscal arrangements.Despite the Union trampling upon states over many decades, it had to allow for accommodation; it had to allow for dialogue and deliberation. This was core to keeping the principle of federal accommodation (and federal restraint alive). All the meetings where secretaries to the government of India would wield dandas at states also had states coming back and pushing back. The National Development Council ensured that chief ministers and senior state representatives remained in constant dialogue with the Union.There’s no need for dialogue in a double engine context. When the government tells the electorate, “Vote for the same government at the centre and the state because it gives you quote-unquote efficiency and development” it pits the federal principle of accommodation, dialogue and deliberation in contrast with the possibilities of development – almost arguing that too much democracy is not good for development.This is exactly what we need to challenge when we speak in defence of the federal principle and defend federalism.The states’ paradox and local governanceLet me turn to a second issue: the paradoxes of our federal discourse. I’ve spoken about how the Union has sought to retain power, but states have played their own double game. As Raja Chelliah once said, “Everybody loves decentralisation, but only to their level.” States speak vociferously for states’ rights, particularly when they are in opposition.One thing is certain – there will never be a day when the Union can simply dispense with the Finance Commission and the constitutional process of tax devolution between the Union and the states, and among the states.But states do not afford the same autonomy to the level of government closest to citizens: panchayats, municipalities and urban councils. Decentralisation remains extremely limited; less than 3% of public spending takes place at the local level. This has been a persistent failure since the 73rd and 74th Constitutional Amendments. With few exceptions – Kerala being one – states have failed to empower local governments. We cannot revive federalism or strengthen democracy without strengthening its grassroots institutions.Also read: Kerala: Kudumbashree’s ‘Happiness Centres’ to Address Holistic Welfare of Individuals and FamiliesStates have been complicit in doing to local governments exactly what the Union has done to them. In this process, they have opened the door to an even deeper form of centralisation.The 16th Finance Commission is revealing in this regard. To their credit, Union Finance Commissions have consistently devolved funds to local governments where states have failed to do so, even though the constitution envisages this role being performed through State Finance Commissions and their devolution formulae.Most states have failed on this front (State Finance Commissions in many parts of the country have not even been set up), but the Union Finance Commissions have allocated money to local governments; panchayats and municipalities. And they lament, consistently, the absence of Finance Commission structures at the state level.The 16th Finance Commission has taken that lament one step forward, suggesting that, “If states continue to renege on their duty, perhaps we should remove this clause from the constitution.” This is not a formal mandate but the starting point of a debate.In this process the Finance Commission has catalysed the idea of bypassing states altogether by linking the Union directly with local governments – a form of de-concentrated devolution that would undermine the democratic principles embedded in the 73rd and 74th Amendments. States have to bear the blame for opening up the possibility of precisely this kind of discourse in our federal discussions.A new “grand bargain”The 16th Finance Commission has also done another thing. States have rightly been complaining about the use of cesses and surcharges to undermine resources that ought to be made available to them, arguing that the divisible pool of resources should be increased from 41% to 50%, and a cap should be put on cesses and surcharges.The 16th Finance Commission has proposed a new “grand bargain”. In the logic of the double-engine model, the Union, it argues the Union needs greater resources for development. It would therefore accept a ceiling on cesses and surcharges if states agree to reduce tax devolution from the 41% norm established over the past decade, giving the Union greater fiscal space.States have played a role in allowing for this because, in the breach, various state governments have not improved their own spending on core welfare spending, preferring to wait for funds from the Union government and then complain that those funds are not forthcoming. Hence it opens up the scope to politically push the idea of a “double engine” government as essential to development. And it opens up the space for the Union government moving towards a more de-concentrated version of federalism rather than a genuinely democratic one.The challenges of inequality and delimitationLet me end with the two most critical challenges confronting India’s federal bargain today, and reiterate that states, too, need to awaken themselves to the importance of federalism as a principle which they too have to live up to if we are to address the very big challenge of the federal bargain we confront in political and institutional terms.India confronts a unique reality – the wide social and economic inequality between regions. There are some parts of India, particularly the southern and western, that have experienced near Chinese rates of growth over the last 30 years. And then there are other parts of India that are largely supplying labour to the more productive parts of the country where growth has been extremely slow. So UP’s per capita GSDP looks closer to Nepal, and Tamil Nadu’s per capita GSDP looks closer to Indonesia.How do we deal with questions of revenue sharing amidst this kind of inequality? And also, how do we deal with the question of delimitation? After all, population count and economic growth are closely intertwined. How do we ensure fair representation without reducing the voice of all parts of the country?This is not an easy thing to resolve. Southern states in particular have been raising their voice around the equity principle of revenue sharing that was core to the formulae on the basis of which revenue was being share intra-state between states horizontally, arguing that “We are more productive, therefore we contribute more to the taxes and therefore we should be getting more. But Uttar Pradesh, which is less productive for its own governance reasons, is getting far more, even though its contribution into tax revenue provision is far lower”. The 16th Finance Commission has introduced now a 10% formula around performance – contribution to GDP – as one of the bases on which revenue sharing will take place.Also read: Inter-State Disparities and the Changing Approach of the 16th Finance CommissionThis is a difficult conundrum. If you break the equity principle that has informally been accepted since the first or second Finance Commission, you raise very important questions about what it means to be an Indian citizen. After all, all citizens of India should be entitled to minimum public services regardless of whether they are born in Bihar or born in Kerala. At the same time, there are good questions being raised by states who feel that their own autonomy has been undermined, and now they are not even able to access resources that their own good governance has generated for themselves, for their own development.Balancing equity with performance requires a very deep and detailed dialogue. Contribution to GDP is not an appropriate measure in my view. After all, the contribution of cheaper labour from Bihar to Tamil Nadu to enable some of Tamil Nadu’s manufacturing is also perhaps a contribution to GDP. So we need to have a dialogue over how we balance equity and performance and how we chose to define contribution to GDP.Similarly, the bargain around representation: there is a big question about the nature of delimitation, how it is to be achieved, the size of parliament, whether that is going to allow for some accommodation and how to ensure that the voices of all parts of India get equally heard. Again, these bargains cannot be resolved by bulldozing legislation through parliament and bulldozing the idea of delimitation without dialogue and debate.ConclusionTo navigate these complex challenges, India needs a Union that is trustworthy. Unfortunately, today we do not have a Union government that speaks to the federal principle, that recognises and adheres to federal restraint, making it difficult to trust its willingness to engage in genuine federal dialogue.Perhaps, then, the answer has to come from the states. Tamil Nadu’s decision to set up the high-level committee under Justice Joseph Kurian was an important signal of what states can do by initiating a dialogue among themselves. But that dialogue must reaffirm the federal principle as the foundation of the federal restraint needed to resolve these complex issues.And maybe, just maybe, states will recognise that they can only ask more of the Union – or defend the federal principle more credibly – when they live up to it themselves and, at a minimum, constitute the State Finance Commissions required by the constitution.This piece an edited transcript of a speech delivered by Yamini Aiyar, a public policy scholar, during the session on ‘Federalism’ at the conclave on One Nation–One Election, Federalism and Citizenship, organised by the Constitutional Conduct Group and the Group on Federalism and Elections. Watch the complete speech.