Cooperative Federalism is part of the basic structure of Indian constitution and cannot be amended by the parliament. It deals with the matters of legislation, administration and finance.
On the other hand, competitive federalism deals with the relationship among two or more states (and not between union and state) in the matters of trade, investment and commerce.
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- Co-operative federalism, in general terms, is a concept wherein the federal government, state government, and local government interact co-operatively and share their responsibilities in the governance.
- This concept puts in a view that the national government and the state governments are partners in their governance. It involves participative policy making.
- Sharing of powers and responsibilities between three levels of government is the key element of this concept.
- A key element in fostering cooperative federalism is the respect for the mandate of elected governments.
- The Indian Constitution provides for a scheme of tax sharing between the Centre and the State. This means that the Centre should share some taxes collected with the States.
- Apart from the scheme of tax sharing, there is another way of transfer of revenue from the Centre to the State and that is the system of grants-in-aid.
- Competitive federalism can refer to the relationship between the Central and state governments (vertical) or between State governments (horizontal).
- In a free-market economy, the spirit of competition is developed through the provision of endowments to states, their available resource base and their comparative advantages.
- States not only need to compete with the Centre but also among themselves for gaining these benefits.
- Increasing globalisation, however, has made the already existing inequalities and imbalances between states much wider. Hence, there is concern about the states’ freedom to formulate their own growth policies.
- With the onset of globalisation, there have been new economic roles for the government. There has been complex power sharing and multi-level relationship.
- There is raise of Identity-related issues (e.g. Telangana) and resource-based issues (like Cauvery and Narmada), hence in a multiparty system it is important to forge effective federal coalitions.
- Fiscal constraints of the states have led to the proliferation of central schemes and national missions.
- Because of responsive and participative democracy, India get asymmetric federalism (the acceptance of inequality of states) leading to decline in inequality, tensions and dissatisfactions.