Why Indian Federalism Produces Uneven Outcomes

India's constitutional framework applies uniformly to all states. The Union List, State List, and Concurrent List are the same for Tamil Nadu as for Bihar; the Finance Commission formula distributes the same national tax pool among all of them; the Centrally Sponsored Schemes — MGNREGA, Ayushman Bharat, PM Awas Yojana, Samagra Shiksha — are available in every state with the same central co-financing. 

But the outcomes these common frameworks produce are vastly different across states. NITI Aayog's Health Index has consistently shown Kerala at the top and Uttar Pradesh near the bottom among large states, despite both states operating under the same constitutional and legal framework and both receiving significant Finance Commission devolution. Child mortality, literacy, maternal health, and access to clean water all show state-level variation that dwarfs India's overall performance divergence from comparable countries.

Representational Image: Why Indian Federalism Produces Uneven Outcomes

This variation is not primarily a resource story — though resources matter. Kerala is a relatively prosperous state, but it is poorer than several states that perform far worse on health and education metrics. Bihar receives substantial Finance Commission devolution because its per capita income is low; it still underperforms states that receive less per capita from the Centre. 

The variation reflects choices — about how to allocate budgets within state government, about whether to invest in public goods or patronage, about the quality of state civil service recruitment, about the relationship between elected politicians and bureaucrats, about whether state-level welfare competition is driven by genuine service provision or symbolic gestures. These are choices that the federal framework leaves to state governments, and state governments make very different choices.

Essential Context

• NITI Aayog's Health Index has consistently ranked Kerala first and Uttar Pradesh last among large states since the Index was first released in 2018; Kerala's Infant Mortality Rate (IMR) is approximately 6 per 1,000 live births; UP's is approximately 38 per 1,000 — both states are in India, both receiving Finance Commission devolution, both implementing the same central health schemes.
• The COVID-19 pandemic exposed dramatic cross-state variation in health infrastructure: Kerala maintained relatively functional contact tracing and hospital capacity; Bihar and UP, with among the lowest health spending per capita, experienced near-system collapse at case peaks in 2021, with patients dying outside hospitals.
• Academic typologies of Indian states distinguish "programmatic" states (high public investment in education and health, associated with competitive party systems and strong civil society — Kerala, Tamil Nadu) from "patronage" or "prebendalist" states (public resources directed to personal enrichment and patronage rather than public goods — historically Bihar and UP in earlier decades) — a distinction associated with Alexander Lee's political economy research on Indian states.
• Educational outcomes show the same pattern: ASER (Annual Status of Education Report) data consistently shows that more than half of Grade 5 students in Bihar and UP cannot read a Grade 2 text, while Kerala and Tamil Nadu have near-universal literacy at the same grade levels — an outcome produced by the same constitutional right to education operating in radically different state administrative environments.
• PMC (Public Micro Credit) COVID-19 pandemic analysis (2021) found that India's federal response to the pandemic was "dysfunctional" precisely because state capacity — the ability to collect, analyse, and act on public health data — varied so dramatically that a uniform national policy could not address the vastly different state conditions.

How It Works in Practice

1. Budget allocation within states: States have significant discretion over how they allocate their budgets internally — what proportion goes to health, education, agriculture, infrastructure, debt service, and salaries. States with high salary and debt-service burdens have less for capital investment and service delivery. Kerala historically allocated higher shares to health and education than its per capita income would predict; Bihar historically allocated higher shares to construction (with associated corruption opportunities) than to human capital. These choices compound over decades.

2. State government willingness to use public systems: In states where political elites send their children to private schools and use private hospitals, the political will to invest in public education and health is lower. In states where public institutions remain the preferred choice of middle and lower-middle classes, politicians face electoral pressure to maintain them. Kerala's public school and public health systems remain genuinely competitive with private alternatives; this is both a cause and an effect of better state investment.

3. Revenue mobilisation and fiscal effort: States with better own-revenue mobilisation — more efficient state GST collection, better property tax administration, stronger excise enforcement — have more resources to invest in services without dependence on central transfers. States with weak revenue mobilisation are more constrained even when Finance Commission devolution is adequate. The 16th Finance Commission's "tax effort" parameter in horizontal devolution acknowledges this by giving more weight to states that mobilise more of their own revenue.

4. Administrative quality and scheme implementation: The same scheme implemented by a highly functional state administrative apparatus and a dysfunctional one produces radically different outcomes. The Mid-Day Meal Scheme has been transformative for child nutrition in Tamil Nadu, which has consistently maintained its own state feeding programme to high standards, while implementation has been more variable in states with weaker administrative capacity.

5. Political economy of public good provision: Alexander Lee's political economy typology of Indian states identifies that in states where dominant political coalitions require broad-based public goods to maintain electoral support (because their support base is diverse and cannot all be individually rewarded), governments invest more in public education, health, and infrastructure. In states where dominant coalitions can maintain support through targeted patronage to loyal groups, public good provision declines. This explains the persistent divergence between states with similar resource levels but different political economies.

What People Often Misunderstand

• The variation is not fully explained by economic development level: Kerala has higher per capita income than several underperforming states, but Himachal Pradesh has performed well on health and education metrics despite not being among India's richest states; performance is shaped by policy choices, not determined by income level.
• Finance Commission equalisation reduces but does not eliminate fiscal disparities: The income-distance criterion in horizontal devolution channels more funds to poorer states; but money alone does not convert weak administrative capacity into effective service delivery — the translation from fiscal transfer to outcome requires state-level implementation quality.
• Southern states are not uniformly high-performing: While southern states average better on health and education indices, significant within-region variation exists; Andhra Pradesh has underperformed relative to Tamil Nadu and Kerala on several metrics despite comparable geography and cultural traditions.
• The variation is politically produced, not merely inherited: States that were historically poor performers have improved dramatically when political economy conditions changed — Bihar under Nitish Kumar (2005–2015) showed substantial improvement in development indicators through political choice, not structural change.
• Federal equalisation does not compensate for variation in state capacity: The Finance Commission can equalise fiscal resources; it cannot equalise administrative capacity, political will, or civil society accountability — factors that also drive outcome variation.

What Changes Over Time

NITI Aayog's performance indices — including the Good Governance Index, SDG Index, Health Index, and Fiscal Health Index — create regular public comparisons of state performance that generate reputational pressure on underperforming states and their governments. The India Justice Report's state-level justice system comparisons do the same for legal and policing outcomes. 

These comparative reporting mechanisms represent a new institutional form of federal accountability that supplements Finance Commission incentives with public information pressure. The 16th Finance Commission's introduction of a GDP contribution parameter in horizontal devolution creates new incentives for states to improve economic performance as a route to higher fiscal transfers.

Sources and Further Reading

• Anantam IAS — Federalism in India: https://anantamias.com/federalism-india/
• NITI Aayog — Health Index: https://www.niti.gov.in/health-index
• Daijiworld — Kerala tops Health Index: https://daijiworld.com/news/newsDisplay?newsID=494975
• PMC — Battling COVID-19 with dysfunctional federalism: https://pmc.ncbi.nlm.nih.gov/articles/PMC8250807/
• PRS Legislative Research — 16th Finance Commission: https://prsindia.org/policy/report-summaries/report-of-the-16th-finance-commission-for-2026-31

(This series is part of a long-term editorial project to explain the structures, institutions, and practical realities of governance in India for a global audience. Designed as a 25-article briefing cluster on Federalism, States & Centre–State Relations, this vertical examines how power, money, and authority are distributed between New Delhi and India's states — from the Seventh Schedule, fiscal federalism, GST, Governors, and central agencies to Centre–state disputes, regional parties, and the evolving balance of the Indian Union. Written in an accessible format for diplomats, investors, researchers, academics, journalists, students, policymakers, civil society organisations, and international observers, the series seeks to explain both the constitutional design of Indian federalism and the political realities through which it operates in practice. This is Vertical 4 of a larger 20-vertical knowledge architecture being developed by IndianRepublic.in under the editorial direction of Saket Suman. All articles are protected under applicable copyright laws. All Rights Reserved.)