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.
• Both these levels of governments enjoy their power independent of the other.
• The exact balance of power between the central and the state government varies from one federation to another.
• This balance depends mainly on the historical context in which the federation was formed.
• There are two kinds of routes through which federations have been formed.
• The first route involves independent States coming together on their own to form a bigger unit so that by pooling sovereignty and retaining identity they can increase their security.
• This type of ‘coming together’ federations include the USA, Switzerland and Australia.
• In this first category of federations, all the constituent States usually have equal power and are strong vis-à-vis the federal government.
• The second route is where a large country decides to divide its power between the constituent States and the national government.
• India, Spain and Belgium are examples of this kind of ‘holding together’ federations. Hence statement 3 is incorrect. 
• In this second category, the central government tends to be more powerful vis-à-vis the States.
• Very often different constituent units of the federation have unequal powers. Some units are granted special powers.

 Some of the key features of federalism:

• There are two or more levels (or tiers) of government. Hence option 1 is correct. 
• Indian federalism resembles the “CANADIAN MODEL”.
• Article 1 describes India as a UNION of states. 
• It is not a result of an agreement between states and states have no right to secede from the federation. 
• It’s an Indestructible union of destructible states.