When States Need Each Other: The Rise of Horizontal Federalism

Federalism is usually discussed through the relationship between the Union and the States.

Who has the power to tax?
Who controls a particular subject?
How should resources be distributed?
What happens when the Centre and a State disagree?

But an increasingly important set of problems begins somewhere else.

A State may have the resource another State needs. A river may run through several jurisdictions. Electricity generated in one part of the country may be essential to another. Transport corridors, supply chains and ecological systems can span several States without recognising their political boundaries.

The result is a form of federal interaction that cannot be understood entirely through the Centre-State relationship.

Sometimes, the most important relationship is between the States themselves.

This is the emerging logic of horizontal federalism.

When the problem crosses the boundary

The conventional federal question is about the distribution of authority.

Horizontal federalism begins with a different starting point: the geography of the problem.

If a resource, infrastructure network or economic system extends across State boundaries, assigning responsibility to one government may not be enough. The governments affected by that system may have to coordinate their decisions directly.

Energy provides a clear illustration.

Telangana’s electricity demand has been growing faster than earlier projections, while the State is also seeking to increase renewable energy in its generation mix. Rajasthan has extensive solar potential, while Himachal Pradesh has substantial hydropower potential. Telangana, meanwhile, faces limitations of land availability for large-scale solar generation and has relatively few suitable sites for hydropower.

This creates an unusual federal relationship.

The three States do not possess identical capabilities. Their differences are precisely what create the possibility of cooperation.

Telangana has entered into an arrangement with Rajasthan involving 1,600 MW of thermal power capacity in Telangana and 1,500 MW of solar capacity in Rajasthan, with an investment of ₹26,200 crore. It has also entered into agreements with Himachal Pradesh involving the Seli and Meyar hydropower projects.

The significance of such arrangements goes beyond electricity generation.

They demonstrate that a State can sometimes address a domestic requirement by accessing a capability that exists outside its own territory.

Federalism, in this sense, is not only about deciding who controls a resource.

It is also about creating arrangements through which governments can access and combine resources controlled by one another.

The Centre does not disappear

State-to-State cooperation does not mean that the Union becomes irrelevant.

The physical infrastructure that makes such cooperation possible often exists within a national framework.

India’s electricity system is connected through the national grid, allowing power to move across State and regional boundaries. The Telangana-Rajasthan arrangement therefore operates within an institutional environment that extends beyond the two States.

This produces a more complicated picture of federalism.

The Union can provide the national framework, standards and infrastructure within which States negotiate directly with one another.

The relationship can therefore have two dimensions at once:

Union ↔ States

and

State ↔ State

The second does not replace the first.

It adds another channel through which federal problems can be managed.

That distinction matters because treating every inter-State issue as a Centre-State question can obscure the fact that the governments most directly affected may themselves have an incentive to negotiate, coordinate and share capacity.

Water makes the logic more difficult

Energy cooperation can often be structured through investments, contracts and transmission infrastructure.

Water is different.

A river creates interdependence irrespective of political preference.

The Tungabhadra system illustrates this.

The dam is located in Karnataka but serves irrigation requirements in Karnataka, Andhra Pradesh and Telangana. Its operation is supported by an established water-sharing arrangement and the Tungabhadra Board.

The institutional arrangement matters because the river cannot be governed independently by each State.

At the same time, cooperation does not eliminate competing interests.

The Upper Bhadra project in Karnataka has raised concerns in Andhra Pradesh and Telangana. The broader river system therefore contains both cooperation and disagreement at the same time.

This is an important feature of horizontal federalism.

The objective is not necessarily to remove conflict.

It is to create mechanisms through which governments that depend on the same system can continue to negotiate despite conflict.

That makes institutions more important than temporary political goodwill.

Cooperation has to survive political change

An agreement between two governments can establish a commitment.

An institution can make that commitment durable.

Political leadership changes. Governments change. Priorities change. Resource requirements change. New infrastructure can alter the distribution of benefits and costs.

A federal arrangement that depends entirely on the relationship between particular political leaders will therefore remain vulnerable to these changes.

Durable cooperation requires rules, infrastructure and institutional mechanisms that can outlast individual governments.

The Tungabhadra Board performs part of this function for the shared river system. Energy agreements similarly require transmission infrastructure, joint ventures, ownership arrangements and long-term commitments that continue beyond the immediate political moment.

The important sequence is therefore not simply:

agreement → cooperation

but:

shared dependence → negotiation → institutional arrangement → continuing coordination.

That is what turns a temporary understanding into a functioning federal relationship.

States do not need to reproduce one another

There is another economic principle underneath this development.

A federation does not become stronger because every State becomes capable of doing everything by itself.

In some cases, duplication may be inefficient.

Rajasthan’s geography gives it advantages in solar generation. Himachal Pradesh possesses hydropower potential. Telangana has its own industrial and energy requirements.

The more useful question is therefore not:

Can every State become self-sufficient?

It is:

How can different State-level capabilities be connected?

This introduces an economic logic of specialisation into federalism.

A State can develop particular capabilities and exchange the resulting benefits with other States, provided that the institutional and physical connections necessary for that exchange exist.

But this cannot be reduced to a simple market analogy.

Governments must consider ownership, political interests, pricing, investment risk, transmission capacity, resource security and long-term access. Water adds another layer of uncertainty because rainfall, upstream development and competing irrigation requirements cannot be predicted with the certainty of a commercial contract.

Horizontal federalism therefore requires governments to negotiate over systems in which their interests are simultaneously connected and sometimes opposed.

The federal map is becoming more complicated

This suggests that India’s federal structure cannot be understood entirely through a two-level model.

There is the familiar:

Union ↔ State

There is increasingly the:

State ↔ State

And below that lies:

State ↔ local government

Each relationship performs a different function.

The Union remains essential for matters that require national coordination. States remain the principal political units within the federation. Local governments deal with problems that require proximity to citizens.

But many contemporary problems cut across these levels.

A river basin can contain several States. An electricity network can span the country. An industrial corridor can connect multiple production centres and ports. Air pollution can move across administrative boundaries. Migration and supply chains can connect regions whose governments make separate policy decisions.

This means that the constitutional location of a government does not always correspond to the functional scale of the problem it has to govern.

That is where horizontal federalism becomes important.

From projects to systems

At present, much inter-State cooperation appears through individual projects.

A power agreement.

A joint venture.

A river-management institution.

A transport proposal.

But the larger transformation could lie beyond individual agreements.

It could involve the emergence of regional systems in which several governments coordinate around an economic or ecological network that is larger than any one State.

Electricity already operates at such a scale because the national grid connects different parts of the country.

River-basin management necessarily requires coordination among jurisdictions sharing the same water system.

Transport corridors connect production centres, markets and ports across State boundaries.

The political boundaries remain.

The systems being governed do not.

This creates a central institutional challenge: how can governments preserve political autonomy while coordinating functions that cannot be contained within their territories?

The answer does not necessarily require transferring authority upward.

In some cases, it may require governments to develop the capacity to act together.

Federalism is also about interdependence

This changes the way federalism itself can be understood.

Federalism is often presented as a balance between national unity and State autonomy.

But an increasingly interconnected economy and infrastructure system adds another dimension:

autonomy and interdependence.

A State can remain constitutionally and politically autonomous while depending on infrastructure, resources or markets located partly outside its territory.

That is not necessarily a weakness in the federal system.

It is a consequence of governing a large and integrated country.

The challenge is to ensure that this interdependence is managed through institutions rather than through ad hoc bargaining each time a problem emerges.

The next federal question

Much of India’s federal debate will continue to revolve around taxation, transfers, legislative powers and the relationship between the Union and the States.

Those questions remain central.

But another question is becoming harder to ignore:

What should governments do when the problem itself is shared?

A river cannot be assigned exclusively to the State through which it happens to flow.

An electricity network cannot function according to State boundaries alone.

Transport systems and supply chains do not stop at administrative borders.

Environmental risks can move from one jurisdiction to another.

In such situations, neither complete centralisation nor complete State-level isolation provides an adequate institutional answer.

The requirement is more demanding.

States need to retain their autonomy while becoming capable of coordinating with one another.

That requires institutions capable of handling negotiation, sharing, monitoring, dispute resolution and long-term cooperation.

A different conception of federal strength

The significance of horizontal federalism therefore lies less in the creation of a new constitutional tier than in the development of a new federal capability.

The Telangana energy arrangements demonstrate how differences in resource endowments can become a basis for cooperation. The Tungabhadra system demonstrates why shared resources require institutions capable of sustaining coordination even when disagreements remain.
Together, these examples point to a broader transformation.

Federalism is not only about determining where authority ends.

It is increasingly about determining how governments can act together when the systems they govern do not stop at their boundaries.

That may ultimately become one of the defining challenges of Indian federalism.

A State does not become less autonomous because it needs another State.

The more important question is whether the federation has institutions that allow both to remain autonomous while solving problems that neither can solve alone.