Vertical division of power among different levels of government is one of the major forms of power-sharing in modern democracies. It is most commonly referred to as federalism.
What is federalism? Federalism is a system of government in which the power is divided between a central authority and various constituent units of the country.
Usually, a federation has two levels of government. One is the government for the entire country that is usually responsible for a few subjects of common national interest. The others are governments at the level of provinces or states that look after much of the day-to-day administering of their state.
The Constitution clearly provided a three-fold distribution of legislative powers between the Union Government and the State Governments.
Union List includes subjects of national importance such as defence of the country, foreign affairs, banking, communications and currency. State List contains subjects of State and local importance such as police, trade, commerce, agriculture and irrigation.
Decentralisation in India: When power is taken away from Central and State governments and given to local government, it is called decentralisation. The basic idea behind decentralisation is that there are a large number of problems and issues which are best settled at the local level.