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WELFARE LEGISLATION AND CONFLICTS BETWEEN

UNION AND STATE

INDIAN FEDRALISM

SUBMITTED TO: Dr.Kyvalya Garikapati

KIIT School of law

SUBMITTED BY: Chiranjeev Routray

1782040

BBA.LLB A
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TABLE OF CONTENTS

1. Abstract……………………………………………………………….3-4

2. Introduction…………………………………………………………...4-5

3. Two forms of the welfare state……………………………………….5-6

4. The Maneka Gandhi case and thereafter…………………………......6-7

5. Regulation Vs. Public Provision……………………………………..7-8

6. The centralization vs. decentralization tug of war…………………..9-11

7. Conclusion……………………………………………………………11
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ABSTRACT

Welfare policy in India is composed at a critical juncture. Amelioration to India’s welfare

architecture over the last five years present new challenges and fault-lines that need
resolution, if India is to move toward creating new 21 st century welfare architecture.  India
doesn't need new schemes rather it needs consolidation and balancing between competing
welfare strategies. Getting this right will require significant investments in state capacity.
This is the welfare task for the new government.

There are varying accounts of what Indian federalism truly demands. But what is manifest
from a reading of the Constitution is that it creates two distinct levels of government: one at
the Centre and the other at each of the States. The Seventh Schedule to the Constitution
divides responsibilities between these two layers. The Union government is tasked with
matters of national importance, such as foreign affairs, defence, and airways. But the
responsibilities vested with the States are no less important. Issues concerning public health
and sanitation, agriculture, public order, and police, among other things, have each been
assigned to State governments. In these domains, the States’ power is plenary. This federal
architecture is fortified by a bicameral Parliament. Significantly, this bicameralism is not
achieved through a simple demarcation of two separate houses, but through a creation of
two distinct chambers that choose their members differently: a House of the People [Lok
Sabha] comprising directly elected representatives and a Council of States [Rajya Sabha]
comprising members elected by the legislatures of the States. In formulating this scheme of
equal partnership, the framers were also conscious of a need to make States financially
autonomous. To that end, when they divided the power to tax between the two layers of
government they took care to ensure that the authority of the Union and the States did not
overlap. Therefore, while the Centre, for example, was accorded the power to tax all income
other than agricultural income and to levy indirect taxes in the form of customs and excise
duties, the sole power to tax the sale of goods and the entry of goods into a State was vested
in the State governments. The underlying rationale was simple: States had to be guaranteed
fiscal dominion to enable them to mould their policies according to the needs of their
people.
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Despite this plainly drawn arrangement, the history of our constitutional practice has been
something of a paradox. It is invariably at the level of the States that real development has
fructified, but the Union has repeatedly displayed a desire to treat States, as the Supreme
Court said in S.R. Bommai v. Union of India, as mere “appendages of the Centre”. Time and
again, efforts have been made to centralise financial and administrative power, to take away
from the States their ability to act independently and freely.

INTRODUCTION
Welfare legislation is a statute which purports to confer some benefits on individuals or a
class of persons. The nature such benefit holds is to relieve said persons of onerous
obligations under contracts entered into by them. Further individuals with whom they stand
in certain relations might attempt to perpetrate oppressive acts upon the vulnerable party
and a beneficial legislation tends to protect them in such circumstances. When a statute is
interpreted liberally and is given the broadest possible meaning which the language permits
is known as Beneficial Interpretation. When a statute is meant for the benefit of a particular
class and if a word in the statute is capable more than one meaning i.e. one which would
preserve the benefits and one which would not, then the meaning that preserves the benefit
should be adopted. Beneficial construction is an interpretation to secure the remedy to the
victim who is unjustly denied of relief. The interpretation of a statue must be done in such a
way that mischief is suppressed and remedy is advanced.

In order to interpret a statute beneficially these important principles must be followed:

 Words in the statute must be interpreted in its widest form but only to the extent which
the language permits or contains.

 The most complete remedy which a particular provision intends must be given.

 A statute should always purport to confer the benefits on particular class or category for
which the beneficial legislation is intended. In construing welfare legislation following steps
should be adopted.

 Liberal approach should be adopted, and Purposive construction which would effectuate
the object of welfare legislation should be given to the expressions used in the statute.
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welfare As statues are aimed for protection and promotion of social and economic well
being of the citizens they should be construed widely and liberally. Such statutes should be
interpreted in a way that the power conferred by them is achieved and benefits the class or
category of people for whom it was intended by the legislature. Therefore it becomes the
duty of court to interpret a provision, especially a welfare statute by providing it a wider
meaning rather than a restrictive meaning.

Over the last five years, India has taken many important steps toward significantly
reforming the welfare architecture ranging from direct benefit transfers (DBT), Ayushman
Bharat, income support (PM-Kisan) to the implementations with regard to the fourteenth
finance commission recommendation. Underlying these reforms are important unresolved
and deeply contested questions about the architecture of the welfare state. In particular, the
questions do revolve around centralization and capacities of various level of governments to
deliver. Welfare policies under the new government will necessarily have to confront these
questions and the opportunities and the challenges they present. The capability of the new
government to navigate this terrain will determine its effectiveness and ability to deliver
high quality public services to India’s poorest.

TWO FORMS OF THE WELFARE STATE

There are 2 ways of organizing a welfare state:

According to the 1 st model the state is primarily concerned with directing the resources to
“the people most in need”. This requires a firm bureaucratic control over the people
concerned, with quantitative interference in their lives to establish who are "in need" and
minimize cheating. The most unintended result is that there is a sharp divide between the
receivers and the producers of social welfare, between "us" and "them", the producers
tending to dismiss the whole idea of social welfare because they will not be receiving
anything of it. This model is quite dominant in the US.

According to the 2 nd model the state distributes welfare with a little bureaucratic
interference possible, to all people who fulfill easily established criteria (e.g. having
children, receiving medical treatment, etc). This requires high taxing, of which everything is
channeled back to the taxpayers with minimum expenses for bureaucratic personnel. The
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intended – and also largely achieved – result is that there is a broad support for the system
since most people receive at least something. This model was constructed by the
Scandinavian ministers Karl Kristian Steincke and Gustav Möller in the 30s and is mostly
dominant in Scandinavia.

THE MANEKA GANDHI CASE AND THEREAFTER

The judiciary took upon itself the task of infusing into the constitutional provisions the spirit
of social justice.  This was done in a series of cases of which Maneka Gandhi v. Union of
Indiai was a landmark. The case revolved around the refusal by the government to grant a
passport to the petitioner, which thereby restrained her liberty to travel.   In answering to the
question whether this denial could be sustained without a pre decisional hearing, the court
proceeded towards explaining the scope and content of the right to life and liberty.   In a
deviation from the earlier view, the court asserted that the doctrine of substantive due
process as integral to the chapter on fundamental rights and emanating from a collective
understanding of the scheme underlying articles 14 (the right to equality), 19 (the freedoms)
and 21 (the right to life). The court has to strike down legislation was thus broadened to
include critical examination of the substantive due process element in statutes.

 RIGHT TO SHELTER

In Olga Tellis v. Bombay Municipal Corporation ii the court observed that the right to life
included the right to livelihood.  The petitioners argued that since they would be deprived of
their livelihood, if they were evicted from the slum and pavement dwellings, their evic tion
would be tantamount to deprivation of their life and hence be unconstitutional.    The court,
however, was not prepared to go that far.  It denied that contention, saying:

No one has the right to make use of any public property for a private purpose without
requisite authorization and, therefore, it is erroneous to argue that pavement dwellers have
the right to encroach upon pavements by constructing dwellings thereon. If a person puts on
a dwelling on the pavement, whatever might be the economic compulsions behind such an
act, his use of the pavement would become unauthorized.

 RIGHT TO HEALTH
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In Consumer Education and Research Centre v. Union of India iii the court, in a PIL, tackled
the problem in regard of the health of workers in the asbestos industry.   Noticing that the
long years of exposure to the harmful chemical could result in debilitating asbestosis, the
court mandated compulsory health insurance for every worker as enforcement of the
worker’s fundamental right to health.  It is again in the PIL that the court has had occasion
to examine the quality of drugs and medicines being marketed in the country and even ask
that some of them be banned.

REGULATION VS. PUBLIC PROVISION

The launch of Ayushman Bharat in October 2018 ensured the beginning of a significant
architectural transition in India’s welfare system – a transition from direct provisioning
toward financing the citizens and regulating private providers. But this transition do pose a
critical challenge. How does a state that struggles with basic routine tasks can build
capability to regulate a sector as complex as health care?

The functioning health insurance system must ensure that patients are not  under-
treated; nor over-treated or over-charged. Ensuring these requires adaptive price setting, strict
regulation, third-party monitoring and, quality improvements in all public sector hospitals.

Getting prices right is a major dilemma in any insurance program and one that all countries
struggle to solve. This is because prices need to check and balnce “neither too much, nor too
little”. But costs for the same procedure might to differ across hospitals because of quality,
location and capacity. Therefore, a single lined price can never ensure that both constraints
are effectively met, and in fact, it is certain that these prices are never going to be the
“right” prices. Moreover, if the price is too low for a hospital, it might choose not to enroll
in the scheme, or choose to deny services. When the price is too high, the hospital will
generally make additional profits, or worse, try to convince patients to receive services
when they are not needed.

The one thing that countries functioning with large-scale insurance programs have in
common is a large analytical and data center that regularly examines procedures, procedure
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coding and charges from the insurance schemes. Prices have to be frequently negotiated and
updated based on the data, and this is a job for specialized teams of hundreds in each state.

In tandem, insurance schemes do require creating a strong regulatory framework for fraud
control. India’s current regulatory environment is seriously weak. A survey has shown that
all 17 insurance ombudsman offices in India are currently vacant with a backlog of 9000
complaints. Holes in the current regulatory framework imply that there is no established
procedure for settlement of claims, redress of the consumer behavior against rejection of
claims or even penalties for rejecting the claims in violation of existing regulations. This in
turn creates some incentives for regular violation of norms by insurance companies. Not
surprisingly, the complaints rate in India in orders of magnitude is quite higher than
comparable jurisdictions across the globe. The success rate of PMAY is now directly
proportional not only to the functioning of the health department, but also the criminal
justice and court systems. A new, bolder legislative framework for regulation and insurance
fraud is urgently needed.

The only way to make sure that these conditions for implementation success are met is
through massive investments in skilled workforce. In the United States, the single-purchaser
of Medicare scheme employs 6000 people to cover 44 million beneficiaries. India has
nowhere near to this scale of staff.

Finally, a lesson that applies more broadly to the dilemma of public vs. private provisioning,
There is no efforts to strengthen public systems. Specifically in field of health care, in the
long run well-functioning public hospitals will provide a much-needed backstop against
predatory practices, denial of service and overcharging in the private sector. Especially in
districts where competition is limited, public hospitals will limit the monopoly power of the
private sector, flush with the new money from the scheme. A framework for transferring
resources from the scheme to help government hospitals improve their quality is just as
important as funding flows to the private sector.
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THE CENTRALISATION VS. DECENTRALISATION TUG OF WAR

A critical underlying issue that influences the dynamic of welfare provisioning is that of
financing India’s welfare scheme. Scholars of federalism in India have characterized India
as a “quasi-federal” or a federal system with “centripetal bias”. In this context, the union
government has historically played an important role in financing welfare related schemes
and the dynamic of fiscal federalism and center-state relations is a critical ingredient that
influences implementation of welfare policy iv.

In the last five years, India has transformed its fiscal federal architecture, devolving
unprecedented levels of independence and resources to it’s states. However, in doing so it
has created a new dilemma – one of disparities between state governments to be able to
deliver welfare and other services. Effectively this has meant that in absence of central
support, the states with lower capacity to design and implement continue to fall further
behind high-income states widening regional disparities across the country.

This has not to say that the recent changes in its fiscal federal architecture should be rolled
back. (These included the dismantling of the planning commission; the establishment of the
NITI Aayog and the GST council as new institutions for negotiating center-state relations;
and the implementation of the recommendations of the 14 th finance commission (FFC) that
sought to enhance fiscal decentralization to States by reducing central government control
over state spending) v. At one level, these changes were long overdue. Historically, India’s
fiscal federal architecture has been extremely centralized. The delegation of fiscal powers
and responsibilities specified in the constitution as Singh and Rao argue reflects a
“centripetal bias with the Centre having ‘overwhelming and overriding’ economic
powers.”To put it in perspective, States incur 60 percent of government expenditure but
collect only 40 percent of revenue. All state borrowing is subject to approval from the
union.

The Planning commission, with its mandate of centralized planning emerged as a critical
instrument for centralizing India’s fiscal system. To illustrate, calculations by the
Fourteenth Finance Commission reveal that between 2005 and 2012, central government
spending on State subjects increased from 14 to 20 per cent and its spending on Concurrent
Subjects increased from 13 to 17 per cent. The bulk of this spending took place through
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specific-purpose transfers or Centrally Sponsored Schemes (CSS) financed and monitored

through the Planning Commission’s plan funds, making CSSs one of the most important
vehicles of central transfers to states vi. To illustrate, during the 11th Five Year Plan (2007-
2011), scheme specific transfers accounted for over 40% of central transfers to states.
Importantly, these schemes, as argued comprehensively by Avani Kapur in this volume,
were designed and implemented in an extremely centralized, tightly controlled, one-size fit
all architecture that undermined state flexibility.

States have long complained about fiscal centralization. From as far back as the 1969
National Development Council meeting to consultations with the Fourteenth Finance
Commission in 2013, State governments’ argued strongly against the centralized nature of
CSS and encroachment by the Centre on the constitutional mandate of state governments vii.
Chief Ministers’ in particular, resented having to seek Planning Commission approval for
state plans.  Several commissions noted the negative consequences, as articulated by state
governments, of the proliferation of CSSs and recommended reduction in their quantity and
greater flexibility in their design. This deep centralization coupled with the fact that the
post-liberalization era had rendered the centralised planning process irrelevant made the
need to reforming (and even dismantling) urgent and critical viii.

The setting up of the Niti Aayog and the implementation of the recommendations of the
14th finance commission recommendations to enhance fiscal devolution to states marked an
important juncture in fiscal federal relations in India. However, it also brought to the fore an
important new fault-line in the centralization vs. decentralization tug of war that has shaped
the dynamics of fiscal federalism in India ix. The future shape of federalism in India will
depend significantly on how the new government navigates this fault line and the
institutional space it creates for re-negotiating center-state relations.

Mundle argues, a critical tension between high-income states and low-income states. High-
income states have the capacity to design and implement their own schemes and can better
leverage fiscal decentralization. Low-income states need CSS with their centralized design
and implementation structure, simply because they lack planning capabilities x.

The primary fault line in India’s fiscal federal architecture is this: fiscal centralization,
arguably critical for poorer states, has in fact benefited richer states. Addressing this
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challenge will require a significant overhaul of existing financial instruments available with
the central government. Specifically, it will need a careful rebalancing of the centralization
vs. decentralization dynamic in ways that provides necessary governance support to poorer
states while ensuring fiscal autonomy. Crucially, the center needs to reorient its role from
being a micro-manager of schemes and programs to playing a far greater strategic role,
building national policy frameworks and providing technical capacity to States to enable and
empower them to plan, design and implement social policy programs. Balancing these
tensions and re-shaping the role of the center requires the creation of institutional spaces for
center-state deliberations. This can be achieved through a revitalized Inter-state council
(ISC) tasked specifically with creating a deliberative space for centre-state dialogues on
welfare policy and negotiating the tensions that have come to shape center-state fiscal
relations. The fourteenth finance commission had recommended the creation of such a body.
The new government must implement this recommendation with urgency.

COCLUSION

Over the last five years, India has taken many important steps toward significantly
reforming the welfare architecture ranging from direct benefit transfers (DBT), Ayushman
Bharat to the implementations with regard to the fourteenth finance commission
recommendation. Underlying these reforms are important unresolved and deeply contested
questions about the architecture of the welfare state. In particular, the questions do revolve
around centralization and capacities of various levels of governments to deliver. Welfare
policies under the new government will necessarily have to confront these questions and the
opportunities and the challenges they present. The capability of the new government to
navigate this terrain will determine its effectiveness and ability to deliver high quality
public services to India’s poorest.

Centre and state must act in relation to the constitutional provisions to ensure a structural
life to their citizens. Social legislation must always stand at the first place over personal
gains. It’s high time that for the ones holding the power to analyze their positions and
respond to the need of people in a positive way.
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1978 AIR 597, 1978 SCR (2) 621
ii
(1985) 3 SCC 545
iii
(1995) 3 SCC 42
iv
http://mail.mospi.gov.in/.
v
http://censusindia.gov.in/Data_Products/Library/Indian_perceptive_link/Census_Objectives_link/censusobjectives.ht
vi
Mundle, S., Chowdhury, S., & Sikdar, S. (2016). Governance performance of Indian states 2001-02 and 2011-12 (No. 16/164)
vii
Mundle, S. (2019). The Case For A Radical Transformation. Seminar 717: The Union And The States,717, 38-43
viii
Aiyar, Y., & Tillin, L. (2019). The Problem. Seminar 717: The Union And The States, 717, 10-13.
ix
. Roy, R. (2019). Changing Fiscal Dynamics. Seminar 717: The Union And The States, 717, 18-22.
x
Eight Interesting Facts About India (pp. XI-XIV). (n.d.). New Delhi: Govt. of India, Ministry of Finance, Economic Division.