We are living in a critical political moment where states, such as Kerala and Tamil Nadu, but also others, are approaching the Supreme Court against the central government’s financial squeeze on them. However, beyond these public legal battles, a real ‘techno-financial’ trap is silently strangling Indian federalism. The most glaring example of this is the situation that forced Kerala to sign up for the PM-SHRI scheme.

When we see this development at the superficial level, as a political dispute or policy failure – as when we wonder whether the CPI(M)-led government of Kerala changed its political stance or knelt before the Union government and so on – we miss the deeper systemic transformation: the fundamental reconstruction of the Indian state.

Instead, we must question the new techno-governance system that has necessitated such a policy shift. What enabled the central government to block thousands of crores of rupees under the Samagra Shiksha Abhiyan (SSA) scheme, not even with a specific order, but by presenting it as a mere ‘technical snag’?

The answer is the ‘techno-financial infrastructure’ that the Union silently implemented in 2021, under labels like ‘transparency’ and ‘efficiency’. This system has not only subverted the political superstructure of federalism but also the very economic base of centre-state financial relations, subjugating states under a ‘financial panopticon’.

Cooperative Federalism and Common Sense

In the earlier system, termed ‘cooperative federalism’, funds for Centrally-Sponsored Schemes (CSS) were provided to the states as advances. This gave states two crucial powers: first, financial autonomy to manage the money according to their own priorities. Second, they gained a ‘float fund’, obtained by holding that money in the treasury. This provided states with financial breathing space. Back then, states were not mere implementation agencies but constitutional partners with bargaining power.

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But in 2021, the Union government implemented the Single Nodal Agency (SNA) model, often designed with the help of one of the ‘Big Four’ consulting firms and executed through MoUs. The Union’s official argument was: states ‘park funds’, and that delays projects. The new system, it claimed, would ensure transparency and guarantee that money reaches the beneficiary directly.

This is where the Union transformed its own interests into society’s ‘common sense’, under the guise of techno-governance terms such as ‘transparency’ and ‘efficiency’. Through this ‘common sense’ construct, it succeeded in presenting a political project – one that stripped states of financial autonomy – as a neutral ‘technical upgrade’.

Techno-Governance Strategy

The question, ‘Why did states succumb so easily to this technical subversion?’ leads us to the Union government’s calculated moves. A key fact is that the Union strategically eliminated all possibilities for meaningful institutional negotiation.

It succeeded in presenting its directives not as political challenges but as mere ‘administrative directives’. Instead of a debate on the far-reaching political consequences of this change, states were pushed into the purely managerial question of, “How can this be implemented fastest?”

This was a ‘trap’ created by the Union government for the states. The Union’s Public Financial Management System or PFMS framework, which can be seen as the master control software of government finances, has been designed to make alternative technical solutions that protect state interests impossible.

This left the states with no option but to take the path of least resistance.

State political leadership was thus forced into adopting ‘short-term pragmatism’. On the one side were immediate needs like funds for the SSA. On the other were the long-term questions related to financial sovereignty. The Union’s strategy of ‘coercive bargaining’ – essentially blackmailing states by withholding funds due to them – forced them into this compromise.

Thus, the Union government, along with its policymaking partners in the consulting firms, has succeeded in building a techno-financial autocratic system: one that turns state bureaucracies into mere order-takers and allows any unconstitutional subversion to be implemented as a simple ‘system upgrade’.

Onwards to Cybernetic Governance

The core of this new techno-financial infrastructure is the forced integration of the state treasury software, known as IFMS, with the Union’s PFMS.

The similarities to Michel Foucault’s Panopticon – a system of constant surveillance that disciplines people through the possibility of being watched – may seem apparent, but this system goes one step further. It is a cybernetic governance model that not only surveils but also executes punishment.

Cybernetics is the study of self-regulating systems through feedback loops, and the PFMS-IFMS integration functions as a self-regulating punishment system. The ‘decision factors’ required for this system come from the MoUs states are forced to sign up for, as well as the other conditions that the Union government sets.

This brings us to the PM-SHRI dispute, which is in the headlines in Kerala right now. The scheme is meant to upgrade around 14,500 existing schools into NEP 2020-aligned ‘model’ schools. The funding is to be shared by the Union and state governments, but an implementation requirement is to sign the MoU, which means the state must follow the NEP 2020 and integrate with the PFMS for fund flow and monitoring.

According to a Parliamentary Standing Committee report, the Union government owes over Rs 4,000 crore to the Kerala, Tamil Nadu and West Bengal governments under the SSA. But these transfers have been made incumbent on their signing PM SHRI MoUs.

This dispute is the perfect illustration of the application of this ‘disciplinary technology’. When Kerala sends a claim to the Union government, asking for SSA salaries, the Union’s PFMS software instantly checks a metric, based on the legal stipulations in the MoU: ‘Has this state complied with the PM-SHRI condition?’
Since the answer is ‘No’, the request for funds is technically rejected – without the necessity for any political order or explanation.

The punishment (withholding funds) is executed instantly, by this system that merges surveillance with punishment. Her is Foucault’s power-knowledge’ concept in action – only it has evolved into something else: ‘power-algorithm’.

Also read: How Data in India Went From Being a Tool of Planning to a Tool of Control

In a financial panopticon, every transaction in the state treasury, every rupee spent, is visible to the PFMS, the invisible observer, in real time. This process, as network society theories have explained, enables network centralisation. That is, the Union takes on the role of a system administrator for the resource distribution network. By doing so, mimicking digital capitalism, it centralises data and financial information, turning states into mere data nodes and rendering their financial sovereignty irrelevant.

Centralised Techno-Bureaucracy

The PFMS-SNA, India’s new techno-financial framework, is not an isolated example of techno-bureaucracy. It is part of a larger project to transform the entire Indian governance system under the model. The new principle being applied here is governance as control, control as metrics: each new scheme launched by New Delhi, be it for health, education or agriculture, is designed not just as a welfare scheme, but as a sub-node feeding data to a centralised mainframe.

For example, when the National Health Mission is linked with the Ayushman Bharat Digital Mission, it becomes a giant data registry of every citizen’s health information. The Agristack project creates a farmer database by linking every farmer, and their land, to Aadhaar. The new National Education Policy (NEP 2020), through systems like the ‘APAAR’ ID, is creating a national education registry to track every student’s academic progress.

This centralised techno-bureaucracy often operates according to a strategic framework provided (often) by one of the Big Four consulting firms. The National Informatics Centre provides the necessary technical support. Through the mandatory data registries they jointly build, states are relegated to being mere data entry operators in the Union’s vast data collection campaign. Every software architecture built by NIC becomes a digital chain through which data flows – but unidirectionally, only in one way – from the states to the Union.

Fiscal Federalism = Data Federalism

By controlling both revenue (through the Goods and Services Tax) and expenditure (through the PFMS – SNA system), the Union government can completely subjugate the economic base of Indian federalism. These technologies are being used as political-technical weapons to build a Technological-Unitary State.

The political disputes over PM-SHRI are merely a smokescreen to divert our attention from this ongoing subversion, while the techno-financial hegemony attacks the constitution’s fiscal federalism guarantee. The weapon of this assault, remember, is not money but data and the metrics that make decisions based on that data.

This is where the questions, ‘Who makes the metrics?’ and ‘Where do the decision factors come from?’ become relevant. When these metrics, built by a techno-bureaucratic complex, go unquestioned, federal disputes themselves become irrelevant. Therefore, any discussion about fiscal federalism must now necessarily become a discussion about data federalism: you cannot have the first without the second.

As digital rights scholar Lawrence Lessig once said, ‘Code is Law’. The Centre has built a new technology code (the PFMS) that is faster and more efficient at bypassing the old code: the constitution. Arguing for federalism using old political slogans without recognising this new hegemony is meaningless. The struggle is no longer just about policies but about this completely new power structure.

The question of the future is: ‘Who will be the system administrator of the Indian Republic?’ Ultimately, this struggle is not against technology, but against the logic of the state that uses technology to centralise power unconditionally. This fight – to re-establish that the system administrator should not be the executive’s algorithm but the sovereign people and the constitution – will determine the future of Indian federalism.

The constitutional and legal battle against this techno-economic trap should aim at the finance ministry’s 2021 directives, mandating the integration of PFMS-SNA. States can approach the Supreme Court collectively against these executive orders. They can argue that this is executive overreach, violating the basic principles of fiscal federalism guaranteed in Part XII of the constitution and the autonomy of the State’s Consolidated Fund (Article 266).

The new mechanism, which reduces constitutional stakeholders to mere data nodes, is a gross attack on federalism, which is a part of the basic structure of the constitution, as S.R. Bommai clarified. Also, states must make new legal arguments based on the idea of data federalism, to assert sovereignty over their data. The code that implements this new unconstitutional law must be legally challenged.

Arun Kumar P.K. is a researcher at the Safar Foundation, Kolkata. He posts on X @akpk_in. Anivar Aravind is a public interest technologist. 

This article is a translated version of an analysis originally published in Malayalam at TrueCopyThink.

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