Conditional Concessions and Cessation of Secession: What Role for Fiscal Federalism?—Insights from India

Fiscal constitutions play a key role in shaping perceptions that impact secession demands through fiscal autonomy and equalization. This study finds that the absence of fiscal equalization fosters anxiety in low-income states, while excessive equalization demoralizes high-income states. However, secessionist movements are only incited in the presence of an ethnic-economic overlap and the perception of economic deprivation and political disempowerment among minorities. Economic injustice often serves as the initial catalyst, politicizing insecure minorities and propelling them to seek institutional means to express their grievances. Yet, when state systems fail to provide these channels, ethnic or religious minorities may resort to violence. The central government can only negotiate through concessions until military confrontation escalates. Once military suppression begins, it tends to reinforce the very forces it seeks to suppress, and the secessionist crisis enters a vicious cycle of reinforcement. However, when militants surrender—as in Assam’s case—it halts counterinsurgency operations and triggers concessions. Contrastingly, in Punjab, militants unwaveringly demanded independence and refused concessions. Thus, when the military eventually quelled the movement, the central government had no incentive to offer concessions. Finally, if military confrontations are prolonged due to continuous internal and external support for the militants, any previously granted concessions are retracted to undermine the militancy’s support base, as in the cases of Jammu and Kashmir. The region’s special privileges, afforded by Article 370, have been annulled, and its status has been downgraded from a state to a union territory, placing it under direct central administration.