Federal States, generally, have an intrinsic characteristic of providing fiscal autonomy to their federating or subnational units. India, although, not a purest form of federal state, reflects a federal structure where the constituent states do, to a certain extent, enjoy financial autonomy in terms of regulating trade and commerce. As an economy, India has come a long way from being a socialist style closed economy to a predominantly liberal and globalized one. India’s tryst with free trade, primarily, started with the major economic reforms of 1991—when it adopted the mantra of liberalization, privatization, and globalization. Like many other federal states, India is not immune to the inherent challenges that a federal system encounters while engaging in trade and commerce at a multilateral level. In times when India has evolved from a closed economy to a prominent global market, identifying and overcoming the inherent challenges to free flow of trade is essential to keep a check on the possible perils of provincialism and protectionism.