Covid-19 and Indian Federalism: Through the Lens of the Disaster Management Act, 2005 and Fiscal Federalism

Sarthak Sethi attempts to examine the constitutional framework of the national lockdown, and evaluate the effects of COVID-19 on Indian Federalism.

I. Introduction

Derived from the Latin word Foedus, the exact nature of India’s ‘federal’, multi-tier system of governance, with a division of executive and legislative power between the Centre and States, has always been a point of contention, with varied schools of federal polity propagating distinctly different ideas. When compared to the American model of federalism, as also pointed out by Durga Das Basu in Comparative Federalism¹, the emergence of Indian federalism was not the product of a voluntary agreement between several independent sovereign states, but rather the provinces of a unitary state being transformed into a federal arrangement of power.² This included identified areas of legislative competence, a dispute resolution mechanism, and the implied supremacy of the Constitution.³ K.C. Wheare and other scholars have classified India as a quasi-federal State.⁴

Extending beyond just the nature of Indian federalism, academic discourse continues to ask more existential questions, such as why federalism exists within the Indian state at all. A reductionist, and simplistically political approach to this question, by Sheeram Chandra and Satya Prakash Dash, holds that the British imposed federalism in the Government of India Act, 1935 for imperial convenience, and that the constituent assembly simply absorbed the provision, with minor changes.⁵ However, a number of other legal scholars argue that the effects of federalism extend beyond governance to the construction of the State itself.⁶ This is an argument extended by Louise Tillan, in her characterisation of ‘asymmetrical federalism.’⁷ Empirical studies suggest that ethnically diverse, successful democracies tend to adopt federal systems, and that it is a better alternative than pure unitary control for eliminating ethnic violence. Other political scientists, such as Jack Snyder⁸, argue that federalism can ‘institutionalise’ ethnic differences. This paper illustrates these diverse views not to comment on the merit of these arguments themselves, but rather to demonstrate how important federalism is for the construction and maintenance of a democratic State, and how a de facto change in this system can affect the fabric of the nation-state itself.

India’s federal structure tilts towards the Union, with it having a greater degree of legislative competence under Schedule VII of the Constitution and greater fiscal autonomy. State of West Bengal v Union of India¹⁰ illustrates the judicial recognition of the same idea, which is in support of parliamentary supremacy. A system of absolute sovereignty of individual states is envisaging a “constitutional scheme which does not exist.”¹⁰

The COVID-19 pandemic, with the imposition of a nation-wide lockdown, has raised questions over the diminished strength of an already Union-centric federal structure. Section II will first establish the idea of cooperative federalism, and Section III will then examine the constitutional framework through which a lockdown was enforced, exploring legislative competence, the Disaster Management Act, 2005¹¹ and the Epidemic Diseases Act, 1897¹², to determine whether the Centre acted ultra vires in its enforcement of guidelines. Section IV will study the effect of COVID-19 on the second prong of federalism, which is fiscal federalism. Section V will unify these arguments to provide a conclusion.

II. Cooperative Federalism

To examine whether ‘cooperative federalism’ is being transformed to ‘coercive federalism’, it is first required to establish what cooperative federalism itself is. While there exists substantial literature and judicial backing for the concept, the idea of a federation that is ‘cooperative’ and harmonious can be traced back to the Constituent Assembly debates. Section 163(4) from the Government of India Act, 1935¹³ was an express provision to ensure that the federation will not unreasonably deny or delay an approved loan to the province. When considering whether such a safeguarding provision was to be adopted within draft Articles 268 and 269¹⁴, M. Ananthasayanam Ayyangar¹⁵ remarked that the provision was not required at all; the constitution drafters relied on the overall spirit of a cooperative and harmonious federalism, not a coercive or competitive one. Therefore, we have established that cooperative federalism originates from the roots of the Constitution itself.¹⁶

This interpretation of our federal structure has been heralded in contemporary constitutional literature by Granville Austin¹⁷, who defines cooperative federalism as a positive administrative synergy between the Centre and the States, and a partial dependence on the Centre for funds by the States.¹⁸ Austin rejects the idea that States are weakened by the strong centre, but rather claims that larger progress of the federation is contingent on active cooperation.

This idea is backed by judicial rulings. In State of Rajasthan v Union of India¹⁹, the Court cites Austin and A.H Birch, recognising cooperative federalism. Justice Ramana in Jindal Stainless v State of Haryana²⁰ says that the “Union does not exist in isolation, but is rather a cooperative association of the State”. We have illustrated therefore, that a study of constitutional history reveals a deep-rooted presence, and legal recognition, of cooperative federalism. Therefore, to test whether the tenet of federalism has been violated, we will consider which of coercion, or cooperation, has been the driving element in the post-COVID era. An accurate legal analysis will require a study of entries in Schedule VII, harmonious construction, fiscal policy, and the origins of disaster legislation.

III. COVID-19 and Federalism

The Union of India has exercised a top-down approach in its enforcement of COVID guidelines, completely opposed to any ideas of decentralised governance, with an attempt to create consistency across States, rather than coordination. Irrespective, it is beyond the scope of this article to examine the merit of the administrative mechanism adopted. Rather, the article will examine whether the Centre is constitutionally empowered or not to adopt the mechanism it is employing.

Notifications have been issued under Section 10(2)(1) of the Disaster Management Act, 2005²¹ on a pan-India level. A prima facie evaluation will raise questions of legislative competence, as the Centre, in the course of invoking its legislative mandate under the Disaster Management Act, 2005, has passed executive orders that govern, amongst a basket of elements, several entries of List II under Schedule 7, including Markets and Fairs(Entry 28), Hospitals (Entry 6), Industries (Entry 24), Communications (Entry 13). This raises a larger question - notwithstanding sociological or political factors, are these executive orders by the Centre violative of larger federal principles?²²

Article 73(1)(a)²³ of the Constitution dictates the extent of the executive power of the Union with respect to the matters that the Parliament is competent to legislate on, and Article 162²⁴ places a similar limitation on executive actions of the States with respect to state legislatures.

This helps us establish that to determine the competency to issue executive order, we must determine whether the Centre holds legislative competence for the subject matter of the executive order at hand.

The central government has relied on the parliamentary legislation of the Disaster Management Act, 2005 and the Epidemic Diseases Act, 1897. Accordingly, the two two-tiers of constitutionality must apply. The primary consideration is to examine whether the Union is competent to legislate the Disaster Management Act in the first place. No specific entry referring to disasters, or disaster management, is found within List I, II or III. This could allow the Union to invoke its residuary powers under Entry 97 of List I, or invoke wider subject-matters, such as Entry 23 of the Concurrent List. However, irrespective of the same, it can be concluded that despite criticism, the Union government was competent to pass an executive order, through the Disaster Management Act, 2005, as the Union was competent to legislate on the subject-matter.

However, there is a secondary prong of constitutionality that must be considered here. Two strong criticisms of the executive action at the Union level have arisen. The primary is that the government has enforced the Disaster Management Act, 2005, ultra vires and outside of the legal mandate of the legislation. This argument states that the primary legislation empowered to regulate and govern amidst a pandemic is the Epidemic Diseases Act, 1897, and not the Disaster Management Act, 2005. Extending to the whole of India, the 1897 Act expressly provides for “the better prevention of the spread of dangerous epidemic diseases”.

Given that the Epidemic Diseases Act, 1897, is specifically applicable, it becomes significant to consider that Section 2²⁵ of the Act empowers state governments, and not the Centre, to enforce temporary legislation to limit the outbreak of an epidemic. Under Section 3 of the Act²⁶, the authority of the Centre is limited to regulations regarding ports, vessels, and ships. It can be argued therefore, that the imposition of regulation by the Centre cannot be binding on a state government, as Section 2 of the EDA, 1897, gives state governments precedence when specifically dealing with a pandemic.

However, the argument that the Disaster Management Act, 2005 does not apply to a pandemic can be refuted by considering the overarching mandate of the legislation. Section 2(d) of the Act defines a disaster as a “catastrophe, mishap, calamity or grave occurrence in any area”, resulting in “substantial loss of life or human suffering or damage to property”. While the ambiguity of such a definition can be criticized for academic purposes, it does not vitiate the applicability of the pandemic as a ‘disaster’, given the medical, social and economic damage incurred. Therefore, a valid case can be made for the 2005 legislation to be invoked by the Centre.²⁷

However, there exists another layer of testing. Even if we fully accept, in arguendo, that the Centre can apply the Disaster Management Act to control the pandemic, there is the issue of the legislation being applied in a manner that is unconstitutional.

In this context, it is pertinent to note that Section 11(1) and 11(2) of the Disaster Management Act requires that when regulating for a nation-wide disaster, a National Plan is to be developed, specifically in consultation with the States. This is problematic on two counts. Firstly, the Centre has completely bypassed the procedure within the Disaster Management Act, while simultaneously relying on it as the enabling act, to create delegated legislation. On procedural grounds therefore, the Centre’s enforcement of regulatory notifications is ultra vires of the parent statute. Kunj Behari Lal Butail v State of H.P lays down that using delegated powers to carry out the purposes of the Act does not allow the creation of rights or obligations not contemplated within the parent act itself. The development of national guidelines by the Centre, without a National Plan or consultation with the States, is not envisaged by the 2005 legislation.²⁸

The second count on which the consultation with State governments being bypassed is problematic is that it directly weakens the federal structure. Allowing the Union, which holds an inherent concentration of power in our constitutional framework, to ignore its obligations to the States in exercise of a legislative mandate, is a dangerous precedent for future executive action. The argument laid down does not pertain to the actual merits of the Centre’s pandemic policy, and is independent of whether there would be significant agreement or disagreement between the Centre and States. Rather, it is strictly focused on the absence of constitutional rigour, and the potentially weakening effect this can have on our federal structure.

This article recognizes that State governments have indeed been foisted with responsibility in dealing with the pandemic. However, the central contention is that responsibility and authority with state governments is awarded as a result of the discretion of the Centre, under the wider umbrella of MHA guidelines, and not out of the functioning of a healthy federal system. An illustration of this contention is several states have sharply criticised the practice of ‘zone’ classifications²⁹, and demanded more autonomy in the management of their own districts, linking to the idea of enforced consistency across states by the Centre in its policies. The Centre’s blanket decision to prohibit state governments from loosening strictness of guidelines, is reflective of a similar idea- discretion lies with the Centre.³⁰

A judicial vacuum exists in this context, with no significant judgement on the nature of pandemic measures, and the effect on Centre-State relations. However, the lack of autonomy vested in State decision-making reflects a relative absence of cooperative federalism. Cooperative federalism requires not just agreement in policy, and cooperative decision-making, but an actually tangible distribution of power that reflects a true intention to cooperate. Taken further, when considering the selective and procedurally inconsistent application of the Disaster Management Act, 2005, along with the power vested in the States by the Epidemic Diseases Act, it can be argued that the concentration of power solely with the Centre, during the COVID-19 pandemic, is reflective of a weakening in our constitutional federal system.

To answer as to why States have engaged in limited legal or political dissent over this change in federal orientation, we will consider the idea of ‘Fiscal Federalism’ in the subsequent section.³¹

IV. Fiscal Federalism

It is often held that the true lifeblood of political federalism are the complimentary, constitutionally recognised structures for fiscal federalism.³² The idea of fiscal federalism is of taxation, expenditure, revenues at different levels of government, and the necessary inter-governmental links present and required to distribute monetary, and hence political power. The dilution of political federalism in 2020 remains largely unprotected in socio-legal institutions because fiscal federalism has been diluted too. State governments, with diminished GST returns and reduced shortfall compensation by the Centre, are increasingly dependent on the Union for fulfillment of fiscal requirements.

There exists a direct trend of centralisation, in the fiscal context. This is first reflected by the non-release of over 30,000 crore INR to states. The terms of reference of the 15th Finance Commission which questioned whether revenue deficit grants should be provided to States at all, are another reflection of weakened fiscal and cooperative federalism. The suspension of the ‘Members of Parliament Local Area Development Scheme’ for a transfer of funds towards the Centre has further exposed how the movement towards centralisation is damaging. COVID-19 has exhibited the scheme could have been used to fill the vacuum and gaps in relief work at the grassroot level.

The primary illustration of a shift in balance is a document released by the Ministry of Corporate Affairs, which lists COVID-19 ‘FAQ’ relating to Corporate Social Responsibility.³³ CSR funds are a powerful mechanism for the collection of revenue, specifically when indirect tax collection is historically diminished. Schedule XII of the Companies Act, 2013, provides a list of CSR activities. The PM National Relief Fund, or other Central funds for social welfare, or disaster management activities (Entry 12) are recognised. Under Entry 12, the PM Cares Fund, the CM Relief Fund, State Disaster Management Fund would all be recognised. However, the previously mentioned Ministry of Corporate Affairs document recognises only certain central funds. This is a notification by the Centre creating a direct disincentive for corporations to contribute to a CM Relief Fund, as the contribution will not be recognised as CSR. The creation of such an arbitrary distinction between otherwise identical entities that fulfill the same statutory purpose is not only unconstitutional, but a direct attack on fiscal federalism.

Scholars such as Gautam Bhatia³⁴ have iterated the relationship between political and fiscal federalism, identifying that there exists a synergy between the two elements of our constitutional framework, and that the destabilisation of both cumulatively contributes to the larger breakdown of cooperative federalism, through the COVID-19 crisis.

V. Conclusion

The purpose of this article is not to pass a normative judgement on the manner, or specific details of the coordination between Centre and States. It is beyond the scope of this article’s analysis to consider the merit or demerit of an attempted ‘unified response’ by the Centre, against the spread of the pandemic. However, the article’s primary driving assertion is that a regulatory framework cannot bypass constitutional rigour, and hence executive action must be benchmarked against true, effective, well-spirited federalism.

While this paper does not deal with constitutional amendments, it is important to contextualise that federalism is part of the Basic Structure; reflective of how fundamental it is. Holding true to Justice Khanna’s spirit, this does not imply that Federalism may not evolve or change. However, this paper argues that the COVID-19 pandemic lay fertile ground for the essence of federalism itself to be vitiated. ‘Cooperative’ federalism becomes extremely important here, as the element of cooperation has been read into becoming a defining feature of India’s unique, asymmetrical federalism. In Government of NCT of Delhi v Union of India, the Supreme Court held that our federal structure must be collaborative in nature. On the contrary, however, there are rising concerns that a weakened federal system, with the moral and political excuse of a pandemic, will result in an ‘informal emergency’.

Ultimately, while considering the question of entries in the State List being superseded, or the primacy of the Epidemic Diseases Act, 1897 of the Disaster Management Act, 2005, it must be realised that the answers lie with the Indian judiciary. However, as of now, there has been no significant attempt to subject the ‘new normal’ to a rigorous judicial review.³⁵ Until such a moment, we can only speculate what the future of the Indian Federation will be.