BOOK SUMMARY

INDIAN POLITY BY M. LAXMIKANTH

15.Centre-State Relations

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 INDIAN POLITY: M. LAXMIKANTH SUMMARY

CHAPTER 15. CENTRE STATE RELATIONS

INTRODUCTION
 The Constitution of India, being federal in structure, divides all powers (legislative, executive and financial)
between the Centre and the states.
 Thus Centre-state (CS) relations are studied under three headings:
1. Legislative Relations
2. Administrative Relations
3. Financial Relations

LEGISLATIVE RELATION S

A. TERRITORIAL EXTENT OF C-S LEGISLATION

 Parliament/State legislature can make laws for the whole or any part of the territory of India/State.
 Extra-territorial legislation (Indian citizens and their property in any part of the world) = By Parliament alone.
 Constitutional restrictions on the territorial jurisdiction of the Parliament:
o The President can make regulations for the peace, progress and good governance of the four UTs  Andaman
& Nicobar Islands + Lakshadweep + Dadra & Nagar Haveli and Daman & Diu + Ladakh. It has the same force
and effect as an act of Parliament. It may also repeal or amend any act of Parliament in relation to these UTs.
o Governor is empowered to direct that an act of Parliament does not apply to a Scheduled Area in the state or apply
with specified modifications and exceptions.
o Governor of Assam may likewise direct that an act of Parliament does not apply to a Tribal Area (autonomous
district) in the state or apply with specified modifications and exceptions. The President enjoys the same power
with respect to Meghalaya, Tripura and Mizoram.

B. DISTRIBUTION OF LEGISLATIVE SUBJECTS

 Threefold distribution in the Constitution (borrowed from the GoI Act 1935).

 Parliament has exclusive powers.

List 1: the Union  100 subjects here like defence, banking, foreign affairs.
List  Matters of national importance and matters which requires uniformity of legislation.
 The State legislatures have exclusive powers (in normal circumstances)
List 2: the State  61 subjects here Like sanitation, agriculture etc.
List  Matters of regional and local importance and matters which permit diversity of interest.

 The State legislatures and the Parliament can makes Laws with respect to the subjects
enumerated here.
List 3: the  52 subjects here Like civil procedure, marriage and divorce etc
Concurrent List  42nd CA 1976 transferred 5 subjects from the state list to the Concurrent List: education,
forests, weights and measures, protection of wild animals and birds and administration of justice,
constitution and organisation of LL courts except SC and HCs.
 Matters on which uniformity of legislation is desirable but not essential are included here.

Which laws prevails?

 Union list > Concurrent list > State list.
 Normally, Central law prevails over the state law. But there is an exception. If the state law has been reserved for the
consideration of the President and has received his assent, then the state law prevails in that state.

NOTE
 In USA and Australia, only Central Lists are enumerated. All other powers are with the States.
 India follows the Canadian model of double enumeration, and keeping residuary powers with the Centre.

C. PARLIAMENTARY LEGISLATION ON THE STATE FIELDS/SUBJECTS

 Allowed in 5 extraordinary Circumstances.

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When RS passes a  In National Interest.

resolution  That Parliament should make a law on a State Subject.
 Resolution needs 2/3 majority of those present and the motion.
 Resolution remains in force for 1 year, and can be renewed one year at a time.
 Laws cease to have effect 6 months after the resolution has ceased to be in force.
 States can continue making laws on the same subjects, but in case of conflict, the central law
prevails.
 Parliament gets the power to legislate on State Lists.
During a National  Laws valid till 6 months after the end of the emergency.
Emergency  States can continue making Laws on the same subjects, but in case of conflict, the central
law prevails.
 The legislatures of two or more states can pass a resolution requesting the Parliament to
enact:
When States make o Laws on a matter in the States List.
a request o State legislature does not have power over the relevant subjects anymore.
 E.g. Transplantation of Human Organs Act 1994; Wildlife (Protection) Act 1972; Water
(Prevention and Control of Pollution) Act, 1974; Urban Land (Ceiling and Regulations) Act,
1976.
To implement  Parliament can make Laws on State subjects.
international  Allows the Central government to fulfil international obligations and treaties.
agreements  E.g. Anti-Hijacking Act 1982; Geneva Convention Act, 1960; UN (Privileges & Immunities) Act,
1947 & legislations relating to environment and TRIPS.
During President's  Such a law continues to operate even after Presidents Rule has ended.
Rule  State legislature can repeal or amend the law after the end of PR.

D. CENTRE'S CONTROL OVER STATE LEGISLATION

 The Governor can reserve certain types of bills passed by the state legislature for the consideration of the President.
 Bills on certain matters enumerated in the state list can be introduced in the state legislature only with the previous
sanction of the President. E.g. bills imposing restrictions on the freedom of trade and commerce.
 The President can direct states to reserve money bills and other financial bills passed by the state legislature for
President’s consideration during a financial emergency.
ADMINISTRATIVE RELATIONS

A. DISTRIBUTION OF EXECUTIVE POWERS

 The Centre's executive power extends to the whole of India on matters enumerated in the Union List.
 The states executive power extends to the territory of the state on matters enumerated in the State List.
 In matters of the Concurrent List, executive power is with States expect with a Constitutional provision or a
Parliamentary law explicitly confers it upon the Centre.

B. OBLIGATION OF STATES AND CENTRE

 Two Constitutional restrictions on the State's executive power:
1. The executive power of every state has to ensure compliance with the Parliamentary Laws, and existing Laws
applicable in the state.
2. The state's executive power cannot impede or prejudice the exercise of the executive power of the Centre in the
state.
 The Centre can impose President's Rule under Article 365 and Article 356.

C. CENTRE'S DIRECTIONS TO STATES

 Centre can give directions to the states on:
o Construction and maintenance of means of communication of national or military importance.
o Protection of railways.
o Provision of adequate facilities for instruction in the mother-tongue at the primary state of education of children of
Linguistic minority groups.
o Welfare of STs.

D. MUTUAL DELEGATION OF FUNCTIONS

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 Governor, with the consent of the Central government, can entrust to the Central government any executive
functions of the state.
 Parliament, without the consent of the state, can entrust executive functions of the Centre with a state.
 A law made by the Parliament on a Union list subject can confer powers and imposed duties upon a state.

E. COOPERATION BETWEEN C-S

Article 261  Full faith and credit are given throughout India to public acts, records and judicial proceedings
of the Centre and every state.
Article 262  Parliament can provide for the adjudication of any dispute or complaint about the use,
distribution, and controls of waters of any inter- state river and river valley.
Article 263  Inter-State Council.
Article 301  Parliament can appoint an authority for inter-state trade, commerce, and intercourse under
Article 301. (No authority appointed yet).

F. ALL INDIA SERVICES

 3 all India services i.e., IAS, IPS and IFS.
 Article 312: Parliament can create a new All-India service on the recommendation of the Rajya Sabha.
 AIS are controlled jointly by the Centre and the states. The ultimate control lies with the Central government while
the immediate control vests with the state governments.

G. PUBLIC SERVICE COMMISSION

 Chairperson and members of State PSC are appointed by the Governor and removed by the President.
 Parliament can established a Joint SPSC for two or more states on the request of state Legislatures.
 Chairperson and members of JSPSC are appointed by the President.
 UPSC can serve the state on the request of the state governor, on approval of the President.
 UPSC assists states when two or more states make the request in framing and operations schemes of
joint recruitment for any services for which candidates possessing special qualifications are required.

H. INTEGRATED JUDICIAL SYSTEM

 No dual administration of justice.
 Integrated system with the SC at the top and HCs below it.
 Parliament can establish a common HC for two or more states: e.g. HC for Goa and Maharashtra.

I. RELATIONS DURING EMERGENCY

During National  Centre entitled to give executive directions to the states on any matter.
Emergency (Article 352)  State governments are under complete control of the Centre, although not suspended.
During President's Rule  The President can assume to himself the functions of the state government and powers
(Article 356 ) vested in the Governor or any other executive authority in the state.

During Financial  The Centre can direct the states to observe canons of financial propriety and can give
Emergency (Article 360) other necessary directions including the reduction of salaries of persons serving in the
state.

J. OTHER PROVISIONS
 Article 355: Centre has the duty to protect every state against external aggression and internal disturbance.
o To ensure that the government of every state is carried on in accordance with the Constitution.
 The Governor of the State is appointed by the President.
o Acts as an agent of the Centre in the state.
o Submits periodical reports to the Centre about the administrative affairs of the state.
 State Election Commissioner is appointed by the governor, but only removed by the President.
FINANCIAL RELATIONS
 Articles 268 to 293 in Part XII of the Constitution deal with Centre-State financial relations.

A. ALLOCATION OF TAXATION POWERS

 Parliament levy's taxes on subjects in the Union List exclusively.
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 States levy taxes on subjects in the State List exclusively.

 Parliament and State legislatures can levy taxes on subjects in the Concurrent List.
 Parliament levy's taxes on the residuary subjects i.e. Gift tax, wealth tax and expenditure tax.
 Constitutional restrictions on states taxing powers.
 The 101st Amendment Act of 2016 has made an exception by making a special provision with respect to GST. This
amendment has conferred concurrent power upon Parliament and State Legislatures to make laws governing GST.

B. DISTRIBUTION 0F TAX REVENUES

Note
 In case of the inter-state trade, the tax will be levied and collected by the Government of India and shared between
the Union and states as per recommendation of the GST Council.
 Proceeds will not be credited to the Consolidated Fund of India.

C. DISTRIBUTION OF NON-TAX REVENUE

 Receipts from the following non-tax revenues are major sources for the Centre: Posts and telegraphs Coinage and
currency; Railway Central public sector enterprises; Banking Escheat and Lapse; Broadcasting.
 Receipts from the following non-tax revenues are major sources for the States: Irrigation; Forests; Fisherie; State
PSEs; Escheat and lapse.

D. GRANTS IN AID TO THE STATES

 There are 3 types of grants-in-aid to the states from the Central Resources by the Constitution. These are:

 Article 275 empowers the Parliament to make grants to states in need of financial assistance, and
Statutory not to every state.
Grants  Constitution has specific provisions for the welfare of STs in a state, or raising the level of
administration of scheduled areas including in Assam.
 Grants under Article 275 are given on the recommendation of the Finance Commission
 Article 282 empowers the Centre and the States to make grants for any public purpose, even if it
is not within their legislative competence.
 These are known as discretionary grants, the reason being that Centre is under no obligation to
Discretionary give these grants and the matter lies within its discretion.
Grants  These grants have a two-fold purpose:
1. To help the state financially to fulfil plan targets.
2. To give some leverage to the Centre to influence and coordinate state action to effectuate the
national plan.
 These are made for a temporary period. E.g. grants in lieu of export duties on jute and jute products
Other Grants in Assam, Bihar, Orissa and West Bengal for ten years from the commencement of the Constitution.
 Charged on the CFI
 Recommendation of the FC

E. GOODS AND SERVICES TAX (GST) COUNCIL

 Article 279-A; as per 101st Amendment Act of 2016.
 The Council is a joint forum of the Centre and the States. It is required to make recommendations to the Centre and
the States.
 Article 279-A(1) says that the President shall, within sixty days from the commencement of the Constitution (One
Hundred and First Amendment) Act, 2016, by order, constitute a Council to be called the Goods and Services Tax Council.

F. FINANCE COMMISSION
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 Article 280; Finance Commission is a quasi-judicial body.

 Constituted by the President every 5 years, or earlier.
 FC to make recommendations to the President about the following matters:
o Distribution of net proceeds of taxes to be shared between the Centre and the states and the allocation between
the states, the respective shares of such proceeds.
o Principles which should govern grants-in-aid to the states by the Centre from the Consolidated Fund of India
o Measures to augment the Consolidated fund of a state to supplement resources of panchayats and municipalities
o Any other matter referred to it by the President in the interests of sound finance.
 FC is envisaged as the balancing wheel of fiscal federalism in India.

G. PROTECTION OF STATE'S INTERESTS

 The Constitution has declared that certain bills can need the President’s prior permission to be introduced in the
Parliament, this is to protect the interests of the states. The kinds of bills are:
a) A bill which proposes to vary any tax or duty in which states are interested.
b) A bill which varies that meaning of the term agricultural income', as defined for the purposes of the enactments
relating to Indian income tax.
c) A bill which affects the principles on which moneys are or may be distributable to states tax/duty for the purpose
of the Centre.
d) A bill which imposes any surcharge on any specified tax/duty for the purpose of the centre.

H. BORROWING BY THE CENTRE

Center
 Can borrow on CFI (Within + Outside India) within
limits fixed by Parliament.
 Can make loans to any state or give guarantees in
respect of loans raised by any state.
State
 Cannot raise any loan without center consent (If there
is an outstanding loan to center)
 Can borrow on CFS (Within not outside India) within
limits fixed by Parliament.

EFFECTS OF EMERGENCI ES (CHANGES IN CENTRE-STATE FINANCIAL RELATION)

1. National Emergency (Article 352)
 The President can modify the constitutional distribution of revenues between the Centre and the states.
 Can either reduce or cancel the transfer of finances (both tax sharing and grants in-aid) from the Centre to the states.
 Such modification continues till the end of the financial year in which the emergency ceases to operate.

2. Financial Emergency (Article 360)

 Centre can give directions to states:
o To observe the specified canon of financial propriety.
o To reduce the salaries and allowances of all class of persons serving in the state including high court judges.
o To reserve all money bills and other financial bills for the consideration of the President.

INTER-GOVERNMENTAL TAX IMMUNITIES

 Like any other federal Constitution, the Indian Constitution also contain the rule of ‘immunity from mutual taxation’
and makes the following provisions in this regard:

A) EXEMPTION OF CENTRAL PROPERTY FROM STATE TAXATION (ART-285)

 Centre’s property is exempted from all taxes imposed by a state or any authority within a state like municipalities,
district boards, panchayats and so on. But the Parliament is empowered to remove this ban.
 The corporations or the companies created by the Central government are not immune from state taxation or local
taxation. The reason is that a corporation or a company is a separate legal entity.
 Property may be used for sovereign (like armed forces) or commercial purposes.

PYQ- UPSC Prelims

Q. The sales tax you pay while purchasing a toothpaste is a_____________(2014)
(a) Tax imposed by the Central Government
(b) Tax imposed by the central Government but collected by the State Government.
(c) Tax imposed by the State Government but collected by the Central Government.
(d) Tax imposed and collected by the State Government.

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B) EXEMPTION OF STATE PROPERTY OR INCOME FROM CENTRAL TAXATION (ART-289)

 The property and income of a state is exempted from Central taxation. Such income may be derived from sovereign
functions or commercial functions.
 Centre can tax the commercial operations of a state if Parliament so provides.
 Property and income of local authorities situated within a state are not exempted from the Central taxation.
 Similarly, the property or income of corporations and companies owned by a state can be taxed by the Centre.

Supreme Court (1963)

Held that the immunity granted to a state in respect of Central taxation does not extend to the duties of customs or duties
of excise. In other words, the Centre can impose customs duty on goods imported or exported by a state, or an excise duty
on goods produced or manufactured by a state.

TRENDS IN CENTRE-STATE RELATIONS

 Till 1967, Centre-State relations ran smoothly, facilitated by one-party rule.
 1967: Congress defeated in 9 state elections.
 Newly elected state governments of different parties resisted centralisation, demanded state autonomy Tensions and
conflicts in Centre-state relations arose.

TENSION AREAS
 Appointment and dismissal of governor and their discriminatory and partisan role.
 Imposition of President's rule in states.
 Use of Central forces in states to maintain Law and order.
 Reservation of state bills for the consideration of the President
 Discrimination in financial allocations to States.
 Role of Planning Commission in approving state projects.
 Management of All India Services.
 Sharing of finances between centre and states.
 Encroachment by the Centre on state List.

ADMINISTRATIVE REFORMS COMMISSION (ARC)

 Set up 1966, 6 membered Commission, Chairperson Morarji Desai.
 Some prominent recommendations:
o Establishment of the Inter-State Council under Article 263.
o Appointment of experienced, non-partisan people as governors.
o Financial devolution.
o Delegation of powers to states.
o Deployment of Central Armed forces in the states either on their request or otherwise.

RAJAMANNAR COMMITTEE
 By the Tamil Nadu government (DMK) in 1969 (Report 1971).
 Important Recommendation:
o Inter-State Council should be set up.
o Finance Commission should become a permanent body.
o Planning Commission should be disbanded.
o Article's relating Presidents Rule should be omitted.
o Abolishment of All India Services.
 Central government ignored the recommendations.

ANANDPUR SAHIB RESOL UTION

 In 1973, the Akali Dal adopted a resolution containing both political and religious demands in a meeting held at
Anandpur Sahib in Punjab.
 Demanded restriction of the Centre's jurisdiction to only defence, foreign affairs, communications, and currency.

WEST BENGAL MEMORAND UM

 1977: The West Bengal government published a memorandum on Centre-state relations.
 Some suggestions of the memorandum:

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o The word ‘union’ in the Constitution should be replaced by the word ‘federal’.
o Restriction of the Centre's jurisdiction to defence, foreign affairs, currency, communications, and economic
coordination.
o Residuary subjects with the states.
o Provisions regarding Presidents Rule and Financial Emergency should be repealed.
o RS should have equal powers of the LS.
o All-India services should be abolished.
 The Central government did not accept the recommendations of the memorandum.

SARKARIA COMMISSION
 In 1983, the Central government appointed a three-member Commission on Centre state relations under the
chairmanship of R. S. Sarkaria, a retired judge of the Supreme Court.
 Some important recommendations:
o Setting up an Inter-State Council under Article 263 of the Constitution (was later set up in 1990).
o Article 365 to be used sparingly.
o All India services should be strengthened, more services created.
o Residuary powers of taxation should stay with the Centre while other residuary should be put in the Concurrent
list.
o The President should be reasons if s/he withholds assent to the state government.
o National Development Council should be reconstituted.
o Zonal councils should be constituted afresh to promote the spirit of federalism.
o Centre should consult states before deploying its armed forces. But it can do so without their consent as well.
o Centre should consult states before making a law on a Concurrent list subject.
o It should be made constitutionally mandatory to consult the CM before appointing the state governor.
o Net proceeds of corporation tax should be shared.
o The governor cannot dismiss the council of ministers with states if it enjoys the support of the majority of the
assembly.
o A Governor's term up to 5 years should not be disturbed without compelling reasons.
 The most important is the establishment of the Inter-State Council in 1990.

PUNCHHI COMMISSION
 Second commission on Centre-State relations by the Government The Second commission on Centre-State Relations
was set-up by the Government of India in April 2007 under the Chairmanship of Madan Mohan Punchhi, former Chief
Justice of India.

TERMS OF REFERENCE (TOR)

 Examining the existing Constitutional arrangement between the Union and the states.
 Making recommendations to the changes and measures needed.
 Examining the need for freeing inter-state trade to establish a unified and integrated domestic market.
 Examining the role, responsibility and jurisdiction of the Centre vis-a-vis states in the following cases:
o Major and prolonged outbreak of social conflict leading to violence, like communal or caste violence.
o Planning and implementing mega projects Like river interlinking etc, which can take up to 15-20 years.
o Devolution of powers and autonomy to PRIs and ULBs, including autonomous bodies under the 6th Schedule
o Independent planning and budgeting at the District Level.
o Approaches and policies based on positive discrimination in favour of backward states.

RECOMMENDATIONS
 There is a need to have a broad agreement between the centre and the state to facilitate effective law making under the
Concurrent List.
 Union government should be restrained in Law making on State and Concurrent List subjects.
 Only make Laws on subjects for which it is necessary to achieve uniformity of policy in demonstrable national interest.
 Inter-state council should look into matters of overlapping jurisdictions.
 President should decide on state bills reserved for her consideration within 6 months (same period is prescribed to the
state legislature to consider bills under article 101)
 There should be a Law governing the Parliamentary power to legislate on the states List for implementing international
treaties.
 The obligations on state finances arising out of treaties and agreements should be a permanent term of reference to the
Finance Commission.

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 While selecting Governors, the Central Government should adopt the following strict guidelines as recommended in the
Sarkaria Commission report and follow its mandate in letter and spirit.

PYQ- UPSC Prelims

Q. Which one of the following suggested that the Governor should be an eminent person from outside the State and should
be a detached figure without intense political links or should not have taken part in politics in the recent past? (2019)
(a) First Administrative Reforms Commission (1966)
(b) Rajamannar Committee (1969)
(c) Sarkaria Commission (1983)
(d) National Commission to Review the Working of the Constitution (2000)

Student’s Note:

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