Pushing welfare towards the States

The landscape of welfare spending in India has undergone a profound transformation, signaling a significant evolution in the nation's fiscal federalism. Historically, India operated with a more centralized approach, particularly in social sector planning and funding, largely influenced by the erstwhile Planning Commission. However, recent policy shifts and the recommendations of successive Finance Commissions have ushered in an era where the primary responsibility for welfare spending has increasingly devolved to the States, while the Centre retains its crucial role in legislating and setting overarching norms. This shift is not a sudden phenomenon but a culmination of several factors over the past decade. A pivotal moment was the recommendation of the 14th Finance Commission (2015-2020), which dramatically increased the share of central taxes devolved to states from 32% to 42%. The 15th Finance Commission (2020-2025) largely maintained this at 41% (adjusting for the creation of Jammu & Kashmir and Ladakh as Union Territories). This massive increase in untied funds provided states with greater fiscal space and autonomy to design and implement their own welfare programs tailored to local needs and priorities, rather than being solely dependent on Centrally Sponsored Schemes (CSS) with their rigid guidelines. Concurrently, the abolition of the Planning Commission in 2015 and its replacement by NITI Aayog, a think-tank with a focus on cooperative federalism, further reinforced this decentralizing trend. Key stakeholders in this evolving dynamic include the **Union Government**, primarily through the Ministry of Finance, which manages central transfers and overall fiscal policy, and various line ministries (e.g., Rural Development, Health, Education) that frame national policies and standards. **NITI Aayog** plays a crucial role in fostering cooperative federalism, evaluating programs, and providing policy guidance. The **State Governments**, including their finance departments and line ministries, are now at the forefront of identifying local needs, allocating resources, and implementing welfare schemes. **Local Self-Governments** (Panchayats and Municipalities) are vital implementers at the grassroots, translating state policies into tangible benefits for citizens. Ultimately, the **citizens** are the beneficiaries whose lives are directly impacted by the effectiveness of these welfare programs. This shift holds immense significance for India. Economically, it can lead to more efficient allocation of resources as states are better positioned to understand local requirements and customize programs, potentially reducing leakage and improving impact. Politically, it deepens cooperative federalism, enhancing the autonomy and accountability of state governments. States are now more directly answerable to their electorates for the delivery and quality of welfare services. However, it also poses challenges. Poorer states, with limited revenue-generating capacities, might struggle to bear the increased fiscal burden, potentially exacerbating inter-state disparities in welfare provision. The Centre's role, while focused on legislation and norm-setting, ensures a baseline of welfare standards and prevents a race to the bottom among states. Constitutionally, this transition is rooted in India's federal structure. **Part XII of the Constitution (Articles 268-293)** deals with finance, property, contracts, and suits, outlining the distribution of revenues between the Union and the States. **Article 280** mandates the President to constitute a Finance Commission every five years to recommend the distribution of net proceeds of taxes between the Union and the States (vertical devolution) and among the States themselves (horizontal devolution). The **Seventh Schedule** delineates legislative powers, with subjects like public health, sanitation, relief of the disabled and unemployed, and social security falling under the Concurrent List or State List, thereby granting states significant authority in these domains. The **Directive Principles of State Policy (Part IV)**, particularly Articles 38, 39, 41, 42, 43, and 46, serve as foundational guidelines for both the Centre and States to promote welfare and social justice, irrespective of which tier funds the schemes. Looking ahead, this trend implies greater innovation in state-specific welfare models, increased demand for fiscal reforms at the state level to enhance their own revenue generation, and potentially more competitive federalism where states vie to demonstrate better governance and welfare delivery. There will be a continuous need for strong financial oversight and capacity building at the state level to ensure effective utilization of funds. The Centre will likely continue to play a crucial role in setting national goals, facilitating inter-state coordination, and providing emergency support, while states become the primary drivers of welfare implementation. This evolving dynamic underscores India's commitment to a decentralized, responsive, and accountable governance model, aligning welfare provision more closely with local aspirations and needs.