Thu Jan 30 18:51:39 IST 2025: ## Former RBI Governor Calls for Cooperative Fiscal Federalism in India

**Hyderabad, January 30, 2025** – Former Reserve Bank of India (RBI) Governor Duvvuri Subbarao urged for a more cooperative approach to India’s fiscal federalism in a lecture delivered Thursday at the Centre for Economics and Social Studies (CESS) in Hyderabad. His address, titled “India’s Fiscal Federalism – Quo Vadis?”, analyzed the evolution of Centre-State financial relations, highlighting the need for greater consultation and transparency to resolve existing conflicts.

Subbarao categorized India’s fiscal federalism into three phases: “Docile Federalism” (1947-early 1970s), characterized by central dominance; “Cooperative Federalism” (early 1970s-mid-1990s), with increased state involvement; and “Combative Federalism” (mid-1990s-present), marked by growing tension between the Centre and states.

While acknowledging common state complaints about unfair fiscal arrangements favoring the Centre, Subbarao countered that Indian states currently enjoy greater spending power than many of their counterparts in other federal nations, accounting for nearly 60% of total government expenditure. He cited increased tax devolution after a 2000 constitutional amendment.

However, he also acknowledged points of friction, including the increased use of cesses and surcharges by the Centre, which reduce states’ share of divisible taxes. He also highlighted concerns over Centrally Sponsored Schemes (CSS) and borrowing limits imposed on states. Subbarao advocated for greater consultation in the design of CSS and stressed the need for fiscal discipline to maintain national creditworthiness, while acknowledging the need for targeted welfare programs and cautioning against fiscally irresponsible “freebies.”

Subbarao criticized the lack of a robust platform for Centre-State consultation following the abolition of the Planning Commission, suggesting the NITI Aayog has yet to effectively fill this void. He proposed structured discussions to replace the often unproductive Chief Ministers’ meetings.

Ultimately, Subbarao emphasized the need for Centre-State cooperation to achieve the goal of “Viksit Bharat” by 2047, arguing that future reforms require active state participation. He warned that without a shared vision and collaborative policy-making, India’s development goals could be jeopardized.

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