STUDY OF SEPERATION OF POWER AND

COOPERATIVE FEDERALISM BETWEEN

CENTRE AND STATES OF INDIA: A CRITICAL
ANALYSIS WITH REFERENCE TO MARBLE
CAKE FEDERALISM
A dissertation to be submitted in partial fulfilment
of the requirement for the award of degree of
Master of Laws

In

Institute of Legal Studies

By

AKANSHA SINGH
LLM (CAL)
Semester II
Roll No. 202310301030048

Under the Guidance

of

Dr. Mahendra Kumar

Associate Professor
Institute of Legal Studies

Lucknow-Deva Road, Uttar Pradesh

Session: 2023-24
 SHRI RAMSWAROOP
MEMORIAL UNIVERSITY
(Established by UP State Govt. ACT 1 to 2012)
Lucknow-Deva Road, Uttar Pradesh-225003

Date: …………………..

TO WHOMSOEVER IT MAY CONCERN

This is to certify that Miss. Akansha Singh , LL.M. (CAL) has completed his dissertation,

topic “Study of Seperation of Power and Cooperative Federalism between centre and

States of India: A Critical Analysis with reference to Marble Cake Federalism” under

my supervision, for the award of degree of Master of Laws at Shri Ramswaroop Memorial

University. Dissertation supervisor will not be responsible for any type of plagiarism,

typological error or any factual legal infirmities.

He has completed all formalities as required under the ordinance and the dissertation is

forwarded for evaluation.

Dr. Mahendra Kumar

Associate Professor
Institute of Legal Studies
 SHRI RAMSWAROOP
MEMORIAL UNIVERSITY
(Established by UP State Govt. ACT 1 to 2012)
Lucknow-Deva Road, Uttar Pradesh-225003

DECLARATION

I hereby declare that the Dissertation entitled “Study of Seperation of Power and

Cooperative Federalism between centre and States of India: A Critical Analysis with

reference to Marble Cake Federalism” Submitted by me in the fulfilment of the

requirements for the award of the degree of "Master of Laws" of Shri Ramswaroop Memorial

University, is a record of my own work carried under the supervision of Dr/Mr. Mahendra

Kumar, Institute of Legal Studies.

To the best of my knowledge this Dissertation has been submitted.

Akansha Singh
Semester: II
LL.M., CAL
Roll No.: 202310301030048
 ACKNOWLEDGEMENT

Traditional and formal words of acknowledgement will not project the picture of the volcano
of feelings while expressing deep sense of gratitude to many a known and unknown hands
which pushed me forward, lips put elixir in my chest organ, learned souls put me on the right
path and enlightened me with the experience, knowledge and wisdom. I am sure no words
can adequately express my feelings and joy. I shall remain grateful to all of them.

At the outset of this epistle, I consider myself fortunate and greatly privileged to have work
under the aegis of Dr. Mahendra Kumar. There benevolent guidance, adroit methodology
of working, meticulous supervision, whole hearted encouragement and critical appreciation
in the execution of my research work were primarily responsible for the present
accomplishment. He always encouraged me and underpinned my efforts and always helped
to placate the embattled situations. Thank you very much sir for the trust you had in my
ability.

I am evenly grateful to the Library staff of the Faculty and the University who amicably
provided me the rich text for my research work.

I take privilege to acknowledge my friends and in troubleshooting during the entire duration
of my research. In spite of their huge commitments, they were supporting me morally
throughout this study. Words fail to describe their love and care during the arduous period of
my research work.

During the course of present study, I received help from many people in some way or other.
It is extremely difficult to thank all of them individually by name. This shortcoming may
please be pardoned.

Place: Deva Road, Barabanki AKANSHA SINGH

i
 ABBREVIATIONS

A.C : Appeal Cases

A.E.R: All England Reports
AIR: All India Reporters
Art Article
BNA British North America
C.C Canadian Constitution
C.W.R.: Supreme Court Weekly Report
G.S.T.: Goods and Service Tax
H.C.: High Court
J.I.L.I: Journal of Indian Law Institute
J.P.C: Joint Parliamentary Committee
RBI Reserve Bank of India
RNR Revenue Natural Rate
S.C: Supreme Court
S.C.C.: Supreme Court Cases
S.C.R: Supreme Court Reports
U.P. Utter Pradesh
V.A.T : Value Added Tax

ii
 TABLE OF CASES

 A.S. Krishna v. State of Madras

 Abdul Quader& Co. V. Sales Tax Officer, Hyderabad

 AG.for Ontario V. Canada Temperance, Federation

 Agencia Commercial International Ltd. v. Custodian of Banco National Ultra-

marino

 Amalgamated Society of Engineers V. Adelaide Steamship Co.

 Amir Khan V. State

 AshwanderV. T. V.A.

 Att. Gen. Ontario V. Att. Gen. Canada

 Balaji V. Income-Tax Officer

 BanarasiDass V. Wealth Tax Officer

 Barium Chemicals Ltd. V. Company Law Board

 Bengal Immunity Co. Ltd. v. State of Bihar

 Calcutta Gas Co. V. State of West Bengal

 Champion v. Ames

 Check- Post Officer V. K.P. Abdulla &Bros

 Chitralekha V. State of Mysore

 Corporation of Calcutta V. Liberty Cinema  Coughlin v, Ontario Highway Trans-

port Board
 Deepchand v. State of U.P.

 DevikaBiswas v UOI

iii
 Ex- Army‟s Protection Services Pvt. Ltd. v. UOI

 Farey V. Burvett

 Fort Frances Pulp and Power Co. Ltd. V. Manitoba Free Press Co. Ltd.  Gajapati
V. State of Orissa

 Governor-General v. Raleigh Investment Co.

 Gujarat University V. Sri Krishna

 Hari Krishna V, Union of India

 Hingir-Rampur Coal Company V. State of Orissa

 Housten, East & W. Texas Rly. Co. V. U.S. (Shreveport Rate Case)

 JaoraSugar MillsLtd. V. State of Madhya Pradesh

 JayantilalAmritLalShodhan v. F.N. Rana And Others

 JohannessonV. West St. Paul

 Le Mesurier V. Cannor

 MithanLal V. State of Delhi

 Mobarak Ali Ahmed V. State of Bombay

 Narothamdas case

 National Labour Relations Board V. Jones Laughlin Steel Corp

 Pronto Uranium Mines Ltd., etc., V. Ontario Labour Relations Board

 Punjab D. Industries Case

 Rohtas Industries Ltd. V. S.D. Agarwal

 Russell V. Reg

iv
 Russet V. The Queen

 S.R. Bommai v. UOI

 S.S.Bola v. B.D.Sardana

 Sajjan Singh V. State of Rajasthan

 SardarBaladev Singh V. Commissioner of Income-Tax

 Shingara Singh V. State of Punjab

 SondurGopal v. SondurRajni

 State of Bihar V. Kameshwar Singh

 State of Bombay V. F.N. Balsara

 State of Bombay V. Narothamdas  State of Madras V. Gannon Dunkerley&CO.

 State of Orissa V.M. A. Tulloch &Co.

 State of Rajasthan V. Chawla and Pohumal

 Steward Machine Co. V. Davis

 SwarajAbhiyan(v) v UOI  TikaRamji V. State of U.P.

 U. S. V. Darby Lumber Co.

 U.S. V. South Eastern Underwriters Association

 United Province V. Atiqa Begum

 Wickard V. Filburn

 Zaverbhai Amaldas V. State of Bombay

 Zubeda Begum v. Union of India

V
 INDEX

2.7 ESSENTIAL FEATURES OF A FEDERAL POLITY 24

2.8 FEDERALISM IN THE INDIAN CONSTITUTION 25
2.9 CLASSIC FEDERALISM AND COOPERATIVE FEDERALISM- A
COMPARISON 26

2.10 INTER-STATE COUNCIL: AN IMPORTANT PART

OF COOPERATIVE FEDERALISM 27
Page No.
 ACKNOWLEDGEMENT i

 ABBREVIATION ii

 TABLE OF CASES iii

 INDEX iv
Chapter I- INTRODUCTION 1

1.1 INTRODUCTION 1

1.2 RESEARCH METHODOLOGY 5

1.3 RESEARCH HYPOTHESES 5

1.4 REVIEW OF LITERATURE 6

1.5 CHAPTER SCHEME 8

CHAPTER II-NATURE AND HISTORICAL BACKGROUND

OF COOPERATIVE FEDERALISM 11

2.1 MEANING OF COOPERATIVE FEDERALISM 11

2.2 ORIGIN OF COOPERATIVE FEDERALISM 13

2.3 HISTORY OF THE FEDERAL CONCEPT IN INDIA 14

2.4 ELEMENTS THAT SUPPORT COOPERATIVE FEDERALISM 21

2.5 COOPERATIVE FEDERALISM IS NOURISHED DUE TO CRISIS

OF WAR 22
2.6 COOPERATIVE FEDERALISM IS NOURISHED
DUE TO TECHNOLOGICAL AND COMMUNICATION GROWTH 23

CHAPTER III- DISTRIBUTION OF LEGISLATIVE POWER 29

3.1 TERRITORIAL OPERATION OF LAWS IN INDIA 32
3.2 RESCUING STATE LAWS 33
3.3 DOCTRINE OF TERRITORIAL NEXUS 34
3.4 DOCTRINE OF TERRITORIAL NEXUS AND LEGISLATION
UNDER GOVERNMENT OF INDIA ACT, 1935 34
3.5 DELIMITATION OF LEGISLATIVE FIELDS AND
PROBLEMS OF INTERPRETATION 35
3.6 PROBLEMS RELATING TO LEGISLATIVE COMPETENCY 36
3.7 NEXUS WITH LEGISLATIVE HEADS, THE “DOCTRINE OF PITH AND SUBSTANCE”

AND OTHER RELATED DOCTRINES 37

3.8 LEGISLATION FOR UTS 39

CHAPTER-IV ADMINISTRATIVE RELATIONS 43

4.1 OBLIGATION OF STATES TO ALLOW UNION LAWS AND EXECUTIVE ACTS

AN UN-INTERRUPTED OPERATION 45
4.2 INTER-GOVERNMENTAL DELEGATION OF FUNCTIONS 47
4.3 INTER-STATE DISPUTES AND ROLE OF THE UNION GOVERNMENT 48
4.4 SARKARIA COMMISSION RECOMMENDATIONS ON INTER-STATE RIVER WATER

DISPUTES. 50
4.5 CENTRE‟S OBLIGATIONS WHEN CONSTITUTIONAL

MACHINERY FAILS IN STATE 51

4.6 JUDICIAL REVIEW OF PROCLAMATION UNDER
ARTICLE 356 52
4.7 CENTRE AGENCIES IN THE STATES 53
4.7.1 GOVERNOR AS AN AGENT OF THE PRESIDENT 53
4.7.2 ALL INDIA SERVICES 56
4.7.3 INSTITUTION OF JOINT PUBLIC SERVICE COMMISSION FOR THE

TWO OR MORE STATES 58

4.8 SARKARIA COMMISSION RECOMMENDATION RELATING TO ADMINISTRATIVE
RELATIONS BETWEEN CENTRE AND STATE 59

CHAPTER- V: FINANCIAL RELATIONS 60

5.1 RISE OF FEDERAL FINANCE IN INDIA: 60

5.2 FEDERAL FINANCE UNDER THE GOVERNMENT OF

INDIA ACT 1935 65
5.3 THE CONSTITUTION AND THE ACT OF 1935 67
5.4 FINANCE COMMISSION OF INDIA 69
5.5 14TH FINANCE COMMISSION RECOMMENDATION REGARDING
REVENUE DISTRIBUTION 70

5.6 15TH FINANCE COMMISSION‟ REPORT FOR THE

YEAR 2020-21 71
5.7 THE RECOMMENDATIONS IN THE FIRST REPORT 2020-21: 71
5.8 SOME CHALLENGES IN IMPLEMENTATION OF GST 71
5.9 JOURNEY OF PLANNING COMMISSION 72
5.10 THE ESSENCE OF COOPERATIVE FEDERALISM IN

PLANNING SYSTEM. 73
5.11 PLANNING COMMISSION TO NITI AAYOG 74
5.12 RELATION BETWEEN FINANCE COMMISSION AND
THE PLANNING COMMISSION (NOW NITI AAYOG) 75
5.13 JOURNEY OF GST 77

CHAPTER 6: CONCLUSIONS AND SUGGESTIONS 81

BIBLIOGRAPHY 87
 CHAPTER I
INTRODUCTION
1.1 INTRODUCTION

Federalism, in its classical interpretation, functions as a binding agreement, safeguarded by a

written constitution, immune to arbitrary alterations. It delineates the distribution of powers
and responsibilities as mutually agreed upon by the federal entities, avoiding imposition by
external authorities. Within this framework, the Supreme Court serves as a guardian,
employing Judicial Review to prevent any level of government from overstepping its bounds
into another's jurisdiction. "Cooperative federalism" operates on the principle of mutual
assistance between state and national governments, wherein they collaborate on various
tasks. However, this cooperative model does not supplant traditional federalism; rather, it
complements and rectifies it, emphasizing shared responsibilities and interdependence
between the central and state authorities. Historically, India's adoption of federalism is
relatively recent, evolving from a centralized bureaucratic system established by imperial
rulers for their own interests. Yet, spurred by growing nationalist sentiments, this structure
gradually evolved to accommodate the diverse ethos of the Indian populace. Embracing
diversity as intrinsic to life and upholding the belief in ekamsadviprabahudhavadanti, India's
federalism encompasses a holistic approach, fostering balanced relationships between
individuality, society, environment, and the ultimate reality, Brahaman. Through mutual
cooperation and interdependence, these elements maintain equilibrium, spiritually, socio-
culturally, socio-linguistically, and socio-politically. The competition of powers inherent in
federalism underscores the dynamic nature of governance.1. The competition arises from both
material and moral forces. Asserting that the sole solution to such issues is the adoption of
unitarism is flawed, as it disregards the fact that federalism is the most suitable and
functional system of governance in certain circumstances and countries. Therefore, any
proposed solution must be within the framework of federalism rather than its replacement.
Consequently, it is imperative to regulate and constrain the competitive wielding of power,
which is a prominent feature of governments in federations, to ensure the public's interests

1 As has rightly been observed by an eminent Indian writer about the competitive trends in federalism: „The
competitive trends are seen not only in acquisition and retention of power. Also in the way in which
governments exercise power. This exercise of power by them produces consequences which are partly desirable
and partly undesirable‟. See Venkatarangaiya, ., „Competitive and Cooperative Trends in Federalism, Poona,
Gokhale Institute of Politics and Economics‟(1951), p.20 2 Article 252 (Compare section 103,Govt. of India
Act, 1935).

1
are maximally supported. To achieve this goal, various cooperative mechanisms have been
implemented. It's crucial to note that the delegation of legislative power can only be carried
out by the States to the Union, not vice versa. Article 252 empowers Parliament to enact laws
concerning subjects in the State List if two or more States request so, and all the state
assemblies pass resolutions to that effect. Legislation passed under this provision applies
only to the states that have passed the resolution. However, other states can opt to adopt this
legislation by subsequently passing the necessary resolution in their respective legislative
houses. Essentially, multiple states may choose to temporarily delegate their legislative
authority to Parliament for the sake of uniformity or other reasons. Nevertheless, Parliament,
in exercising this authority, retains the ability to amend or repeal the enacted laws, while the
states affected cannot make such changes.

This departure from the Government of India Act, 1935, where states could amend or repeal
laws passed by Parliament under similar circumstances, signifies a significant constitutional
shift. It is prudent for Parliament to retain the power to modify or annul laws when multiple
states have sought legislative intervention on a specific matter.

In the Indian Federation, legislative power holds paramount importance among the three
branches of government, although the separation of powers is less strict compared to the
United States. Legislative authority not only serves as the primary source of executive power
but also delineates its extent. The executive power, in both the Union and the States, typically
aligns with legislative mandates, although it can be exercised independently at times. Judicial
power acts as a check on the legality of legislative and executive actions, ensuring adherence
to the law by both central and regional governments.

Understanding the distribution of legislative power within the Indian Federation requires
tracing back to the Government of India Act, 1935, which laid the foundation for the federal
constitution. While the Act didn't precisely delineate the distribution of legislative authority
between the Union and the States, the fundamental principle remains consistent. 2
Understanding the division outlined in the Indian Constitution is facilitated by considering its
historical context. The Seventh Schedule's legislative lists feature numerous entries, raising
the question of whether these entries should be strictly interpreted to limit legislative
authority to the core meanings of the subjects listed, or if a broader interpretation should
2 Prof Yashpal v State of Chhattisgarh (2005) SCC 2026

2
encompass ancillary and incidental powers. Additionally, if a legislative measure, inherently
linked to a listed entry, incidentally encroaches into another domain due to similarities
between subjects in different lists, should it be invalidated for this overstep, or could its
validity be justified based on reasonable grounds, such as the inadvertent nature of the
encroachment? These dilemmas are ubiquitous in federal systems worldwide.

In the Indian Constitution, further complexities arise from specific characteristics of the
enumerated subjects in the legislative lists. Within the State Lists, certain matters are
explicitly subservient to specific items in the Union List, indicated by phrases like "subject
to." This raises inquiries into the impact of such conditional enumeration on state legislative
authority. Additionally, the scheme of distribution entails a clear differentiation between
general legislative powers and specific taxing powers across the Union and State lists within
the Seventh Schedule. As taxable events are not delineated in the Concurrent List, there's no
need for such differentiation therein. Furthermore, while all three lists mention the power to
impose fees, the authority to penalize offenses against laws pertaining to list subjects is
vested solely in the Union and State lists, not the Concurrent List. Hence, the question arises
regarding the precise implications of this schematic enumeration on legislative competence.

The discussion ahead revolves around four key issues: (i) legislative entries and issues of
interpretation; (ii) Relationship between Legislative Entries and the "Doctrine of Pith and
Substance"; (iii) Impact of Conditional Enumeration on legislative competency and the
Doctrines of "Direct Impact" and "Denudation"; and (iv) Influence of Schematic Enumeration
on Legislative competency.

The Indian Constitution contains provisions governing administrative relationships between

the Union and States. Examining the broad provisions regarding the allocation of executive
powers and the specific provisions regulating Union-State administrative relations, we can
acknowledge the ongoing efforts of our founding fathers to ensure harmonious administrative
relationships between central and regional governments.

While it's customary to distinguish between the roles of government in legislation, execution,
and judiciary, determining the exact category an act falls under isn't always straightforward,
despite the clear distinction between the organs performing these roles. Some scholars have
tried to differentiate between the executive and administrative domains, with the former

3
focusing on policy matters and the latter on administration. However, the formulation of
policy is so closely linked to its implementation through administrative actions that there
seems to be no real distinction between setting policy and executing it. The executive
function, broadly speaking, encompasses not only the formulation of general policy but also
the implementation or application of established laws, the maintenance of order, and the
promotion of social and economic well-being, essentially covering all aspects of
administration.3
The financial reforms of 1871 marked a significant shift in the evolution of Center-Province
financial relations. Prior to this, India's administrative system was characterized by complete
financial centralization, which was a natural consequence of the strictly unitary system
established under the Charter Act of 1833. Under this arrangement, the provinces lacked the
authority to legislate for their territories or incur any expenditure without the consent of the
Indian government. They were required to strictly adhere to the orders of the Governor
General-in-Council and keep the central government informed of all their activities. The
Government of India Act, 1935, brought about a notable change in the fiscal landscape of the
provinces by introducing the concept of federal finance..4 For the first time, under the
Montford reforms, distinct and fair sources of income were allocated to both the Centre and
the provinces. Nonetheless, the allocation was structured in a way that initially disadvantaged
the Centre, requiring provincial contributions to the Central Fiscal, which was deemed
unfavorable to the provinces. The revenue sources designated for the provinces were
insufficient and relatively inflexible. Concurrently, they were tasked with the responsibility
of promoting social services and nation-building endeavors. Consequently, most provinces
faced budget deficits, with provincial Finance Members lamenting annually about the
scarcity of funds, hindering their ability to execute vital economic and social development
programs.

The 1935 Act introduced significant alterations in the financial relationships between the
Central and provincial governments, aiming for provincial financial autonomy, balanced with
concerns for the financial stability and centralization.5 Enhancements have led to the
fortification of the financial position of the provinces and introduced a degree of flexibility to
their revenues. The political economy of fiscal federalism in India in the past two decades is

3 Constitutional Law by Wade and Phillip, 7th Edn. pp. 17-18.

4 C.N. Vakil, and H.M. Pate, Finances Under Provincial Autonomy, Bombay, 1940, p. 3.
5 The Principle was accepted by the Peel Committee as well as the Joint Parliamentary Committee.

4
characterized by the challenges arising from the weaknesses of the robust financial system
and the deliberate dismantling of federal provisions. This process is academically justified by
the collective focus on techno-managerialism, while politically it aligns with the agenda
initiated in 1991 to diminish the relative autonomy of the state and transform it into a
supporter of macroeconomic expansion, wherein the distribution of wage surpluses
increasingly favors capital. Under the GST regime, State governments have authority over
only 35% of their revenue, primarily relying on own revenue and central transfers, which
include receipts from the devolution of union taxes and grants-in-aid from the Centre. With
GST rates determined by the GST council, states have limited discretion in setting tax rates
on goods and services. This study aims to explore pertinent materials concerning the
contemporary phase of federalism in India, known as cooperative federalism.

1.2 RESEARCH METHODOLOGY:

The methodology employed in this current study is entirely based on doctrinal analysis. The
bulk of the research material is sourced from books, articles, magazines, research journals,
and reports from national and international committees. Both primary and secondary
sources are utilized.

1.3 RESEARCH HYPOTHESES:

Hypothesis 1:

Based on the outlined research objectives, it can be hypothesized that a comprehensive

understanding of Centre-State Relations and Cooperative Federalism is contingent upon
identifying and analyzing the inherent problems within these frameworks. The hypothesis
suggests that by critically examining the various facets of these concepts, including their
historical evolution and contemporary manifestations, viable solutions can be derived.
Therefore, it is expected that through a thorough exploration of the issues, the research will
reveal that the solution to each problem lies within the problem itself, echoing the adage that
"every problem has a solution, and the solution is hidden in the problem."

Hypothesis 2:

5
The research hypothesis posits that the efficacy of institutional mechanisms such as the
judiciary, inter-state council, Finance Commission, and NITI Aayog in resolving Centre-
State disputes and fostering cooperative federalism is contingent upon their ability to adapt
to evolving constitutional and socio-economic dynamics. It is proposed that the effectiveness
of these institutions is influenced by their capacity to address the multifaceted challenges
posed by factors such as emergency situations, fiscal reforms like GST implementation, and
changing administrative paradigms. Consequently, it is anticipated that a critical examination
of these institutions and their functions will elucidate their role in navigating the
complexities of Centre-State relations and advancing cooperative federalism in India.

1.4 REVIEW OF LITERATURE:

Books are integral to our lives, playing a crucial role in enhancing our knowledge, intellect,
and perspectives. They serve as invaluable companions, especially for researchers who rely
on them extensively for their work, such as dissertations or theses. Examining existing
literature aids in defining and understanding various aspects of research topics.

In his book "Centre State Relations and Cooperative Federalism," Dr. Chandra Pal
emphasizes the complexity of federalism. He explains that a federal system emerges when
previously independent political entities agree to form a unified state with a central
government while retaining some degree of regional autonomy.

K. R. Bombwall, in "Imperative of Federalism in India," argues that federal structures arise

not from political theory but from economic and social pressures. Federalism isn't adopted
based on its theoretical merits but rather out of necessity and agreement, shaped by a nation's
history, circumstances, and challenges.

S.A.H. HAQQI, in "Union-State Relations in India," discusses the allocation of legislative

powers between the Union and the States as defined by the Constitution. Unlike the US and
Australia, where federal powers are enumerated, India features a triple list system—Union,
State, and Concurrent—with residual powers vested in the Union.

Mahendra Prasad Singh, in "Indian Federalism: An Introduction," highlights the changes in

fiscal and economic aspects post the 1991 liberalization. The finance commission's revenue

6
allocations aim to ensure equitable access to public services like healthcare and education
across the nation.

Ashok Chanda, in "Federalism in India: A Study of Union-State Relations," describes the

significant autonomy granted to provinces in financial matters post the Government of India
Act 1919. Provinces gained authority over certain taxes and spending, albeit subject to
central oversight.

Naorem Sanajaoba, in "Basic Issues on Centre-State Relations," asserts that federalism isn't
an absolute doctrine but a pragmatic approach. State executives must adhere to borrowing
limits set by Indian legislation, ensuring fiscal responsibility within specified bounds.

M.C. Setalvad, in "Union and State Relations under the Indian Constitution," discusses the
creation of an Inter-State Council as a step towards cooperative federalism. This council can
be established by the central government to serve public interests.

Dr. Anirudh Prasad, in "Centre-State Relations in India," notes the absence of a provision
akin to Article 355 in previous laws or the Draft Constitution. The inclusion of such a
provision originated from Indian States, reflecting their concerns for national security.

In his book "Centre-State Relations in the Seventies," B. L. Maheshwari discusses how non-
Congress States in 1967 emphasized the need to redefine union-state relations, particularly
focusing on the financial provisions of the Constitution. He notes that in federations,
achieving a balance between resource allocation and functional responsibilities is
challenging, often disrupted by disparities in taxing power growth among states. In India,
there was no effort to correlate states' taxing authority with their functional duties.

Raman Bombwall, in "Federal Financial Relations in India," highlights the plight of local
governments, which, despite their responsibility for regional governance, lacked
administrative authority due to insufficient financial autonomy.

In "The Law of Union-State Relations and Indian Federalism," Dr. K.P. Krishna Shetty
observes that while incidental encroachments into legislative domains may occur due to

7
subject similarities, the exclusive powers granted to Union Parliament and State Legislatures
minimize conflicts and negate the repugnancy rule.

M.P. Jain, in "Indian Constitutional Law," underscores the need for a broad and progressive
interpretation of legislative entries in the Constitution. Given its organic nature, the
Constitution should evolve with time, avoiding narrow interpretations and unnatural
meanings for words and phrases.

1.5 CHAPTER SCHEME:

The current thesis examination comprises six sections, outlined as follows.

CHAPTER I, "INTRODUCTION," outlines the study's aims and objectives. Utilizing a

doctrinal research methodology, this study incorporates a review of relevant literature.
Additionally, it aims to enhance its relevance to the domain of Centre-State Relations and
Cooperative Federalism by encompassing research conducted both in India and abroad.

CHAPTER II, "HISTORICAL BACKGROUND AND NATURE OF COOPERATIVE

FEDERALISM," delves into the essence and definition of Cooperative Federalism. By
tracing its historical roots, this section endeavors to elucidate its meaning. A comparative
analysis between cooperative federalism and classical federalism is provided. Furthermore,
the supportive elements of cooperative federalism are examined. The chapter also explores
federalism within the Indian Constitution, delineates essential features of a federal polity, and
discusses the significance of the inter-state council, an integral component of cooperative
federalism.

CHAPTER III, titled "CENTRE –STATE LEGISLATIVE RELATIONS," delves into the
genesis of legislative relations. The analysis reveals a distinct constitutional inclination
towards central authority over state autonomy. It acknowledges that historical and social
contexts during the Constitution's drafting likely influenced this setup. The power distribution
emphasizes power-sharing to foster interaction and interdependence between the Union and
the States. Concurrent legislative powers aim to foster unity and mitigate potential hostilities
that could arise from strict subject matter separation. Courts play a significant role, typically
upholding existing legislation, with flexible interpretation principles facilitating such
outcomes. In conflicts between the Centre and a State, courts tend to favor central authority.
The study also explores the doctrine of permissible encroachment, recognizing the Centre's

8
ability to legislate within state domains under specific circumstances outlined in List II of the
Seventh Schedule. Additionally, it examines various legal doctrines such as the Government
of India Act 1935, pith and substance, colorable legislation, territorial nexus theory, and
harmonious construction. Conditional enumeration of legislative powers and concepts like
"Direct Impact" and "Denudation" illustrate the complex interplay between Union and State
lists. For instance, Entry 11 of List II, concerning Education, is subject to provisions outlined
in List I regarding higher education coordination and standards. The study also scrutinizes
paramountcy, ancillary and incidental powers, and the doctrine of supersession.

CHAPTER IV, titled "CENTRE-STATE ADMINISTRATIVE RELATIONS," explores the

dynamic between administrative bodies at both levels of government, particularly in
exceptional circumstances. The Constitution outlines a flexible framework for delineating
administrative responsibilities between the Central government and individual States. This
framework allows for a wide range of collaborative efforts between the Centre and State
governments to address specific needs and challenges. The Centre provides guidance to the
States as necessary, and in practice, many Central laws are enforced by the States.
Additionally, the Constitution encourages close cooperation in administrative affairs by
establishing Union agencies within the States. Provisions are also made for the establishment
of Joint Public Service Commissions to cater to the specific requirements of each State, all
operating under mutual agreements. The chapter delves into instances of constitutional
breakdown in the States and the corresponding responsibilities of the Union government. It
also examines interstate disputes and the role of the Union government therein, as well as the
obligation of States to uphold the uninterrupted operation of Union laws and executive
actions.

CHAPTER V, titled "CENTRE-STATE FINANCIAL RELATIONS," traces the historical

evolution of financial relations between the Centre and the States in India. It discusses the
background of federal finance in the country, including taxes imposed by the Union but
collected by the States. The Centre is granted authority to provide loans to the States, and the
distribution of taxes between the Centre and the States is analyzed, both before and after the
80th Amendment Act of 2000. The chapter explores the role of the Finance Commission in
distributing revenue between the Centre and the States and delves into the implications of the
Goods and Services Tax on Centre-State relations.

9
CHAPTER VI, titled "CONCLUSIONS AND SUGGESTIONS," presents the findings of the
study, offering a series of insightful recommendations for further consideration.

CHAPTER II
NATURE AND HISTORICAL BACKGROUND OF COOPERATIVE FEDERALISM

10
2.1 MEANING OF COOPERATIVE FEDERALISM
Indian federalism remains a subject of significant interest both academically and politically.
From pre-independence to post-independence India, the necessity of a federal political system
has never been in doubt. This necessity arises from the vast size of the country, regional
disparities, and cultural and linguistic diversity. However, the crux of the matter lies in
determining the distribution of power between the Centre and the various states or units. It's
important to note that federalism is a dynamic concept, with the composition and breakup of
the federating states being an ongoing process.

Historically, federalism in India resembled a dualistic polity, where the federal and state
governments largely operated independently, especially during periods of minimal
government intervention.6” Federalism then consisted of “two separate federal and State
streams flowing in distinct but closely parallel channels.”7 Since then, scholars have
explained this traditional dualist approach to federalism, like Freeman9, Dicey,8 Garran9 and
recently refined and justified by Wheare10.

The federal structures of established federations like the United States, Canada, and Australia
underwent significant transformations following the First World War. Amendments to their
original constitutions were made to adapt to contemporary needs by implementing
supplementary systems beyond constitutional frameworks. These included collaborative
partnerships among nations, federal government conditional grants guiding public policy, and
the centralization of income and benefit taxation. Such provisions, alongside other measures
ensuring adaptability, are now integral parts of new constitutional frameworks. Consequently,
the concept of 'classic federalism' has evolved, leading to an era where constituent states no
longer operate in isolation but rather in coordinated cooperation. The notion of self-centered
state rights or provincial autonomy has become impractical, even within nations like the
United States, Canada, and Australia. Regional governments are no longer autonomous
entities solely adhering to federal directives on matters such as foreign policy and trade.

6 D.J. Elazar, “Federal State Collaboration in the Nineteenth Century United States”, Political Science Quartely,
Vol. 79, 1964, pp. 248-281
7 J.P. Clark, The Rise of New Federalism, New York, Columbia University Press, 1938, p.191. 9 See A.E.
Freeman, History of Federal Government in Greece and Italy, London, Macmillan Co., 2 nd ed., edited by J.B.
Bury, 1893
8 See A.V. Dicey, Introduction to the Study of the Law of the Constitution, London, Macmillan Co., first
edition, 1885.
9 See J. Quick and R.R. Garran, Annotated Constitution of the Commonwealth of Australia, Sydney, Angus and
Robertson, 1901.
10 See K.C. Wheare, Federal Government, 4th ed., 1963, Chapter 1, especially p. 14.

11
Instead, they increasingly prioritize collaboration, relying heavily on mutual support and
interaction. A.H. Birch11 and others12 have rightly called this new structure „cooperative
federalism16.
There exists a distinction between Cooperative Federalism and Administrative Cooperation.
In Cooperative Federalism, states rely partly on the national government for funding, often
through conditional grants, and receive regular assistance on matters within the state
government's jurisdiction as outlined in the Constitution.13
In its broadest interpretation, Prof. M.P. Jain observed that the concept of "cooperative
federalism" aims to promote concord and minimize discord among the various levels of
government within a federal structure, whether the disagreement is between the Central and
State governments or among different states.14. The essence of "cooperative federalism" lies
in acknowledging that the promotion of public welfare is a shared goal of both central and
state governments. It emphasizes the necessity for them to collaborate rather than operate
independently in their efforts to achieve this objective.15

It represents a broad approach rather than a specific programmatic one. It envisions the
national and state governments collaborating as partners in the shared duty of serving the
populace. It dismisses the notion of two governments as adversarial sovereign entities vying
for power. It seeks a middle ground between the binary perspective often seen in discussions
of national versus state governments or the merits of centralization versus decentralization.
Cooperative federalism, therefore, aims to gradually achieve the benefits of a unitary state
while preserving the fundamental principles of federalism.

11 A.H. Birch, op. Cit., p. 305.

12 Prof. Corry, Studies in Canadian Constitutional Law, Essays on Federalism, Durham, 1958. 16 The term
„cooperative federalism‟ has been applied to Indian federation by a host of political scientists and lawyers. See
A.H. Birch, op. cit., p. 304; W.H. Morris-Jones, The government and Politics of India, Hutchinson, London,
1964, pp. 141-44; M.P. Jain, Indian Constitutional Law, 1970, p. 408; M.C. Setalvad, Union and State Relations:
Under the Indian Constitution, Calcutta, Eastern Law House, 1974, p. 78; Granville Austin, the Indian
Constitution: Cornerstone of A Nation, Oxford University Press, 1972, p. 187.
13 A.H. Birch, op. Cit., p. 306.
14 M.P. Jain, Federalism in India in J.I.L.I. Vol. 6(1964), p. 365.
15 Corwin defines cooperative federalism as: “The States and National government are regarded as mutually
complementary parts of a single governmental mechanism all of whose powers are intended to realise the
current purposes of government according to their applicability to the problems in hand”. The constitution of the
U.S.A. Senate Doc., 14(1953). 20“J.W. Burns and J.M. Peltason, Government by the People”, 4 th edition, 1961,
pp. 120-21.

12
With the emergence of newer federations and the contemporary characteristics of post-war
federations, a new era has begun. This era can be termed as 'cooperative federalism,' a
framework where state and national governments aid each other in their daily operations and
jointly undertake various tasks.

2.2 ORIGIN OF COOPERATIVE FEDERALISM

The concept of cooperative federalism is not novel, nor is it a phenomenon of the twentieth
century. It dates back to the inception of modern federal movements. Cooperative federalism
principles can be traced back to the formation of the United States, which stands as the
earliest example of modern federations. Recent research has revealed that the traditional
portrayal of 19th-century American federalism as non-cooperative is inaccurate. In practice,
if not always in theory, federalism in the United States has historically been characterized by
cooperation.16 Elazar argued that the concept of dual federalism proved impractical when
applied to specific issues within unique contexts, even in the early days of the American
Republic. He further posited that federalism, as initially conceived to delineate
responsibilities and roles, never truly materialized. Despite the expansion of governmental
functions across all sectors relative to the broader scope of American society, the nature of
governmental operations remained largely consistent from the nineteenth to the twentieth
century. Thus, Elazar asserted that the genesis of cooperative federalism is inseparable from
the broader history of federalism itself.17

The principles of cooperative federalism were further elucidated in the constitutions of

subsequent federations, including Switzerland, Canada, Australia, the German Republic, and
the Republic of India. Over the past two centuries, federalism has undergone a continuous
process of development as a system of governance, marked by the integration of an
increasing array of cooperative techniques and mechanisms into federal constitutions. From
this perspective, the Indian Constitution may be regarded as superior to any other federal
constitution, as it incorporates numerous proposals and recommendations from other
countries aimed at fostering greater cooperation between the central government and the
states, as well as among the states themselves. In the ensuing chapters of this analysis, we

16 See M.J.C. Vile, “The Structure of American Federalism, London, Oxford University Press”, 1961; D.L.
Elazer, “The American Partnership in the Nineteenth Century United States, Chicago, Chicago University
Press”, 1962.
17 D.J. Elazar, op. cit., p.192, footnote 1.

13
delve into the evolution of cooperative frameworks in the original three federations and in
India in detail.

2.3 HISTORY OF THE FEDERAL CONCEPT IN INDIA:

Historically, the idea of a federal structure for India is relatively recent. The
imperialist rulers established a centralized bureaucratic administrative system for their own
advantage. However, they subsequently altered it somewhat inadvertently, due to certain
historical pressures. They were unable to withstand the rapidly growing nationalism among
the Indian populace. When examining India's past as a whole, its spiritual and cultural unity,
and its society, it is fundamentally federal in nature yet unitary in its approach. There has
always been a perpetual inclination toward government continuity and unity amidst diversity.
It has been understood that diversity is inherent and essential to life and Dharma. Protecting
diversity in all aspects of life, from humans to animals, environment, and human thought, is
crucial. Respecting diversity while seeking unifying forces is reflected in the concept of
"ekamsadviprabahudhavadanti". This integral perspective fosters a balanced relationship
between individuality, society, environment, and the ultimate Brahman. These aspects are
interdependent and progress cooperatively, providing mutual checks and balances. In essence,
India's federalism encompasses spiritual, socio-cultural, sociolinguistic, and socio-political
dimensions. Surya Prakash Sinha presents the viewpoint on the distinctive Indian way of life,
which is shaped by its unique history. In the ancient or pre-Muslim period, India experienced
a continuous form of governance.18 Rama Jois concludes that in ancient India – which was
essentially pre-Muslim, i.e. Hindu India-that the concept of federal polity was ingrained in the
concept of one law, one people, and many states.

“UttaramyadsmudrasayaHimdraishchaivDakshinam

Varsham Tad BharatamNaamBhartiyatraSantati”

It's an established fact that India's territory was once fragmented into numerous
sovereign States. However, across the subcontinent, a consistent set of texts such as the four
Vedas, Vedangas, Dharamsastras, Smritis, Nitis, Ramayana, Mahabharatha, along with
certain commentaries, exerted influence for centuries. This led to the entirety of the populace
aligning themselves as one People or Nation under a common legal system, despite the
existence of numerous political divisions governed by different rulers. Despite the rise and

18 Surya P. Sinha in Ved. P. Nanda, op. cit., pp. 73-76.

14
fall of kingdoms and inter-kingdom wars, the remarkable feat of sustaining a unified
population under a single legal framework and identity for generations stands as a testament
to Indian society and its leadership. This historical continuity paved the way for the adoption
of a unified constitution and central government in modern times. The authority of any state
within India was always subservient to the collective power of the people. Laws, including
Rajadharma, derived their legitimacy from popular acceptance, maintaining Dharmic
supremacy over the political system for millennia. Consequently, despite the diversity of
states and rulers, constitutional law uniformly applied to all, regulating governance,
organization, and legal matters. India, therefore, comprised several sovereign states but
operated as one nation under a shared legal framework, showcasing compatibility between
diverse political ideologies and institutions.19

Historical records indicate a scenario where diversity coexisted with unity, and
continuity prevailed alongside diversity. This combination of diversity, unity, and continuity,
both in the past and present, mirrors the concept of unity within a federation, which serves as
a foundational aspect of Indian Constitutional Culture. Ancient Hindu empires like the
Mauryan, Gupta, and Ashoka regimes governed a culturally and spatially homogeneous
entity, striving to accommodate its diversity by establishing a system where the autonomy of
individual constituent units was respected. These empires were comprised of loosely
structured communities of independent provinces, yet they maintained their established
governance under the oversight of central authorities.20

During the Muslim period spanning from the 8th century to the 18th century, the
Hindu social structure assimilated Muslim conquerors by incorporating them into a
designated caste, treating them as part of the existing social hierarchy.21 The series of
invasions by Muslim rulers saw the reign of various dynasties including the Slave Dynasty,
Khalji Sultans, Babar and the House of Timur, Sur Dynasty, and the Mughal Dynasty, which
concluded in 1858 during the rule of Bahadur Shah Zaffar.22 During the reign of the
Bahaumani Dynasty, the southern regions of India were under their governance. The Bijapur
Sultans held dominion over extensive territories in the South, while the Nizams of Hyderabad
ruled the Hyderabad State. In the North, the Nawabs of Oudh exercised authority, and in the
East, the Nawabs of Bengal held sway. Historical records indicate that Muslim rulers in India

19 ibid
20 See M.C. Seetalvad, op. cit., Infra, p. 3; JadunathSarkar,Mughal Administration, 1935, p.238.
21 See, Surya P.Sinha, op. cit., pp. 76-77.
22 See, Advanced History of India, pp. 598-605; see also M. Rama Jois, op. cit., Vol. II, pp 3-21. 28 Ibid.

15
were primarily focused on expanding their dominion across the entire country through
centralized administration rather than deliberating over the form or structure of constitutional
governance. Their primary concern lay in consolidating their rule and maintaining their
position of power.23 The Muslim governance system that emerged in various regions of India
displays contradictory outcomes. There are no explicit laws or provisions dictating the
structure and functioning of the state to align with the principles of Constitutional Culture,
Constitutional Morality, and Constitutional Politics. Instead, governance adheres to the
principles outlined in their sacred text, the Quran.24

With the onset of British dominion in India, initially driven by trade interests under
the auspices of the East India Company and later transitioning to political control under the
authority of the Crown and Parliament of England, the British encountered challenges in
solidifying their dominance. Their official policies largely respected existing social
institutions and customs, applying Hindu Dharma to matters such as marriage, inheritance,
and the caste system for Hindus, and Muslim law for Muslims. Beyond personal laws, a
newly established territorial law governed all subjects, irrespective of religious affiliation, a
departure from traditional Indian norms. This territorial law, termed common law, laid the
groundwork for colonial rule. Following the 1857 uprising, the British engaged in extensive
legislative activities, enacting civil, criminal, and procedural laws, alongside various
constitution-making efforts aimed at imposing a foreign constitutional framework, serving
their interests in maintaining control through divisive tactics. Key legislative milestones such
as the Government of India Act of 1858, the Indian Councils Acts of 1861, 1892, and 1909,
and the Government of India Act of 1919 were crafted to facilitate efficient colonial
administration by the imperial power.25
This discussion aims not to delve into the intricate workings of the governmental structures
prescribed by the British Acts for India. Rather, it seeks to outline the essence of these Acts,
distinct in their nature and scope, which were incongruent with the principles of federalism.
Essentially, they embodied a form of centralized imperialism. The British endeavors to
experiment with constitutionalism exacerbated Indian discontent with British rule by offering
a semblance of power devolution or decentralization. Without explicitly invoking federalism,
British governance persisted with varying degrees of power delegation, such as provincial

23 Ibid.; see also M.C. Seetalvad, op. cit., p. 3.

24 Ibid.
25 Se, Surya P. Sinha,Ibid.

16
autonomy (akin to a figurehead ruler in her own domain) through diarchy (distinguishing
between reserved and transferred subjects).

The Act of 1858 aimed to prevent a recurrence of the events of 1857 and effectively
established India as a police State, laying the groundwork for centralized imperialism. This
Act neither fostered the development of provinces nor empowered grassroots administrations
like municipalities, nagarpalikas, and panchayats. By transferring Indian governance to the
British Crown, the Act underscored the notion that political authority should not reside with a
trading company. This marked a pivotal moment in India's political and constitutional
trajectory, ushering in over-centralization where power was concentrated in the hands of the
Governor-General, acting as the Crown's proxy.

While provinces were categorized into various types, such as Presidencies, Lieutenant
Governor Provinces, Chief Commissioner Provinces, and Minor Provinces, in practice, the
Governor-General wielded supreme authority, with his agents in these provinces acting on his
directives. Despite some nominal devolution or decentralization of powers through the Indian
Councils Acts of 1861, 1892, and 1909, the overarching trend remained one of strong
centralization. For instance, the Act of 1861 bestowed legislative powers upon the councils of
Bombay and Madras Presidencies but deprived them of independent executive control.

The Minto-Morley Act of 1909 ostensibly introduced constitutional democratic reforms, yet
it perpetuated the highly centralized imperialistic system, devoid of true democratic essence.
As the national movement gained momentum, it became evident that self-governance would
not be granted by the British rulers. In an attempt to mollify the growing unrest, the August
Declaration of 1917 expressed the British aim of gradually evolving self-governing
institutions in India. Subsequently, the Montague-Chelmsford Act of 1919 acknowledged
provincial autonomy through the mechanism of diarchy, albeit with complex subject
divisions, resulting in an unsatisfactory provincial governance system.

The purported plan for the "progressive realization of responsible government" proved
illusory as non-cooperation movements intensified. Recognizing the burgeoning threat to
their authority, the British strategically offered concessions in local self-government and
provincial administration to appease Indian sentiments, albeit superficially and not in

17
practice.26 The decentralization of power was deemed necessary to demonstrate the gradual
emergence of individuality and personality at lower levels. However, in practice, it proved to
be ineffective and dysfunctional. The political pressure from the Indian populace became
overwhelming; British negotiations with Indian leaders during Round Table Conferences
faltered. The historical context, encompassing homogeneity and vast linguistic, religious, and
ethnic diversities, alongside the contemporary situation, mandated the inevitability of a
federal system in India. The formation of a unified Indian government hinged on the
incorporation of Indian States, constituting nearly a third of the nation's territory and not
officially part of British India, although under British suzerainty.27 Apart from the Indian
States, there was also the issue of Muslims, who, due to historical circumstances, found
themselves in the majority in certain provinces. They were advocating for a federation where
the residual power would lie with the federating provinces. This would enable them to govern
their own provinces where they held a majority.28 These factors, along with others,
significantly influenced both British and Indian opinions, leading to a widespread consensus
that India's political framework should adopt a federal structure, incorporating both British
Indian provinces and Indian States.29 It's possible that the federal structure envisioned by the
Government of India Act 1935 aimed to establish a federation artificially, without historical
precedent. This involved granting the necessary powers and jurisdiction to both the Units
(states or provinces) and the Central Government.30 In this particular context, it's notable to
mention the Report of the Joint Parliamentary Committee:
"In converting a unitary State into a federation, we are embarking on a path without precise
historical precedent. Typically, federations arise from agreements among independent or
semi-autonomous governments, ceding a portion of their sovereignty to a new central entity.
Currently, the British Indian provinces lack autonomy, as they are under both administrative
and legislative control of the Government of India. The authority they wield has largely been
delegated to them through statutory regulations by the Governor-General in Council. Hence,
the challenge before us is to establish autonomous Units and integrate them into a federation
through a single legislative measure. Yet, this seems to be the only viable course of action.
Establishing autonomous Units without adjusting the existing Central Legislation, as noted by

26 See, M.C. Seetalvad, op. cit., pp. 3-5. 34 Ibid.

27 Ibid.
28 Ibid.
29 Ibid
30 Ibid.

18
the Statutory Commission, would unleash potent centrifugal forces of provincial autonomy
without any efforts to counterbalance them and uphold India's unity."31
Despite the aspirations laid out in the 1935 Act, the envisioned federation never
materialized, primarily due to hindrances like the onset of the Second World War and the
autonomy maintained by the Indian States under British Paramountcy. The period spanning
from 1937 to 1947 was marked by significant political fervor. The subsequent Cabinet
Mission Plan, although relinquishing British suzerainty, failed to quell communal tensions. It
proposed a multi-tier federation where central authority would be limited to Defense, Foreign
Affairs, and Communication. Provinces were to be grouped rather than directly governed by
the Central Government, with provisions for Muslim and non-Muslim representation. Indian
States had the option to join these groups or remain independent. Speculation abounds on the
outcome had the Cabinet Mission Scheme been implemented, yet the foresight of leaders at
that time led to the establishment of a Constituent Assembly in 1946. Despite achieving
independence, India was partitioned into two sovereign nations, an event with profound and
lasting consequences for the future.32 Dr. Rajendra Prasad, Chairman of the Constituent
Assembly, expressed that "the nation, intended to be united by God and Nature, is now
divided." He referred to the long journey towards destiny, marked by the attainment of
freedom and the responsibility it brought forth – not one of ease but of constant endeavor.
The cost of freedom was high, resulting in the partition of the country into two independent
nations. Dr. S. Radhakrishnan observed that this day would be etched in history and legend,
signifying a significant milestone in India's democratic journey – a shift from servitude to
freedom. The pledge was made to serve India and its people humbly, aiming for the nation's
rightful place in the world and its contribution to global peace and welfare.

Thus began the monumental task for the founding fathers of the Indian Constitution,
navigating through the diverse historical and cultural landscape of the country to establish an
appropriate constitutional framework. Apart from the challenges posed by partition and
regional diversity, the constitution-makers grappled with various centrifugal pressures. They
opted for a unique federal constitutional structure, unprecedented in history, reflecting India's
societal complexities and aspirations.

31 See, „Joint Committee on Indian Constitutional Reform‟, 1933-34, Vol. I. p. 15; See also M.C. Seetalvad, op.
cit; D.D. Basu, op. cit., p. 149; K. Santhanam, “Union-State Relations in India,1960”;
Amal Ray, “Inter Governmental Relations in India, 1966.”
32 See in particular M.C. Seetalvad, op. cit., p. 5.

19
The impact of partition on the federal scheme, as outlined in the Cabinet Mission Plan, was
significant. Originally conceived for a federal constitution for United India with a limited
scope for the Centre's authority, the partition necessitated a shift towards a more expansive
federalism.33
Another significant factor that greatly influenced the drafting of the Indian
Constitution was the "Government of India Act, 1935," which had already established the
groundwork for federalism. It wasn't merely a matter of historical continuity or simply
adopting what was available; the issues that the 1935 Constitution aimed to address hadn't
vanished with the change in power. Centrifugal or separatist tendencies within Indian society
also played a substantial role in shaping the Indian Constitution as it exists today. Federalism
is only achievable when the sense of belonging to the larger group aligns, in the public
consciousness, with membership in various smaller groups.

The integration of the Indian Princely States was an immense challenge to undertake.
Colonial rule over Indian social, economic, and political institutions also had a detrimental
impact. It hindered our comprehensive development efforts; policies of division and
exploitation created obstacles in nation-building and unity. Colonial rule led to the
exploitation of Indian resources, the erosion of traditional Indian governance systems and
economics, and the depletion of Indian wealth. It sought to undermine socio-cultural and
religious heritage through systematic conversions and the imposition of artificial boundaries,
exacerbating problems for regional organization and federal principles. This economic
backwardness was compounded by inadequate communication, transportation, and service
networks.

In light of these challenges, the founding fathers faced the primary task of constructing a
strong, viable, and efficient nation-state to counteract divisive forces and establish a solid
foundation for development.34

33 See, K. Santhanam, op. cit., pp. 4-5; see also Amal Ray, op. cit., pp. 15-16.
34 Ibid.

20
In the historical journey spanning ancient republics, Unitary systems, Federalist regimes,
Imperialist rules, and eventual Freedom, the Indian Constitution stands as a testament to
federal principles. It establishes a dual framework, with the Union at the core and the States
at the periphery, each endowed with distinct powers and responsibilities. This federal
arrangement possesses a unique characteristic: it can function as both centralized and federal
depending on the circumstances. During times of stability, it operates as a federation, while
during crises such as war or disaster, it adopts a unitary stance to ensure effective
governance. The Indian Union displays flexibility and adaptability, unhampered by rigidity
or legal constraints. Noteworthy features include a unified judiciary, citizenship, uniformity
in basic laws—civil and criminal alike—and a unified All India Civil Service. This hybrid
structure mirrors the Euro-American model, embodying federal principles in practice while
seamlessly transitioning to a unitary form when necessary.

2.4 ELEMENTS THAT SUPPORT COOPERATIVE FEDERALISM

Cooperative federalism has become essential in both traditional and modern federations for
several reasons. Firstly, it arose as an alternative to traditional federalism to counteract the
negative consequences of competitive tendencies within the traditional federalist framework.
The challenges unique to federalism stem from the division of powers between the central
government and the states, leading to power struggles between them and among the states
themselves. This competition for power is inherent in federalism and is fueled by both
material and moral forces. It is erroneous to suggest that the only solution to these problems
is to replace federalism with unitarism, as federalism remains the most suitable and viable
system of government under certain conditions and in certain countries. Therefore, any
proposed solution must be contextualized within federalism rather than seeking to supplant it.

Thus, it is imperative to regulate and restrain the competitive exercise of power, which is a
predominant feature of governance in federations, in order to uphold the public interest to the
greatest extent possible. To achieve this objective, various cooperative mechanisms have
been instituted.

Secondly, cooperative federalism has been fostered by three key factors, as elucidated by an
Indian scholar:

21
(a) The imperatives of war, where national survival necessitates prioritizing national efforts
over the delineation of powers between the central and state governments.
(b) Technological advancements that have facilitated faster means of communication, thereby
enabling greater coordination between different levels of government.
(c) The emergence of the concept of a social welfare state, which emphasizes the collective
responsibility of governments to promote the welfare and well-being of citizens.

Understanding how cooperative federalism is bolstered by these three elements is crucial in

appreciating its significance and efficacy.

2.5 COOPERATIVE FEDERALISM IS NOURISHED DUE TO CRISIS OF WAR.

The operations of older federations have demonstrated that in times of emergency such as
war, the Central authority expands significantly, encroaching on the autonomy of states. In
Canada, the concept of emergency powers has evolved through judicial interpretation of the
"general clause of Section 91 of British North America Act." During times of national crisis
like war, invasion, insurrection, or any grave national danger, the Dominion assumes
authority under this general clause, overriding any provincial powers that obstruct it. For
instance, during the First and Second World Wars, Section 91 was fully operational, granting
the Dominion virtually unlimited powers. However, it is noteworthy that in Australia and the
USA, the judiciary has not accepted such a doctrine of emergency powers. H.S. Nichols has
elucidated the stance of the US Supreme Court and the High Court of Australia on
emergencies. According to him, in both countries, emergencies do not justify the withdrawal
or reduction of powers granted or retained. Nevertheless, emergencies may warrant the
exercise of control without necessitating military forces35.

According to established doctrine, both the American Constitution (Art I, Sec. 8) and the
Australian Constitution (Sec.51 (VI)) empower the government to wield war and defense
powers during national emergencies such as war. Courts in both nations have interpreted
these powers broadly. In the United States, during wartime, the war power facilitates
extensive economic regulation by the federal government, even allowing for the relocation of
citizens from critical defense areas. Similarly, in Australia, the judiciary has permitted the
defense power to encompass various matters such as pricing, rent regulation, capital control,
monetary policies, employment reinstatement, wheat requisition, and acquisition of state
58
35 H.S. Nichols, The Australian Constitution, Second Edition, Sydney Law Book Co., 1952, p.113. Douglasm
W.O., We the Judges (Garden City, N.Y.; Doubleday, 1956), p. 41.

22
machinery for income-tax collection. This expansive interpretation by the courts has led to a
flexible unitary-cum-cooperative system in both countries during times of war. The Indian
constitution also anticipates emergencies like war, constitutional breakdown in states, and
economic downturns, allowing for central intervention in state matters during emergencies.
This underscores the adoption of a modern federalist approach aimed at fostering cooperative
federalism, despite lessons from other federations and our own historical context.

2.6 COOPERATIVE FEDERALISM IS NOURISHED DUE TO TECHNOLOGICAL

AND COMMUNICATION GROWTH

Irrespective of the once idealized balance of power between the Central authority and
federated entities in the 20th century, the significant advancements in science, technology,
and communication since its closure have drastically altered the landscape for both existing
and new federations. These progressions have ushered in cooperative trends within federal
systems, albeit with an inherent inclination towards centralization.

The technological revolution, encompassing both old and new federations, catalyzed a
profound economic transformation. The contemporary economy, characterized by widespread
industrial conglomerates, is notably intricate, thereby necessitating national intervention for
resolving economic challenges that surpass state-level capacities. The exponential expansion
of transportation infrastructure has facilitated the emergence of national markets and
facilitated interstate commerce, compelling centralized regulation. With key sectors such as
trade, industry, and labor predominantly organized on a national rather than regional scale,
the efficacy of individual federated units in regulating these domains independently has
become untenable. Consequently, nationwide cooperation between the central authority and
federated units has become imperative, driven by technological and communicative
advancements.

The advent of the Social Welfare State underscored the imperative of cooperative federalism.
The concept of a social welfare state engendered widespread demands for various social
benefits, incurring significant costs that individual federated states cannot bear from their
limited resources alone. Cooperative federalism thus emerged as a means to enable the
fragmented federal government to function cohesively, mitigate conflicts, and foster unity
among federated entities, pooling resources to achieve national objectives and address public

23
demands for diverse social welfare services. It is now recognized that the interdependence of
various levels of government within a federation necessitates cooperation to promote and
optimize public welfare.

Furthermore, there are inherent issues that mandate cooperative federalism. Matters
concerning the navigation of rivers traversing multiple provinces, irrigation projects, hydro-
electric schemes, natural resource conservation, municipal water supply, sewage
management, river pollution prevention, flood and disaster control, as well as the welfare of
migrant workers and their families, are best administered through joint action and cooperation
between the Central authority and individual states. Lastly, the primacy of financial
considerations has been pivotal in shaping the concept of cooperative federalism. The Central
authority, endowed with significant financial resources, is consistently positioned to provide
assistance to states grappling with escalating demands for social welfare services within their
legislative ambit, fostering collaboration between central and state governments.

2.7 ESSENTIAL FEATURES OF A FEDERAL POLITY

The fundamental elements of a federal system include: (a) the presence of a written
and inflexible constitution, serving as the highest law of the land and the foundation of the
new state. This constitution defines and restricts the powers and responsibilities of the various
branches of government, as well as delineates the domains of authority for both the Federal
Government and its constituent units; (b) the allocation of powers between the federal and
state entities to achieve equilibrium and delineate their respective jurisdictions; and lastly, (c)
an autonomous judiciary, serving as the guardian of the constitution and resolving any
conflicts or disputes between the Federal Government and the States. Federalism, thus,
involves not only the establishment of a new state and nation on the global stage but also, in
terms of local law and internal politics, the coexistence and simultaneous operation of two
levels of governance and legislatures - federal and regional, each legislating and exercising
authority within its specified domain. Neither the regional governments nor the federal
government within the federation holds sovereignty or supremacy over the other, preventing
unilateral actions to amend or alter constitutional provisions, particularly those pertaining to
the rights and duties of federal and regional authorities.
2.8 FEDERALISM IN THE INDIAN CONSTITUTION
The Constitution of India designates the country as a "Union of States." However, the term
"Union" lacks specific significance, as it appears in various other preambles, such as those of

24
the United States Constitution (which serves as a model for federations), the British North
America Act (arguably not establishing a true federation), and the Union of South Africa Act
(which indeed established a unitary state). Despite this, certain provisions within the
Constitution distinguish between federal and unitary governance. Firstly, it is a lengthy
written document, the longest in history. Secondly, it grants both the Union and the States
legal status and corporate personality, delineating their respective domains of legislation and
administration in detail. Thirdly, it establishes an independent judiciary, with the Supreme
Court serving as the interpreter and guardian of the Constitution.

Nevertheless, the Constitution also incorporates certain unique and unitary characteristics,
leading critics to label it as a "quasi-federation" or one with a strong centralizing tendency.
Dr. Ambedkar refuted such claims, arguing that while there is significant centralization, it is
incorrect to view the states as mere municipalities. He emphasized that federalism hinges on
the division of legislative authority between the Centre and the units, a principle enshrined in
the Indian Constitution. This partition cannot be unilaterally altered by the Centre or the
judiciary.

However, federalism's essence transcends mere legislative and executive divisions, as Dr.
Ambedkar noted. It lies in the equality of status enjoyed by the units, both politically and
legally, along with the assurance of autonomy within their defined spheres of authority.36 It
essentially describes a governmental system where sovereignty or political authority is
divided between central and local governments, ensuring each operates independently within
its designated sphere. However, in the Indian Constitution, this division doesn't imply
absolute independence for states within their sphere. The Constitution allows for union
oversight over state administration and legislation. The Union Government possesses
significant powers enabling it to oversee, direct, and regulate state government actions, not
just during wartime or emergencies but also in times of peace.

2.9 CLASSIC FEDERALISM AND COOPERATIVE EDERALISM- A

COMPARISON
"Cooperative federalism" primarily emphasizes duties over powers within federalism, rather
than replacing the legislative system. It enhances and clarifies federalism. The distinction
between classic federalism and cooperative federalism is crucial; while classic federalism
36 Dicey, Law of the Constitution, (9th edition), chapter 3

25
views the two branches of government as separate competitors, cooperative federalism sees
them as allies. At the core of these perspectives is the idea that within a federation, no form of
government is inherently subordinate to another.37

As previously noted, the traditional concept of federalism, first outlined towards the late
19th century by Freeman, Dicey, and others, and extensively expounded upon by Prof.
Wheare, encompasses several key principles: there must exist a division of powers between a
central government and multiple regional governments, each operating within its own domain
while coordinating with the others; each government must have a direct impact on the
populace; each must adhere to its designated sphere of authority; and within that sphere, each
must operate independently of the others. Cooperative federalism underscores the practical
interdependence and sharing of responsibilities between the central and state governments. It
underscores the mutual influence each level can exert over the other.

Traditionally, the examination of federal structures has centered on the constitutional and
statutory framework governing the collaboration between the two tiers of government, one
central and the other regional. Critics have sought to redefine the fundamental characteristics
of federal governance. Many of these redefinitions have stemmed from administrative studies
rather than legislative aspects of federal structures. They have emerged from an analysis of
the significant role played by administrators, political parties, and the acknowledgment of the
extent to which federal governments collaborate and depend administratively, financially, and
economically, rather than operating autonomously.

The term 'cooperative federalism' was coined in 1930 by scholars studying administrative and
financial relations within the U.S.A., to describe the modern style of federalism
encompassing economic, financial, and political dimensions. "Jane Perry Clark's The Rise of
New Federalism (1938)" brought attention to this concept, while subsequent works such as
"A.H. Birch's Federalism, Finance, and Social Legislation in Canada, Australia, and the
United States (1955)" identified similar trends in other federations. Studies by Morton
Grodgins, Daniel J. Elazar, and M.J.C. Vile examining the American federal system have
highlighted the extensive involvement of intergovernmental relations in federations, which
encompass not only cooperation but also bargaining, rivalry, and conflict. Therefore, some

37 “R.L. Watts, New Federations: Experiments in the Commonwealth”, Oxford, Clarendon Presss, 1966, p.13.

26
argue that the term 'interdependent federalism' better captures the simultaneous cooperation
and rivalry among governments typical within federal systems.

Classical federalism, as a static concept, often delineates the relationship between central and
state governments. Conversely, contemporary federalism, or cooperative federalism,
recognizes the intergovernmental relationship as continuously evolving in response to social,
economic, and political forces, including shifts in party dynamics and electoral structures.

The concept of 'new federalism,' sometimes referred to as 'cooperative federalism' by certain

authors, suggests a departure from conceiving federalism as a strict separation between
national and state levels of government. Instead, it emphasizes federalism as a policy
determinant, impacting the day-to-day operations and concrete activities of government, as
well as the structural relationship between different levels. Additionally, it can be argued that
'dual federalism' is flawed, as it fosters artificial competition between national and state
governments, leaving numerous issues unresolved. Cooperative federalism represents
progress, as it allows for governmental agencies to retain autonomy while facilitating
collaboration across all levels. Theoretically, it implies that the responsibility of the national
government should take precedence, as cooperation with states should adhere to national
standards rather than adjusting to state or local standards, which may often be lower.

2.10 INTER-STATE COUNCIL: AN IMPORTANT PART OF COOPERATIVE

FEDERALISM

It's inevitable that, in a vast country like India, which resembles a sub-continent and is
home to diverse populations at various stages of development, tensions between central and
regional governments would arise. Article 263 of the Constitution outlines a crucial
framework aimed at ensuring the smooth functioning of these parallel governments.
According to this article, the President of India has the authority to establish an Inter-State
Council if it is deemed beneficial for public interest. This council was established through a
Presidential Order dated 28 May 1990, based on the recommendation of the Sarkaria
Commission.38
It appears from the aforementioned information that the Council lacks the authority to
issue binding decisions, functioning primarily as an advisory body. Its role in investigating

38 Indiankanoon.com

27
and offering guidance on inter-state conflicts resembles the expertise of the Supreme Court in
legal crises between states, as outlined in Article 131. While the Council can address
disputes, its advisory capacity differs from the Court's ability to render binding judgments.
The Council is designed as a mechanism for inter-governmental consultation, facilitating
cooperation and coordination. It can address both legal and non-legal intergovernmental
disputes, contributing to conflict resolution. The Council may operate on a permanent or ad
hoc basis, with the flexibility to establish multiple bodies, as per the general provisions of
Article 263.

Under Article 263, four regional councils have been established to enhance
coordination on sales tax policies across different zones. These councils convene at least once
every six months, making decisions based on majority votes. Joint meetings among regional
councils can occur as needed, aiming to standardize sales tax calculations and address state-
related issues uniformly.

Some State Chief Ministers have advocated for the formation of such councils to
address federal concerns formally. However, the Central Government has been cautious about
endorsing this idea, fearing potential encroachment on matters under its jurisdiction, such as
gubernatorial appointments and the application of Article 356. In the case of "Dabur India Ltd
v. State of Utter Pradesh" in 1990, the Supreme Court recommended establishing a Council
under Article 263 to tackle central-state taxation issues.

Since its establishment, the Council has convened twelve times, with its most recent
meeting held on November 25, 2017, chaired by the Honorable Prime Minister. In a legal
dispute between the States of Tamil Nadu and Karnataka, the tribunal initially ruled that it
lacked jurisdiction to grant interim relief. However, the Supreme Court, upon appeal,
recognized the tribunal's authority to grant interim relief based on prior agreements between
the parties, directing the tribunal to assess the merits of the case regarding interim relief
entitlement.39

CHAPTER III
DISTRIBUTION OF LEGISTATIVE POWERS

Within a federation, there exist three primary branches of control: the legislature, the
executive, and the judiciary, mirroring typical governmental systems. The Indian Federation

39 A.I.R SCW 1286(1991) 2 UJ SC 134 : (1991) Supp 1 SCC 240, paragraph 12,15 and 22

28
encompasses these three pillars of governmental authority, although the demarcation
between them isn't as stringent as observed in the United States of America. Among these
powers, legislative authority stands out as paramount. It not only serves as the usual source
of executive power but also delineates the scope of the executive's authority. Under the
Indian Constitution, executive power largely aligns with the legislative authority of the
Union or the States, and both derive their executive mandates from law, albeit not always
mandatorily. The judiciary serves to enforce executive power and oversee the
constitutionality of legislative and executive actions by both the central and state
governments. Hence, it's fitting to initially examine the distribution of legislative authority
within the Indian Federation. The foundation of the Federal System was laid by the
Government of India Act 1935. While the constitution may not entirely replicate the
allocation of legislative powers between the Union and the States as outlined in the 1935
Act, the core framework remains consistent.40

Understanding the division within India's Constitution becomes clearer when we

reflect on its historical context. Before the Partition of India, the Constituent Assembly,
stemming from the Cabinet Mission Plan, envisioned a relatively weak central government,
aligning with the prevailing trends of the time. The planners of the Mission believed that
establishing a delicate constitutional relationship between the central government and the
constituent units would address the demands of Muslim-majority regions for significant
autonomy from central control, while also minimizing encroachments on the sovereignty of
states and provinces. In light of this, Congress leaders agreed to limit the central authority to
essential subjects and to allocate residual authority not only to states but also to provinces.
This approach aimed to prevent the looming threat of countrywide disruption. The
Objectives Resolution adopted by the Constituent Assembly on January 22, 1947,
emphasized that Indian territories, regardless of existing or revised boundaries, would
maintain autonomous status with residual powers. They would exercise all governmental and
administrative powers and functions, except those vested in or assigned to the Union, or
those inherent or implied in the Union.

The rationale behind Congress leaders' stance to maintain national unity ceased to
exist with the eventual decision to partition India. The historical context prompting Congress
leaders to compromise became obsolete in light of this new development. Part V of the

40 “Prof Yashpal v State of Chhattisgarh” (2005) SCC 2026

29
Memorandum, which outlined the recommendations of the Union Constitution Committee
on July 4th, 1947, emphasized the following:

(1) The Constitution should adopt a Federal structure with a robust central authority.

(2) There should be comprehensive legislative lists covering Federal, Provincial, and
concurrent domains, with residual powers vested in the Center.80

It is possible for both the Union and State Legislative bodies to unintentionally
overlap in their jurisdiction, leading to conflicting laws on the same subject. In such cases,
the primary concern is whether the State law falls within the valid exercise of State power,
either in the State or Concurrent field. If upon scrutiny, the State law aligns with the
provisions outlined in the State List, it would be deemed valid and take precedence.
Consequently, any conflicting Union law would be considered invalid. These situations
primarily involve questions of legislative competence, where both the State and Union
exercise their respective legislative powers, sometimes resulting in conflicting laws. Article
254 of the Constitution addresses such conflicts of laws, as we will discuss later.

Despite the detailed enumeration of powers in Lists I, II, and III, the Constitution
framers acknowledged that some legislative powers might still be unaccounted for in these
lists. In such cases, these powers are implied to be vested in the Centre based on the general
structure of the Constitution. Article 248 grants exclusive power to Parliament to legislate on
matters not covered in the Concurrent or State Lists, including the authority to impose taxes
not mentioned in these lists. This provision is reiterated in Entry 97 of the Union List. Hence,
the Indian Constitution entrusts the residual legislative power to the Union.

In the case of Lily Thomas v. UOI84, the Supreme Court clarified that the legislative
power of Parliament concerning disqualification for membership of either House of
Parliament or State Legislative Assembly/Council is derived from articles 102(1)(e) and
191(1)(e) of the Constitution, rather than from article 248.

In addition to Article 246, which provides for the allocation of legislative power in
the manner already specified and some relevant requirements accompanying that article, we
shall inform it later. There are numerous provisions in the Constitution of India, which
confer power on Parliament and the State Legislature to enact laws for specific purposes. It
is well known that these provisions conferring power to legislate on the respective
legislatures contain independent powers of legislation apart from the legislative power

30
comprised in the entries enumerated in the three lists.41 Examples of such power may be
found in the articles set out in the footnote.42 The powers vested on Parliament within the
constitutional process often contribute to the modification of the Constitution without the
completion of the procedure laid down in Article 368.

“It is the fundamental principle of Constitutional Law that everything necessary to

the exercise of a power is included in the grant of power.” The principle has been applied
both to the Union and the State Legislatures.43

Upon reviewing certain sections within the Constitution pertaining to the allocation of
legislative authority between the Union and the States, let's now delve into the legislative
powers outlined in the three Lists. The Union List comprises 97 items covering subjects of
national significance such as "defense, foreign affairs, banking, currency and coinage, as well
as certain taxes and duties of either nationwide importance or within the Union's purview for
levy and collection." Meanwhile, the State List contains 66 entries encompassing matters of
local significance like "public order, police, education, local governance, public health and
sanitation, agriculture, forestry and fisheries, along with specific taxes and fees applicable to
local regions."
The Concurrent List encompasses 47 entries covering areas such as "criminal and civil
procedure, marriage and divorce laws, contracts, bankruptcy, food and product adulteration,
economic and social planning, labor welfare, as well as property acquisition and requisition."
These subjects are evidently areas where both central and regional authorities may legislate.
Although legislative powers are concurrently granted to both Union and State Legislatures
for these 47 matters, they do not extend to taxation. The Constitutional framework seems to
indicate that taxation powers should be either exclusively held by the Union or the States.
Provisions are made in the section addressing financial adjustments between the Union and
the States for the sharing of tax and fee revenues, and in some instances, for the complete
transfer of certain tax proceeds from the Union to the States.
While the Constitution builders drew from the three Lists in the Government of India Act,
1935, they have expanded and refined these Lists in various ways. A comparison of the Lists
outlined in the Constitution against those in the Government of India Act, 1935, suggests that

41 P.D. Shamdasani v. Central Bank of India, 1952 S.C.R. 391 at 394.

42 Power conferred on Parliament: Articles 97, 98(2), 105(3), 241(1), Power conferred on State Legislatures:
Articles 186, 187(2), 189(3), 194(3), 195, 210(2), 229(2), 283(2), 304, 345.
43 Baldeo Singh v. I.T.O., A.I.R. 1961 S.C. 736; Navnital v. Appellate Asst. Comr., A.I.R. 1965 S.C. 1375;
Orient Paper Mills v. State of Orissa, A.I.R. 1961 S.C. 1438 at 1440; “Burmam Construction Co. v. State of
Orissa, A.I.R. 1962 S.C. 1320 at 1322.

31
by augmenting the Union and Concurrent Lists, the Union's authority has significantly
increased.

3.1 TERRITORIAL OPERATION OF LAWS IN INDIA

As outlined in Articles 245 and 246, along with the three lists specified in the Seventh
Schedule, legislative powers are distributed between the central government and the states.
This stipulates that a state legislature is empowered to enact laws applicable to the entirety or
specific regions within the state. 44 Regarding subjects listed in the State and Concurrent lists,
the State Legislature holds authority. Conversely, the Union Parliament is empowered to
legislate for either the entire or specific parts of India concerning matters outlined in the
union and concurrent lists. Thus, the constitutional boundaries delineate the territorial
jurisdiction of both legislative bodies, determining where their laws apply. Within these
prescribed limits, both the Central and State Legislatures possess equal sovereignty in
exercising their legislative authority.45 The Constitution expressly ensures that laws passed
by the Union Parliament cannot be legally challenged based on their application beyond
national borders. For example, if an Indian citizen of Hindu faith marries a French woman
while in France, they may face charges of bigamy under Indian law even though bigamy
may not be punishable in France. Section 4 of the Indian Penal Code extends the reach of
Indian law beyond its territorial boundaries. This principle was upheld in the case of
"Mobarak Ali Ahmed v. State of Bombay."46, According to the Supreme Court of India, if a
foreigner commits an offense from outside India's territories but the essential elements of the
offense occur within India, they can be held liable for the offense within India. This principle
was affirmed by the High Courts of Goa in the case of Agencia Commercial International
Ltd. v. Custodian of Banco National Ultramarino, where the validity of the Goa Daman Dieu
(Banks Reconstruction) Regulation 1962 was upheld.47 The Honorable High Court noted,
"The presidential order was deemed valid under Article 240 in conjunction with Article
245(2) and could not be nullified due to its extraterritorial reach." In the case of Sondur
Gopal v. Sondur Rajni, the Supreme Court ruled that "a law with extraterritorial application
cannot be directly enforced in another state, but such a law remains valid and protected by
Article 245(2) of the Constitution." Generally, an Act is applicable only within the territory
where its legislature has enacted it. The legislative authority granted to State Legislatures is
44 Article 245(1)
45 “State of Punjab and others v. S. Kehar Singh”, A.I.R. 1959, Punj
46 A.I.R. 1957 S.C 857
47 A.I.R. 1970 Goa.11

32
limited to individuals and entities within the state's boundaries. It is evident that no State
legislature can enact a law with extraterritorial reach in accordance with the provisions of
Article 245. Unlike the Union Parliament, the State is therefore constrained in terms of
extraterritorial matters. A State law may be challenged regarding extraterritorial purposes. If
it affects a person residing outside the state's territorial limits, the challenged law may be
subject to nullification.

3.2 RESCUING STATE LAWS

The judiciary intervenes to uphold state laws when they face challenges based on
extraterritoriality. In these instances, the judiciary employs the "Territorial Nexus" principle,
as seen in the case of "Bengal Immunity Co. Ltd. v. State of Bihar".48 Venkatarama Ayyar J.
highlighted two distinct interpretations of the term "extra-territorial operation."

"The phrase 'extra-territorial operation' is used in two contexts: firstly, referring to laws
concerning acts or events transpiring within the State but affecting external entities, and
secondly, concerning laws pertaining to a State's nationals for their actions outside the State.
In the former context, these laws are technically 'intraterritorial,' falling under the purview of
Parliament and Legislatures according to Article 245(1). The term 'laws with' extra-territorial
operation in Article 245(2) should be interpreted strictly, referring to a State's laws
applicable to its nationals for actions conducted beyond its borders."

The term "extra-territorial" in the first sense, as clarified by V. Ayyar J., essentially means
"intra-territorial," implying a territorial connection between the State and the subject of
legislation. To uphold a State law as intra-territorial, when challenged on grounds of extra-
territoriality, Courts have established and adhered to the principle of "Territorial Nexus."

In the case of S.S. Bola v. B.D. Sardana, it was established that while a legislature can
retroactively validate a judicial decision by enacting a lawful statute, it lacks the authority to
nullify a specific court judgment, as doing so would constitute a judicial act.

3.3 DOCTRINE OF TERRITORIAL NEXUS

The concept of territorial nexus serves as a legal tool developed through judicial
interpretations to uphold laws passed by non-sovereign legislative bodies, such as colonial or
48 A.I.R. 1955 S.C 661

33
federated units within federal systems like American states or Canadian provinces, or to
enforce laws beyond territorial boundaries. It clarifies that while the legislative authority of a
state's legislature primarily applies within its territorial confines, this jurisdiction can be
expanded through the application of this principle. According to Dr. D.D. Basu, this implies
that when a state legislature, empowered to legislate on a specific subject, has some
connection with a person, object, or operation relevant to the legislation's subject matter, the
law's application may extend to individuals, objects, or activities within its territorial limits.
The validity of a state law, when contested for its extraterritorial reach, hinges on the
adequacy of the territorial connection for the purpose it serves.

3.4 DOCTRINE OF TERRITORIAL NEXUS AND LEGISLATION UNDER

GOVERNMENT OF INDIA ACT, 1935

Prior to the commencement of the Indian Constitution in 1950, the concept of territorial
nexus held significant sway in judicial interpretation. This principle, established by both the
Federal Court and the Privy Council, served as a crucial guide for judicial interpretation in
the post-constitution era. Therefore, it is imperative to examine some key judicial rulings of
the Privy Council and the Federal Courts concerning the interpretation of laws under the
"Government of India Act, 1935". This act granted authority to the Federal Legislature to
enact laws for all or any part of British India, and similarly empowered provincial
Legislatures to enact laws for their respective provinces. Section 99(2) of the Act specified
certain matters, with Federal laws pertaining to these matters immune from challenge on
grounds of extra-territoriality. Thus, both Federal and provincial Legislatures were bound by
the prohibition against extra-territorial legislation, except in matters outlined in Section
99(2). It is crucial to clarify that there was no blanket exemption from extra-territoriality for
Central laws; laws concerning topics not covered by Section 99(2) had to adhere to the
principle of territorial nexus to remain valid, or else they could be invalidated.

The doctrine of Territorial Nexus, which had been developed and applied by judiciaries
under the American, Australian, and Canadian Constitutions, was first applied by the Federal
Court in the case of Governor-General v. Raleigh Investment Co. In this case, the Raleigh
Investment Co., a company registered in England with holdings in nine Sterling Businesses,
registered and operated in England but conducting business in India, contested the
imposition of income tax and super-tax under Section 4 of the Income Tax Act of 1922. This

34
tax was challenged as being beyond the jurisdiction of the Indian Legislature, as it sought to
tax a non-resident individual for income generated outside of British India. Specifically, it
was argued that the law was extra-territorial and therefore unconstitutional, as it attempted to
levy tax on a person not residing in British India for property situated outside of British
India.

3.5 DELIMITATION OF LEGISLATIVE FIELDS AND PROBLEMS OF

INTERPRETATION
Articles 246 and 248 of the Constitution delineate the division of constitutional powers
between the Union and the States. Additionally, the Seventh Schedule of the Constitution
clearly outlines three legislative domains: the Union List, State List, and Concurrent List,
each comprising various subjects. As per this arrangement, the Union Parliament possesses
exclusive and concurrent authority to enact laws pertaining to subjects listed in the Union
List and the Concurrent List. Similarly, the Legislature of any State holds exclusive and
concurrent powers over matters outlined in the State List and the Concurrent List,
respectively. Nevertheless, while the Union Parliament may exercise its powers irrespective
of those conferred upon the State Legislature, the latter must always defer to the former's
authority. Moreover, residual powers, including residual taxation powers, are exclusively
vested in the Union Parliament. This delineation illustrates a federal government structure
with enumerated, concurrent, and residual powers for the Union and enumerated and
concurrent powers for State Governments.

Although the Supreme Court has clarified that the lists merely delineate legislative fields
and not powers themselves, this does not exempt any legislative body from the
constitutional duty of enacting laws strictly within its designated field. Every law passed by
an Indian legislature must align with relevant entries in the allocated list to avoid
unconstitutional breaches of legislative competence.

While incidental encroachment into their respective domains may occur due to the
similarity of subjects, the exclusive nature of powers granted to the Union Parliament and
State Legislatures precludes conflicts between Union and State laws, making the concept of
repugnancy irrelevant in these lists. However, conflicts may arise within the Concurrent
List due to its nature, and Article 254 elaborately addresses the resolution of such conflicts.
Consequently, the scheme of power distribution raises two significant points for discussion:

35
issues regarding legislative competence and conflicting competencies in the concurrent
field, with this chapter focusing on the former.

3.6 PROBLEMS RELATING TO LEGISLATIVE COMPETENCY

The Seventh Schedule's legislative lists contain numerous entries, raising questions about
interpreting them strictly to limit legislative authority to the basic meaning of listed
subjects, or expansively to include ancillary powers. Additionally, if a law pertains to one
entry but incidentally overlaps with another due to subject similarity, should it be
invalidated for encroachment or upheld based on reasonable grounds? These issues are
common in federations worldwide.

In the Indian Constitution, two additional issues stem from certain features in the lists.
Firstly, certain State List matters are subordinated to specific Union List items, posing
questions about state legislative competency. Secondly, the enumeration of powers in the
Seventh Schedule's lists distinguishes between general legislative power and specific taxing
powers. The impact of this enumeration on legislative competency needs clarification.

The four main discussion points are: (i) interpretation challenges of legislative entries; (ii)
connection to entries and the Doctrine of Pith and Substance; (iii) effects of conditional
enumeration on legislative competency and the Doctrines of "Direct Impact" and
"Denudation"; and (iv) the influence of schematic enumeration on legislative competency.
3.7 NEXUS WITH LEGISLATIVE HEADS, THE “DOCTRINE OF PITH AND
SUBSTANCE” AND OTHER RELATED DOCTRINES

It is widely accepted that each law passed in a federal system must relate to a relevant
legislative area. Historically, federal instruments have strictly upheld the principle of
delineating distinct legislative domains between federal and state legislatures. This
exclusivity in legislative domains aimed to prevent any encroachment by one authority into
the reserved domain of the other, injecting rigidity into the division of powers scheme.
However, the complexity of social relationships makes achieving a clear-cut division of
powers challenging. Many respected scholars have acknowledged this, supported by
empirical evidence. Thus, it's inaccurate to claim that federal laws on an exclusively
allocated subject would have no impact on matters exclusively under state jurisdiction, and
vice versa. In such cases, constitutional lawyers must acknowledge this complexity and

36
 devise appropriate doctrines. This was exemplified by the Privy Council and the Supreme
Court of Canada through their articulation of the "pith and substance" doctrine in Canadian
constitutional cases.49

The Supreme Court of India discussed this doctrine in some important cases. In “State of
Bombay V. F.N. Balsara50” The Supreme Court was tasked with determining the legality of
specific provisions within the Bombay Prohibition Act of 1949, particularly section 12,
which prohibited actions such as the import, export, transport, or possession of liquor by
individuals. This led to a debate regarding whether the contested law had overstepped into
the jurisdiction reserved for the Central Legislature. While entry 31 in List-II of the
Government of India Act of 1935 granted the Provincial Legislature the authority to
legislate on matters concerning the production, manufacture, possession, transport,
purchase, and sale of intoxicating liquor, entry 19 in List-I of the same Act conferred upon
the Central Legislature the exclusive power to legislate on import and export across customs
frontiers. However, the Court clarified that the validity of an Act remains intact even if it
incidentally touches upon areas beyond its authorized scope. Thus, it is essential to examine
the essence of the impugned Act in each case. If, upon such examination, the Act
predominantly aligns with the powers expressly granted to the enacting Legislature, it
cannot be deemed invalid solely due to incidental encroachment on matters within the
jurisdiction of another Legislature.51 According to the Court, the fundamental question was
whether the challenged Act primarily pertained to the possession and sale of intoxicating
liquors or if it concerned the import and export of such liquors. If the essence of the
legislation revolves around the sale and possession of intoxicating liquor rather than its
import and export, then it becomes challenging to deem the Act invalid. It is argued that the
prohibition on the purchase, use, possession, transport, and sale of liquor could impact its
import. Even if such an outcome were possible, any encroachment would be merely
secondary and would not impinge on the Provincial Legislature's authority to enact the law
in question.52

The above discussion leads us to some conclusions which may be formulated as follows:

49 Russell V. The Queen, (1882) 7 App. case 829; see also Bora Laskin, Canadian Constitutional Law, 2nd
Edn. 1960, pp. 81-83.
50 (1951) S. C. 682; Also see, Basu, Cases on the Constitution of India (1950-51) p, 308.
51 D.D. Basu, Cases On the. Constitution of India(1950-51) p. 312.
52 Ibid, p, 312

37
 1. “The doctrine of pith and substance53 means that if a legislation, on an examina-
tion of its object and scope and the effect of its provisions, is found to fall sub-
stantially within the exclusive powers expressly conferred upon the Legislature
which enacted it, then it must be held to be valid, even though it might inciden-
tally touch or encroach on matters which have been assigned exclusively to an-
other Legislature.54

2. When determining the essence or real nature of a law, the preamble of the Act,
which expresses its objectives, can be considered as assistance. However, it
should not be the only consideration, and often it needs to be determined from
the actual provisions of the law.

3. The doctrine is invoked when a law, governing two distinct lists of legislative
powers, creates a conflict between them. Simply put, it is used to absolve a gen-
uine legislation—legislation that is clearly intended to address a subject matter
solely within the jurisdiction of the legislature that passed it—from being deemed
unconstitutional due to a minor, unintended, and ancillary overlap with a compet-
ing list.

4. The doctrine is not applicable when two contradictory laws function in the con-
current domain, nor does it apply when a law operates within the exclusive do-
main assigned to the Legislature that passed it.

3.8 LEGISLATION FOR UTS

Article 246, Clause (4) of the Constitution delineates that "Parliament holds the
authority to enact laws regarding any subject within any portion of India's
territory not encompassed by a State, regardless of whether the subject falls
within the State List."

When we interpret the phrase "Any part of the territory of India not indicated in
a state" alongside the definition in Clause (30) of Article 366, it essentially
53 The Privy Council applied this doctrine in Profulla kumar Mukerjee v Bank of Khulna A.I.R. 1947 PC
60.
54 See Bombay V. F.N. Belsara(1951) S.C.R. 682; A.S. Krishna V. State of Madras, A.I.R. 1957 S.C.R.
297; State of Rajasthan V.Chawlaand Pohumal, (1959) S.C.J 485; &Shri R. Co-operative Housing
Society Ltd. v . State of Maharashtra A.I,R. 1970, S C. 1771.

38
refers to any "Union Territory." This is because, as per the clause's definition,
the term "Union Territory" not only includes those specified in the First
Schedule to the constitution but also encompasses any other territory within
India's territory. In brief, Clause (4) of Article 246 empowers Parliament to
legislate on any subject, including those listed in the State List, for Union
Territories.

This raises the question: "What is the scope of the authority 'to enact laws'
under this clause?" Or, to phrase it differently, can Parliament effectively fulfill
its legislative function for Union Territories merely by extending the
application of State laws to these territories? Indeed, a variant of this question
was presented to the Supreme Court in the case of Mithan Lal v. State of
Delhi.55 Prior to the reorganization of States, there existed Part C States rather
than Union Territories. Therefore, Article 246(4), in its previous form,
referenced Parliament's authority to enact laws concerning State subjects for
Part C States. Under this jurisdiction, Parliament enacted the Part C States
(Laws) Act of 1950, granting the Central Government the power to extend any
legislation applicable to a Part A State to Part C States through notification,
with necessary modifications and limitations. In 1951, the Chief Commissioner
of Delhi issued a notification pursuant to this Act, extending the Bengal Finance
(Sales Tax) Act of 1941 to Delhi. However, certain provisions of the Bengal
Act, pertaining to taxation on material supply for construction works, were
nullified by the Supreme Court ruling in the case of "State of Madras V.
Gannon Dunkerley & CO."56 The interpretation regarding the scope of taxation
authority granted by Entry 54 of List-II did not cover the imposition of taxes on
material supply for construction projects. In the MithanLal Case, a crucial
question arose: Could the Central Government legally extend the entire Bengal
Act, including its invalid provisions due to lack of state legislative competence,
to Delhi without consequences? The court recognized that the state lacked the
authority under Entry 54 to tax material supply for construction, making such
power exclusive to Parliament. Moreover, it was noted that Parliament had not
enacted any law for Delhi or other Part C states regarding such taxation, except

55 (1959) SCR 445

56 (1959) SCR.373.

39
for the Part C States (Laws) Act. Despite this, the court acknowledged that the
challenged legislation, the 'Extended Bengal Act,' was enacted not under Entry
54 but by Parliament's authority granted by Article 246(4) of the Constitution.
The court elaborated that when a Part A State's law is extended to a Part C State
via notification, it derives its legitimacy from the Part C States (Laws) Act
passed by Parliament. Thus, a tax imposed under such extension is essentially
imposed by Parliament.

This ruling suggests a debatable proposition that Parliament could fulfill its
legislative role under Article 246(4) by passing a general law authorizing the
Union Government to extend any State law, with necessary adjustments, to
Union Territories. However, it is argued that such an interpretation exceeds the
scope of Article 246(4), and Parliament's duty to make laws regarding State
subjects for Union Territories cannot effectively be carried out by passing a
broad legislation authorizing the extension of any State law to Union
Territories, instead of enacting specific laws pertaining to State subjects for
Union Territories.

It's important to highlight that Article 246(4) grants Parliament the authority to
"make laws" regarding State subjects for Union Territories. The term "to make
laws" isn't merely a phrase; it holds a distinct and precise meaning. Making a
law entails enacting legislation concerning a particular subject matter and
adhering to parliamentary procedures. Therefore, making a law doesn't entail
extending or adopting a law from another authority, as the law being extended
or adopted isn't created by Parliament. If the framers of the Constitution had
intended to relieve Parliament of the additional responsibility of legislating on
State subjects for Union Territories, they could have expressed this by granting
Parliament the power to extend laws from any State to Union Territories instead
of giving the power "to make laws". The use of the phrase "to make laws" by
the framers of the Constitution unequivocally indicates their intent for
Parliament to fulfill its role under Article 246(4) by enacting legislation in the
proper form and following parliamentary procedure. Consequently, the Union
Parliament cannot merely adopt or extend a State law without substantively
enacting it. If Parliament lacks the authority, under clause (4), to adopt or

40
extend a State law to Union Territories, it logically follows that it cannot
authorize the central government to extend a State law to Union Territories
either.

Nevertheless, Parliament's power to legislate on State subjects for Union

Territories does not encroach upon the State's exclusive powers. Therefore, the
federal concept remains intact, and it doesn't create any aberration in the Union-
State relationship. While it's true that in practice, when Parliament extends State
laws to Union Territories instead of enacting new laws for them, it fails to fully
adhere to the spirit of Article 246(4), this has minimal impact on the Union-
State relationship.

The provision within the Indian Constitution concerning the execution of

treaties appears to draw from the experiences outlined in the three major federal
constitutions. The architects of the Indian Constitution included in Article 253 a
perspective akin to that which has been effectively utilized in Australia and the
United States. Perhaps the challenges faced by federal authority in Canada
regarding this matter prompted the creators of the Indian Constitution to
articulate the national government's authority in implementing treaties with
clarity within that article. Hence, the Indian Constitution entrusts the national
government with "complete treaty power." There seems to be little justification
for interpreting the delegation of "complete treaty power" to the national
government as a diminishment of federal principles, provided this power allows
federal intervention into the realm of State legislation, unless one perceives the
federation merely as an association of independent States rather than a unified
nation. As noted by Prof. Alexandrowicz, the authority for such intervention
"derives from the fact that external sovereignty resides in the federal center."57
From this perspective, Art 253 appears to be the outcome of efforts by the
architects of the Indian Constitution to clearly reaffirm the principle of external
sovereignty held by the national government and to eliminate any ambiguity
regarding the enforceability of the international obligations willingly undertaken
by the National Government. In situations where Indian law does not address a
specific scenario, international law will apply. This lack of provisions for
57 Prof. C.H. Alexandrowicz, op. cit., p. 218.

41
members of the Transgender community implies that domestic courts must
adhere to international law regarding this matter.58

CHAPTER IV
ADMINISTRATIVE RELATIONS

Unlike many other federal constitutions, the Indian Constitution contains numerous
provisions concerning the administrative relations between the Union and the States. As we
explore the broad provisions related to the distribution of executive power and the special
regulations governing administrative relations between the Union and the States, we can
recognize the deliberate efforts made by our founding fathers to ensure a harmonious
relationship between the central and regional governments in the administrative sphere,
facilitating the smooth operation of executive powers across India's territory.

Traditionally, the functions of government are divided into legislative, executive (or
administrative), and judicial functions. However, categorizing acts under these headings

58 National Legal Services Authority v UOI,(2014) 5 SCC 438 : AIR 2014 SC 1863

42
can be challenging, although the organs primarily responsible for these functions are easily
distinguishable. Some scholars have tried to differentiate between the executive and
administrative spheres by confining the former to matters of policy and the latter to matters
of administration. Nevertheless, the formulation of policy is so intricately linked to its
execution through administrative actions that there seems to be no genuine distinction
between acts of policy-making and acts implementing those policies. In general terms, the
executive role must encompass not only the formulation of general policy but also its
implementation, including the enactment of laws, maintenance of order, and the promotion
of social and economic welfare through administration.59

Halsbury thus deals with the true scope of executive functions:60

Executive functions defy a singular, exhaustive definition as they represent the residual
responsibilities of governance following the allocation of legislative and judicial roles.
These encompass not only the enforcement of laws but also the preservation of public
order, administration of state-owned assets and industries, formulation of foreign policy,
execution of military strategies, and oversight or delivery of essential services such as
education, healthcare, transportation, and social welfare. In executing these duties,
governmental bodies are obligated to issue directives that bear semblance to legislation and
make determinations impacting individuals' rights and property, which, though not strictly
judicial, possess quasi-judicial attributes. The exercise of discretion in such matters has
become customary for the executive. Furthermore, statutes have endowed the executive
with powers that are inherently legislative or judicial, and in certain scenarios, these powers
exhibit characteristics of all three branches of governance concurrently. Given the intricate
nature of contemporary governance and the backlog of parliamentary affairs, it is arguably
imperative for the executive to wield authority in enacting subsidiary legislation. However,
the appropriateness of assuming purely judicial functions remains a subject of debate.

Halsbury's statement about the executive power within the framework of the Indian
Constitution holds true. The Constitution does not strictly separate the three primary
functions of the Government. It often tasks the executive with legislative or quasi-
legislative duties, as well as judicial or quasi-judicial responsibilities. In some instances,
legislative bodies have delegated judicial authority to the executive branch through

59 Constitutional Law by Wade and Phillip, 7th Edn. pp. 17-18.

60 Halsbury's Laws of England, 3rd Edn.Vol. 7 pp. 192-193, Art. 409.

43
legislation.61 The landscape of federalism has been reshaped by industrialization and the
rise of the welfare state concept. These developments have given rise to challenges that
transcend local boundaries and prioritize national interests. Addressing these challenges
necessitates some degree of centralized control in state administration and fostering
collaboration between the central and state administrative layers. While traditional
federations have seen a shift towards administrative centralization in practice, newer federal
constitutions have introduced methods to ensure consistency and cooperation in
administration.

For instance, under the Electricity (Supply) Act of 1956, passed by the Union Legislature,
administrative powers are vested in the states as per entry 38, List III. Similarly, with the
Industrial Disputes Act of 1947 enacted by parliament under entry 22, List III,
administrative powers are shared between the Centre and the states. On the other hand,
under The Essential Commodities Act of 1955, legislated by parliament under entry 33,
List III, administrative authority resides solely with the Centre. However, the Act includes
provisions for the Centre to delegate administrative powers to the states as needed. In the
concurrent field, administrative powers generally lie with the states, even when the Centre
enacts legislation. In such scenarios, the Centre relies on the cooperation of states in
administrative affairs through its union agencies present in the states.
4.1 OBLIGATION OF STATES TO ALLOW UNION LAWS AND EXECUTIVE ACTS
AN UN-INTERRUPTED OPERATION

The matter addressed in Articles 256 and 257(1) of the Constitution pertains to the
exercise of executive power. Article 256 stipulates that each State must wield its executive
authority to uphold both Parliament's enactments and extant state laws, with the Union
possessing the authority to issue directives to a State if deemed necessary by the
Government of India. The initial segment of Article 256, often termed the "Compliance
clause," underscores the obligation for adherence, while the subsequent segment, known as
the "direction clause," emphasizes the potential intervention by the Union. Throughout
India, Article 256 primarily concerns the ongoing application of Union legislation,
imposing upon States a proactive duty to ensure compliance with laws enacted by
Parliament. The phrase "to ensure compliance" conveys the requirement for securing
adherence, encompassing not only the removal of impediments to Parliament's legislation

61 Harinagar Sugar Mills Ltd. v. Shyamsundar, (1962) 2 S.C.R. 339 : A.I.R. 1961 S.C. 1669.

44
but also the obligation to aid the Union government in enforcing such laws. Article 256
mandates that States guarantee compliance with Central Laws concerning their executive
functions and authorities.
In the case of SwarajAbhiyan(v) v UOI, it was found that several State Governments had
not established State Food Commissions as required by the National Food Security Act of
2013. Furthermore, neither Social Audits under Section 28 nor Vigilance Commissions
under section 29 of the Act were conducted. This demonstrated a lack of commitment by
the State Governments to enforce the provisions of the Act, which aimed at promoting
social justice and welfare. The court issued directives for the Act's implementation,
emphasizing that "The Government of India cannot claim helplessness in compelling State
Governments to adhere to Parliamentary laws under Article 256 of the Constitution. If State
Governments and Union Territories choose not to comply with laws enacted by Parliament
for the benefit of the people, alternative solutions may need to be considered, but it is hoped
that no State Government or Union Territory would disregard the will of Parliament."62 The
"direction clause" authorizes the Federal Government to issue necessary instructions to the
States as outlined in Article 256. The pivotal phrase is "for that purpose," which qualifies
the authority to issue directions. Hence, pursuant to this article, the Federal Government
may only issue directions to States that are essential for ensuring compliance with laws
passed by Parliament throughout the nation. While the nature and specifics of these
directions are at the discretion of the Federal Government, they must align with the purpose
outlined in Article 256. However, the crux of the issue lies in determining the course of
action the Federal Government should take if a State Government fails to implement such
directions issued under Article 256.63 Certainly, one option that readily springs to mind is
action under Articles 365 and 356 of the Constitution. In such circumstances, the President
could determine that the State Government is not functioning in accordance with the
Constitution and subsequently assume control of the State administration by issuing the
necessary proclamation. However, the Union Government should only resort to such a
course of action in extreme situations, where the failure of a State to comply with such
directives is either due to its outright opposition to a law enacted by Parliament and
deliberate defiance of Central directives, or due to its complete inability or incapacitation
stemming from serious internal turmoil that renders it unable to operate within the
framework of the Constitution. In less severe scenarios, the Union Government ought to

62 AIR 2017 SC 3516 PP. 3525,2526,3530.

63 The same problem arises under Art. 257 (1) also.

45
explore alternative remedies and utilize different approaches to ensure the smooth
implementation of its laws.

It is now firmly established that the federal Government represents the entirety of the
nation, and its laws and executive actions must have seamless applicability across the entire
territory of India. Thus, denying this principle to the Federal authority in India would
constitute a violation of one of the fundamental tenets of federalism. It is noteworthy to
mention the observation made in the Rajamannar Committee Report, which highlights the
phrase "such directions to a State as may appear to the Government of India to be necessary
for that purpose" in Articles 256 and 257(1), stating that the most contentious aspect
concerning these articles is that "the sole condition for issuing such directions is the
unilateral satisfaction of the Government of India."64 However, it must be noted that if the
Federal authority is granted power to enforce federal laws effectively and exercise federal
executive authority, and if the Federal authority is authorized to issue necessary directives
to the State for this purpose, then how else can one expect the Federal authority to utilize
this power? If this authority were always required to be exercised by the Union
Government with the agreement of the relevant State or States, it would no longer be a
power of the Federal authority for enforcing its laws and executing its executive authority
effectively.

4.2 INTER-GOVERNMENTAL DELEGATION OF FUNCTIONS

The Constitution allows for the delegation of roles between the Union and the
States. Article 258(1) empowers the President to assign certain functions, with or without
conditions, to the Government or its officers, subject to the State Government's approval,
concerning matters falling under the Union's executive power. Additionally, Article 258(2)
states that Parliament can enact laws, even on subjects exclusively under Union
jurisdiction, to confer powers and duties on the State or its officials. Furthermore, Article
258(3) enables the Government of India to compensate States for any extra administrative
expenses incurred due to the exercise of such powers and duties, either through mutual
agreement or arbitration by the Chief Justice's appointee in case of disagreement. Lastly,
Article 258A, introduced by the Constitution (Seventh Amendment) Act, 1956, empowers
the Governor of a State, with the Government of India's consent, to assign functions related

64 Report of theCentre-StateRelations Inquiry Committee, (R.C.S.R.I.C.), 1971, p.22.

46
to the State's executive power to the Government or its officers, with or without
conditions.65

The delegation of governmental responsibilities between the Union and States is the
focal point of Articles 258 and 258A. Originally, Article 258 aimed to decentralize
administrative powers to the fullest extent possible. This fundamental purpose remains
intact despite the addition of Article 258A. Consequently, there has been ongoing debate
regarding the extent of Article 258's scope.

Questions regarding the interpretation of "functions" in Article 258 have emerged.

Specifically, what activities does it encompass? This inquiry was deliberated in the case of
"Amir Khan v. State" before the High Court of Allahabad.66 wherein it had to construe the
provisions of “Section 124(1) at the Government of India Act of 1935”,67 which are in all
material aspects similar to the provisions of Article 258(1) of the Constitution. In this
particular case, the defendant was found guilty by the Sessions Judge under Section 19(f) of
the Arms Act of 1924 for possessing a spearhead without a license. Section 15 of the Arms
Act explicitly prohibited the possession of any type of arms without a proper license.
Additionally, Section 27 of the Arms Act granted authority to the Governor-General to
exempt individuals or groups, or to exclude certain types of arms, or to designate specific
regions of India from the prohibitions outlined in the Act. Utilizing this provision, the
Governor-General established the Indian Arms Rules, 1924, and through Rule 3, not only
provided exemptions for certain individuals but also for specific categories of arms,
including spearheads. Moreover, the Central Government, exercising authority under
Section 124(1) of the Government of India Act 1935, issued notifications in 1938 and 1943
authorizing provincial Governments to assume the powers of the Central Government
under the Arms Act until 1948. In 1946, the U. P. Government, acting in accordance with
the Central notifications, issued a notification revoking exemptions for spearheads, swords,
etc., throughout U. P. The pivotal issue at hand was whether the Provincial Government's
65 This article was added to obviate difficulties felt by the Union Government in connection with the
execution of certain developmental works in the States. It is said that the Union Government Undertook
the construction of Hirakund Dam in Orissa and according to the arrangement with the State, the cost
was to be debited to the State of Orissa. But, the Comptroller and Auditor-General objected to this
arrangement on the ground that such arrangement was ultra-vires the Constitution. For these facts see
Alice Jacob „Centre-State Governmental Relations in the Indian Federal System‟, 10 J.I.L.I. (1968).
p.605.
66 A I.R. 1950, Allahabad 423
67 Section 124(1) of “the Government of India Act”, 1935, as adopted in 1947 states: “(1) Notwithstanding
anything in this Act, the Governor-General may, with the consent of the

47
notification held legal validity. The applicant argued that under Section 124(1) of the
Government of India Act 1935, the Central Government could delegate only executive
functions and not its power of subordinate legislation as conferred by Section 27 of the
Arms Act. Consequently, the notifications of 1938 and 1943 were deemed ultra vires, and
therefore, the Provincial Government's notification was legally ineffective. Hence, the crux
of the matter revolved around the interpretation of the term "functions" in Section 124(1) of
the Government of India Act 1935.

4.3 INTER-STATE DISPUTES AND ROLE OF THE UNION GOVERNMENT

The Constitution incorporates Articles 262 and 263, addressing issues not directly
concerning the relationship between the Union government and the States but crucial for
resolving disparities among the States and fostering coordination among them. It is
appropriate to examine these provisions at this juncture.
According to the Constitution, States possess the authority to legislate on matters
concerning "Water, including water supplies, irrigation and canals, drainage and
embankments, water storage and water-power, subject to the stipulations of Entry 56 of List
I."
Entry 56 in List I grants the Union the power to legislate on the "regulation and
development of inter-State rivers and river valleys, to the extent that such regulation and
development under Union control is deemed expedient in the public interest by Parliament
through law." Hence, the Constitution's framework delegates authority over water and
related issues to the States' legislative jurisdiction. Nonetheless, legislation and
development concerning inter-State rivers and river valleys fall within the Union's
legislative domain.
The utilization, allocation, and oversight of interstate water have consistently incited
intense debates among the constituent federal entities, especially in the context of the
United States. Experience across numerous nations reveals that legislation addressing the
comparison between private and proprietary water rights fails to provide a suitable
framework for resolving disputes between different units within a federation, particularly
when the interests of sizable communities in proper water usage and regulation are at stake.
The guiding principles for such conflicts resemble those debated in international law
concerning shared rivers and the disputes between upper and lower riparian owners over
river usage. The significance of water resource allocation extends beyond natural sources to

48
include interstate river projects, upon which the prosperity, and in many cases, the survival
of large and densely populated communities rely. The Government of India Act, 1935,
specifically addressed interference with water from natural sources, with no provisions for
interstate water issues.68 Procedures were established to address complaints regarding the
utilization of water resources, permitting individuals to appeal to the Governor-General.
The Governor-General was granted authority to appoint an investigative body and issue
directives based on its findings, which were obligatory for provincial governments or
relevant authorities. Notably, the constitutional provisions are not limited to natural water
sources. Article 262, section (1), grants Parliament the authority to legislate on "the
resolution of disputes or complaints concerning the utilization, allocation, or management
of water resources within or across state boundaries." Furthermore, section (2) of Article
262 stipulates that "regardless of the Constitution, Parliament may pass legislation
stipulating that neither the Supreme Court nor any other court shall have jurisdiction over
disputes or complaints referred to in Section (1)." It's important to recognize that the terms
"dispute" and "complaint" in Section (1) encompass not only interstate conflicts but also
disputes among residents of multiple states and grievances lodged against one state by
residents of another. The phrase "neither the Supreme Court nor any other Court shall
exercise jurisdiction" in Section (2) reinforces this interpretation. If Section (1) empowers
only the Supreme Court to resolve interstate disputes or complaints, there is no necessity in
Section (2) to exclude the jurisdiction of "any other court" for such disputes. Thus, a case
concerning the allocation of powers under Section 78 of the Punjab Reorganization Act,
1966, does not qualify as an interstate water dispute and may be subject to exclusion under
Section (2) of Article 262 of the Constitution, as affirmed in the case of State of Himachal
Pradesh v. UOI.69 Hence, it's entirely plausible that if Parliament, under clause (1) of
Articles 262, fails to address the resolution of disputes between a State and residents of
another State or grievances by residents of one State against another concerning the
utilization, distribution, or management of waters from inter-State rivers or valleys, such
legislation could be contested on the basis of non-compliance with Article 262(1). As our
focus lies predominantly on inter-State disputes and the role of the Union Government, we
won't delve deeper into conflicts between a State and residents of another State concerning
the utilization of inter-State river or valley waters.

68 Government of India Act, Secs. 130 and 131.

69 (2011) 13 SCC 344 (363).

49
In 1956, the River Boards Act was passed by Parliament. This legislation "allows for the
establishment of River Boards at the request and approval of State Governments to oversee
the regulation and development of inter-State rivers and river-valleys."70 Once they are
constituted, their duty is to tender advice on the “regulation and development” of a
specified river or river valley, pertaining the preparation of schemes for regulating and
developing it, the allocation among the State Governments the costs of executing any such
scheme, the coordination of activities, the resolution of conflicts between States on any of
these matters, etc.71
4.4 SARKARIA COMMISSION RECOMMENDATIONS ON INTER-STATE RIVER
WATER DISPUTES.

The commission recommendations as follows:72

1. “Once an application under Section 3 of the Inter-State River Water Disputes Act,
1956 is received from a State, it should be mandatory on the Union government to
constitute a Tribunal within a period not exceeding one year from the date of receipt
of the application of any disputant State. The Inter-state River Water Dispute Act
may be suitably amended for his purpose.”

2. “The Inter-State Water Dispute Act should be amended to empower the union Gov-
ernment to appoint a Tribunal, suo-motu, if necessary, when it is satisfied that such
a dispute exists in fact.”

3. “There should be a Data Bank and information system at the national level and ade-
quate machinery should be set up for this purpose at the earliest. There should also
be a provision in the Inter-State data for which purpose the tribunal may be vested
with powers of a court.”

4. “The Inter-State Water Dispute Act should be amended to ensure that the award of a
Tribunal becomes effective within five years from the date of Constitution of a Tri-
bunal. If, however, for some reasons, a Tribunal feels that the five years period has
to be extended, the union government may on a reference made by the Tribunal ex-
tend its term.”

70 Preamble, The River Boards Act, 1956, 49 of 1956

71 See also V.G. Ramachandran. „Aspects of Federalism‟, Essays on Indian Federalism, Ed. by S.P. Aiyar
and Usha Mehta, (Allied Publishers), 1965, pp. 78-79; Also S. N. Jain, Alice Jacob and S.C. Jain, Inter-
StateWaterDisputes in India, The Indian Law Institute, New Delhi, 1971, p. 6.
72 Government of India, Report of Sarkaria Commission,1987

50
 5. “The Inter-State Water Disputes Act, 1956 shall be amended so that a

Tribunal‟s award has the same force and sanction behind it as an order or decree of
the Supreme Court to make a Tribunal‟s award really binding.”

4.5 CENTRE’S OBLIGATIONS WHEN CONSTITUTIONAL MACHINERY FAILS

IN STATE:

The Constitution of India explicitly stated that the Union's responsibility to ensure the
smooth functioning of the State's constitutional public authorities led to authorizing the
President of India to fulfill this duty within the prescribed procedural framework. The
President exercises this authority to avoid any perception that it infringes upon the States'
right to operate within their reserved domain without interference. First and foremost, the
nature of this authority as outlined in the Constitution must be examined; secondly, whether
similar provisions exist in other instruments of the Federal Republic, and finally, how this
authority under the Indian Constitution is employed in specific circumstances. A
comprehensive analysis of the impact of this authority on the federal system or on the
relationship between the Centre and the States is essential.

4.6 JUDICIAL REVIEW OF PROCLAMATION UNDER ARTICLE 356:

Dr. Basu, in his work "Constitutional Law of India (1988)", pages 403 and 404, has
highlighted several instances where Judicial Review of a Proclamation under Article 356 is
applicable. This is exemplified below.

(a) "The exercise of power under Article 356 is considered mala fide when a statutory order
lacks bona fide, rendering it non-existent in law."

"In the absence of mala fides, etc., the court cannot grant relief in law. However, as a
matter of propriety, the Minister should not continue in office without affording the
Legislative Assembly an opportunity to express its confidence in the ministry." - S.R.
Bommai v. UOI73

The Supreme Court has laid down the following propositions in “S.R. Bommai v. UOI74”
dealing with Article 356:

73 A.I.R. 1990 Kant 5: ILR 1989 Kant 2425 (FB) , paragraph 33.
74 A.I.R. 1994 SC 1918

51
 (i) “Presidential Proclamation dissolving a State Legislative Assembly is sub-
ject to judicial review.”

(ii) “Burden lies on the Government of India to prove that relevant material ex-
isted (to justify the issue of Proclamation).”

(iii) “Court would not go into the correctness of the material.”

(iv) “If the court strikes down the Proclamation it has power to restore the dis-
missed State Government to office.”

(v) “A State Government pursuing anti – secular politics is liable to action un-
der article 356.”

4.7 CENTRE AGENCIES IN THE STATES

Union agencies functioning within states aim to bolster inter-state and central-state
collaboration and adherence to central government policies. Additionally, they assist the
Union government in exerting authority over states regarding law enforcement matters. These
agencies come in various forms.
4.7.1 GOVERNOR AS AGENT OF THE PRESIDENT
The Governor's office has the capacity to evolve as an instrument for establishing a live and
dynamic relation between the Centre and the States as planned by the Constitution Makers.
President is empowered to appoint governor75subject to his discretion,76 and he thus
represents the Centre in the states. “With significance for national integration and for the
preservation of national standards in public administration that has not received enough
recognition so far.”77

The role that has evolved over the past seventy years suggests that the Governor must
operate with a dual responsibility: (i) as a liaison for the Union Government and (ii) as the
Constitutional leader of the State. Our primary focus here is on the former role. According
to Article 239(2), 200, and 356, the Governor acts as a representative of the central
government, tasked with certain significant duties.

In his capacity as a representative of the center, it is incumbent upon the Governor to keep
the central government informed about the affairs of his state, particularly if those activities

75 Article 155.
76 Article 156(1).
77 Report of study team on Centre – State Relations, Vol I, 1968, P.273.

52
are perceived to jeopardize stability in the region. For this purpose, Governors provide the
President with fortnightly reports.78 However, A.P. Jain, the former governor of Kerala,
does not endorse his idea of writing privately to the president on state affairs without telling
the chief minister. This would accordingly to him “add to the suspicion of the Chief
Minister.”79 However, the assertion is challenging to reconcile, as governors ought to
maintain a higher degree of independence and be allowed to freely present reports within
their jurisdiction. As representatives of the State, governors are tasked with ensuring the
effective functioning of democracy within their territories.

The Supreme Court of India, in the case of "State of Punjab v. Satya Pal," established that
governors possess the constitutional authority to reinstate parliamentary governance in
situations where other state entities undermine democratic and parliamentary processes.
The case's particulars are intriguing.

During the incident, the Punjab Assembly was unable to conduct business for two months
due to its adjournment by the Speaker under rule 105, a decision the Governor lacked the
authority to overturn. With time constraints looming, as the Budget Session had to conclude
by March 31 to avoid financial disruptions, the Governor took swift action to restore the
state's legislative machinery by proroguing the Legislative Assembly and issuing an
Ordinance to facilitate financial transactions. The Supreme Court's ruling stated:

"Article 174(2)(a), granting the Governor the power to prorogue the Legislature, does not
impose any limitations on this authority. Whether it is justifiable for a Governor to exercise
this power while the Legislature is in session and engaged in legislative activities is not
under consideration here... The Governor's actions were not only appropriate but also the
sole constitutional recourse available to him."80

As the representative of the central authority, the Governor is tasked with safeguarding the
interests of the State. If the Governor perceives a situation where the central government
needs to intervene to address a challenge that the State cannot handle independently, it is
incumbent upon them to communicate this need to the central government.81. However,

78 J.R. Siwach, The office of the Governor- A Critical Study, 1977, Sterling, New Delhi, p.267.
79 Statesman, May 3, 1970, p.6
80 Ibid p. 911
81 Sri Prakash, State Governors in India, 1966,pp.7-8 604Article
355.

53
when assessing the needs of the state, the governor may critique the Union government,
except in the context of the Governor's address prepared by the Council of Ministers, lest it
prompt action against him. Under Article 356, the governor, acting as a representative,
bears the responsibility of ensuring that the State Government's actions comply with
constitutional provisions. If the governor perceives any deviation from constitutional
norms, they may bring it to the attention of the President. The governor stands as the sole
entity within the state to provide advice on governance adherence to constitutional
principles. In instances of constitutional breakdown, the governor is obliged to report to the
president and may direct them to assume the role of the state government.82
Over a span of almost 70 years, Article 356, which pertains to the rule of the President, has
been invoked more than 20 times. Despite Dr. Ambedkar's assurances that this article would
be used sparingly and only in rare cases, it has been utilized quite frequently. According to
the provisions, governors should refrain from recommending the imposition of President's
rule as long as the Chief Minister holds a majority in the assembly and is willing to
demonstrate it promptly, unless convinced otherwise that the state government is not
functioning in accordance with the Constitution. This occurred notably in Uttar Pradesh
during Charan Singh's case in October 1970, and in Karnataka during Devraj Urs's case in
January 1978, with President's rule being imposed just three days before the assembly
session. Therefore, the judiciary could potentially act as a check against arbitrary use of
power under Article 356 through review. However, there have been instances where the High
Court declined to intervene despite the invocation of their powers.83 The Supreme Court has
also refused to address political inquiries concerning Article 356. Numerous committees,
including constitutional lawyers and the Administrative Reform Commission, have
acknowledged the notion that the Governor likely serves as the agent of the center. They have
all expressed a desire to establish some guidelines for the conduct of governors to limit the
extensive intervention of the center and to make this position a robust link for collaboration
between the States and the Union executive. The Administrative Reforms Commission's
study team examining center-state relationships has recommended that the current practice of
consulting the Chief Minister before finalizing the selection of the Governor should be
maintained. Sir B.N. Rau, a constitutional advisor, proposed the establishment of a body to
advise the President "on matters such as the appointment of Judges." Thiru K. Santhanam and

82 ARC Report, Vol, 1967, p.276 606C.A.D, Vol.

IX, pp.175-76.
83 RaoBirender Singh v. UOI, A.I.R.1968, Punjab & Haryana 441.

54
K. SubbaRao also weighed in on this matter.84 It has been suggested that the appointment of
the governor should involve consultation with a high-level body by the President. The
Administrative Reform Commission has supported this idea. The Governor’s Committee,
which was tasked with studying and establishing the norms of the governor's role, has put
forth several recommendations:

Endorsing the delegation of discretionary powers to governors as per Article 163(1) of the
constitution.
Affirming the authority of state governors to dismiss a ministry under Article 174(1) in cases
where the Chief Minister fails to promptly face the Legislative Assembly to test their
majority. The Chief Minister's refusal is considered evidence of lacking majority.
Advocating for the Governor to not permit a Chief Minister's Ministry to continue after
electoral defeat.
Asserting that in the event of a coalition breakdown and the Chief Minister requesting the
resignation of colleagues, the Chief Minister loses the right to advise the Governor on
ministerial appointments or dismissals.
Addressing a critical situation in 1967 in Rajasthan, where the Governor claimed the
prerogative of appointing the Chief Minister based on the "single largest party" concept. The
committee suggests that the Governor does not have an absolute right to insist that only the
leader of the single largest party should form the government.
These recommendations appear to expand the discretionary powers of the Governor,
potentially increasing the likelihood of central intervention in state affairs. This expansion
could be seen as contradicting democratic principles to some extent. Consequently, the
Constitution assigns the responsibility of nominating State Governors to the President,
allowing them to assume office at their discretion. As stated in Arun Kumar Rai Choudhary
v. UOI, the mere dissolution of the Assembly on the Chief Minister's advice does not trigger
Article 356 of the Constitution.85

4.7.2. ALL INDIA SERVICES

No established federal structure operates solely on a uniform model. The fundamental
characteristics of federations become blurred. "Due to the various potential origins, each
84 The Indian Federalism by him, p.27. 612Governors‟ committee, constitute in
November,1970 by the President of India. 613M.P.Sharma v P.C. Ghose, A.I.R.1969,
Cal. 198 614As in Mr. J.N. Singh‟s case in U.P. in January 1971.
85 A.I.R 1992 All 1: 1992 All LJ 290, paragraph 7.

55
federal system is likely to differ from the next." The framers of the Indian Constitution
included provisions for All India Services, which were present during British rule in India.
The concept of the All India Service as a whole had to be reconciled with the principle of
federalism. A cohesive, interconnected All India Service, responsible for managing vital
sectors of administration across the nation, has become a tradition upheld by the framers of
the Constitution.

Recruitment for the Indian Administrative Service (IAS), the successor to the Indian Civil
Service (ICS), takes place within India. An IAS officer is assigned to a state where they serve
under the state government. Without the permission of the Central government, the state
government cannot take severe punitive actions against a member of the IAS. Within state
administration, crucial roles are held by IAS officers, who, having gained extensive
experience in district and state administration, may be transferred to the Central government
to assume positions of authority in the Central Secretariat or other relevant departments. The
Indian Police Service was established to absorb the existing Indian Police service. The
Constitution retained these two All India services and empowered Parliament to establish
other All India Services provided that the Rajya Sabha, by "resolution supported by not less
than two-thirds of the members present and voting," deemed it necessary in the national
interest. This provision aims to maintain "greater cohesion in administration and to uphold a
reasonably high standard of administration."

The ARC Study Team on Centre-State relationships and the study team on personnel have
also emphasized that "the continuation of the service (IAS) to facilitate the exchange of
experience between the state and Centre, and to access the experience of state administration
at decision-making levels at the Centre, is essential. It is, of course, true that these All India
Services will prove successful only if Centre-State relations remain based on a sound, cordial,
and cooperative foundation."

Initially, following independence, states were hesitant to create new All India Services.
However, with industrial and economic development, states realized their inability to acquire
technically trained manpower. Consequently, the Chief Ministers' Conference held in 1961
tentatively accepted the decision to establish new All India Services in (i) Engineering, (ii)
Forestry, and (iii) Medicine and Public Health. Although the Rajya Sabha passed the
necessary resolution, the bill to amend the "All India Services Act, 1951" expired upon the

56
dissolution of the Third Lok Sabha. Questions arose about the viability of maintaining the
current All India Services and establishing additional ones amidst the evolving political
landscape following the Fourth General Election in the country. Some states expressed
opposition to the establishment of any All India Service pertaining to subjects falling under
their exclusive jurisdiction. Consequently, the government abandoned its proposal to
establish two All India Services focusing on agricultural experts and educationists. Recently,
the Union Government announced plans to introduce three new All India Services in the
fields of engineering, medical science, and justice.

Regardless of the original intentions behind the creation of the All India Services by the
British, retaining the existing services and introducing new ones in areas of economic and
social administration appears imperative in the present scenario. Despite the altered
framework of central-state relations in India, marked by the presence of numerous political
parties at both levels, these All India Services are expected to persist. To achieve national
objectives such as economic growth, agricultural reforms, family planning, and combating
unemployment, the Central Government must seek cooperation from the states.

The presence of All India Services seems unusual in a federal system. However, the states
have not collectively opposed the abolition of these services, and it seems unlikely that they
will do so. Therefore, for the reasons outlined above, it is in the national interest to continue
these services to ensure administrative cooperation between the Centre and the states.

4.7.3. INSTITUTION OF JOINT PUBLIC SERVICE COMMISSION FOR TWO OR

MORE STATES.
The concept of a joint public service commission demonstrates collaboration between two or
more states or between the central government and state governments. By integrating the
recruitment processes of central and state public services or multiple state public services,
cooperation among governments is facilitated. This is particularly crucial for specialized
fields like forestry, social work, or civil engineering, where standardized procedures and
goals are essential for professionals in both central and state public services to adhere to.

To establish such a commission, states must pass resolutions in their respective legislatures,
consenting to its formation. If agreed upon, a joint committee will be legally formed. The

57
Union Public Service Commission (UPSC), upon the request of the governor and with the
president's approval, can extend its services to one or more states.

Annually, a joint state public service commission submits a report to each state's governor,
outlining its activities. These reports must include a memorandum from the governor
detailing any instances where the commission's advice was disregarded, along with
explanations for such actions, which are then presented to the state legislature.

Additionally, the president is tasked with prescribing the qualifications for both official and
non-official members of the state commission through regulations. To ensure uniformity in
the appointment of commission members across states, the determination of qualifications
should be made a subject under the Union or concurrent list by amending the Seventh
Schedule of the Constitution. Implementing these recommendations will enhance cooperation
between the central and state governments through the State Public Service Commission,
thereby standardizing the quality of state services nationwide.

4.8. SARKARIA COMMISSION RECOMMENDATION RELATING TO

ADMINISTRATIVE RELATIONS BETWEEN CENTRE AND STATE

1. Articles 256, 257, and 365 serve as crucial provisions aimed at ensuring coordination
between the union and the States to effectively implement union laws and the national
policies outlined therein. However, resorting to directives under Articles 256 and 257,
as well as the imposition of sanctions under Article 365 in cases of non-compliance,
should only be considered as a last resort measure. Prior to issuing directives to a
State or invoking sanctions under Article 365, it is imperative to exercise utmost cau-
tion and explore all possible avenues for resolving conflicts through other available
means.

2. Federalism serves as a dynamic mechanism for collaborative endeavors rather than a

fixed institutional idea. Article 258 offers a means through which cooperative federal-
ism can be effectively implemented within the system. To achieve greater success in
realizing cooperative federalism, it is essential to utilize this tool more extensively
and generously than previously done for states and their respective officials and au-
thorities.

58
 3. The current relationship between the armed forces of the union and the civil authori-
ties of the State, as well as their operational procedures outlined in relevant union
laws, remain unchanged. However, prior to deploying union armed forces or other
forces to assist civil authorities in a State without a request from the State Govern-
ment, or declaring a specific area under such circumstances, consultation with the
State Government should be pursued whenever possible, and their cooperation
sought, even if prior consultation is not mandatory.

CHAPTER V
FINANCIAL RELATIONS

5.1 RISE OF FEDERAL FINANCE IN INDIA:

The financial reforms introduced in 1871 represented a significant shift in the evolution of
financial relations between the Centre and the Provinces. Prior to this, India's
administrative system was characterized by complete financial centralization, which was a
natural consequence of the Unitarian structure established under the Charter Act of 1833.
These reforms stripped the provinces of their authority to legislate for their territories and
to incur expenses without the consent of the government of India. They were required to
strictly adhere to the instructions of the Governor General in Council and keep the central
government informed of all their actions. The extensive and stringent control exercised by
the Government of India over provincial finances was succinctly described by two
contemporary observers:86

There was minimal financial autonomy within the provinces, with local governments
solely responsible for financial obligations, operating under the central administration.
The system was highly centralized, with the Government of India exercising control over
expenditure down to the smallest details. Its authority extended to the hiring of
individuals funded by public money and approval for local infrastructure projects such as

86 Sir John and Lieut. Gen. Richard Strachey, Finances and Public Works of India, 1869-1881, London, 1882, p.
134.

59
 roads and buildings. However, this centralized control led to inefficiencies and wasteful
spending. Provinces heavily relied on the central government for funding, often driven by
genuine needs for development. However, the distribution of funds lacked transparency
and consistency, resembling more of a chaotic scramble than a rational process.87 Hence,
provincial administrations relied on subsidies provided by the central government, often
without clear guidelines. According to Ashok Chanda, this setup not only lacked logic but
also led to numerous administrative challenges.88
That was the legal stance. However, the Centre's ostensibly direct control over regional
budgets has essentially become symbolic due to inadequate budgeting and a lack of
efficient auditing and accounting systems. This setup incentivized inefficiency and
overspending. Any savings made by local governments in one year couldn't be carried
over to the next without explicit approval from the Centre, despite the inevitable decline
in the imperial revenue share. Since the revenues collected by provincial authorities
weren't linked to their allocated shares, provincial governments had little incentive to
enhance revenue collection. Consequently, the centralized financing system fostered
financial irresponsibility and encouraged wasteful spending.89 This ineffective approach
has faced repeated and vigorous criticism. Charles Dickens proposed the regionalization
of the Indian economy as early as 1860. In 1861, Samuel Laing, serving as the Finance
Member in the Governor General's Executive Council, also suggested a system of
provincial finance. These suggestions were deemed insufficient by Mr. Matby, a member
of the Madras Executive Council. In 1862, Laing presented a revised framework for
financial decentralization and made a compelling argument. He stated:

"It is highly desirable to move away from the system of sterile uniformity and rigid
centralization that historically reduced all of India to dependence on the bureaucracy of
Calcutta, and to empower local governments with the authority and responsibility to
manage their own local affairs."

In 1867, Colonel Strachey devised a federal funding scheme for India with the intention
of elevating India's financial status "similar to that of the Federal Government of the

87 Ibid., p. 137
88 Ashok Chanda, Federalism in India, London, 1965, p.134.
89 B.R. Misra, Indian Federal Finance, Calcutta,1960, p. 34.

60
 United States of America." It would have been contradictory to anticipate the introduction
of the federal principle in the realm of Centre-Province financial relations while the
existing unitary relations remained unchanged in other areas. Consequently, it is
unsurprising that despite the broad support received by Strachey's plan from provincial
governments and a majority of the members of the Governor General's Council, the plan
was thwarted by the personal and unwavering opposition of the Governor General, Sir
John Lawrence.

Nevertheless, it was evident that the groundwork for strict central control of regional
finances was ready for some relaxation. In 1871, Lord Mayo, guided by this conviction,
took the initial step in this direction.90

In the scenario where local authorities oversee portions of our revenue and expenditures,
there emerges a heightened sense of accountability from the state. This oversight
mitigates logistical hurdles and gradually integrates governmental leaders from various
regions into the national institution, within the framework of local autonomy. Ultimately,
this fosters increased public engagement within the region.

Lord Mayo's financial reforms shifted the responsibility to provincial administrations for
managing various facilities including prisons, police, healthcare systems, registration,
schooling, highways, and civil structures. Alongside departmental revenues, fixed grants
were allocated to provinces to fulfill their duties. Provinces were granted autonomy to
allocate these funds as they deemed fit, including certain central revenues such as those
from the post office, railways, and state tributes. Other central resources like customs,
salt, and opium, were utilized to meet substantial spending obligations. Additionally,
revenues from sources like excise duty, stamps, registration, and forestry were shared
between the central and provincial governments.

While this structure maintained the Government of India's legislative authority and
supervisory power, it represented an informal decentralization effort, marking a
significant step towards reshaping central-provincial relations in India. This transition
resulted in considerable annual savings for the Government of India and instilled a sense
of responsibility within provincial governments. Moreover, it incentivized administrative
90 P. Banerji, Provincial Finance in India, Calcutta,1929, p. 62.

61
 efficiency and stimulated interest in local tax development. Reflecting on the system's
performance four years post-implementation, Mr. Chapman, Financial Secretary to the
Government of India, noted its effectiveness.91
The reform initiative has been notably successful, garnering widespread recognition for
fostering a positive relationship between the Supreme Government and Local
Governments. It has also served to enhance the commitment of the latter to their duties
and empower them to enact beneficial changes. These achievements have been realized
without compromising the authority and dignity of the Government of India or causing
any financial instability.

Undoubtedly, the new arrangement marked a significant improvement from the previous,
highly centralized system that had been in place for fifty years. However, it did have its
flaws. One of the most notable shortcomings was the perpetuation of financial disparities
among provinces. This was primarily due to the settlement reached in 1871, which relied
on the actual expenditure in the provinces for the year 1870-71. For instance, Bombay's
expenditure was twice that of Madras and thrice that of Bengal, highlighting significant
inequalities. Gopal Krishna Gokhale's testimony before the Welby Commission
underscores these issues. 92 observed:

The disparities stem from the era before decentralization, where provincial spending was
determined not by their resources or needs, but by the attention they garnered from the
central government. The initial steps towards decentralization in 1871 used existing
provincial expenditure levels as the benchmark, thereby perpetuating existing inequalities.
In 1877, under Lord Lytton's administration, financial regulations were devolved to
regional bodies, expanding the decentralized system. Revenue streams such as law and
justice, excise, and income tax were transferred to the provinces, with any fluctuations
shared between the Centre and provinces. Lord Ripon's viceroyalty in 1882 saw further
steps towards financial devolution, abolishing fixed grants and implementing a
progressive distribution method. However, challenges persisted, including the restart of
provincial credit every five years, leading to inefficient spending by regional governments
to safeguard their funds from being reclaimed by the central government.
Sir A. Mackenzie, Lieutenant Governor of Bengal, a strong critic of the system, stated in
the course of an address93 to the Imperial Legislative Council.
91 Quoted in Bisheshwar Prasad, The Origins of Provincial Autonomy, Allahabad, 1946, p. 142.
92 Ibid, p. 143
93 Cited in Gyan Chand, The Essentials of Federal Finance, Bombay, 1930, pp. 36-37.

62
 This deficiency was largely eliminated in 1904, when the Government of Lord
Curzon declared the settlements quasi-permanent, granting local governments a more
autonomous role and a more significant and lasting involvement in the administration of
their resources than was formerly feasible.94 According to Chanda, this was the first step
in the grant of financial autonomy to the provinces.95 Responding to constant pressure
from official as well as non-official quarters, Lord Harding‟s Government made the
settlements permanent in 1912.
As can be emphasized again, the financial decentralization steps summed up above
were informal and business in character and did not impact either the debt of the Union
government for solvency either statutory supervision of provinces. The legal position was
correctly stated by the Government of India in 1878 when it declared that despite the new
procedure it had “not contemplated the abrogation of the constitutional responsibility
imposed upon it of exercising a general executive supervision over the proceedings of the
Local Governments in the collection of the revenues and the administration of the services
assigned to their quasi-independent care”.96Supreme Government consent was also
required in the provincial budgets. The provincial governments had to strictly comply
with laws, rules and procedures established by the government of India in the
administration of their financial relations. Resources assigned to the provinces were
limited and inadequate and their power to supplement them through local taxation was
severely circumscribed. In fact, the provinces were dependent in the matters of taxation.
Any plan for a provincial levy needed the approval of the Government of India. Provincial
governments were not empowered to raise loans in the open market, a restriction which
was treated “almost as an axiom of the Indian financial system”.97Finally, the “divided”
heads offered ample space for Central intervention in the aspects of provincial finance.
While all this is true, it must nevertheless be noted that every step in financial
decentralization, however small, improved the status of the provinces and enlarged the
powers and responsibilities of provincial governments. Compared with the position as it
obtained before 1871, the provinces had a wider scope for developing the services
assigned to them and enjoyed greater freedom of action.
According to B.R. Misra:98

94 Report of the Royal Commission on Decentralisation, 1909, para 60.

95 Ashok Chanda, op. cit., p. 136.
96 Financial Resolution No. 1514 dated 8 July, 1873.
97 Report on Indian Constitutional Reforms, 1918, p. 94.
98 B.R. Misra, op. cit., n. 49, pp. 49-50.

63
 The historical progression of financial decentralization in India underscores a clear
imperative: in a vast country like India, both political and financial administration must be
decentralized to enhance efficiency. Initially, budgets were allocated to individual
department heads, evolving into budgets based on assigned revenues, followed by quasi-
permanent and permanent settlements. Each stage of this decentralization process aimed
to improve efficiency, economy, and accountability. This transformation is evident from
the fact that prior to 1870, the Governor of Bengal had limited authority to make financial
decisions, while by 1919, considerable spending powers were delegated without prior
approval from the Government of India.

However, despite these changes, the overall administrative structure remained centralized,
not adopting a federal model. Nonetheless, there were indications of federal possibilities,
particularly through the categorization of revenue heads into imperial, provincial, and
divided. This division of financial administration, reminiscent of federal systems,
gradually became integrated into financial settlements. Figures like Gokhale and
Surendranath Banerjee advocated for the abolition of divided revenue heads and
advocated for a clear separation of imperial and provincial revenues, aligning India's
financial system with federal models in countries like Germany, Canada, and the United
States.

While there was no explicit official intention at the time to transition India into a
federation, leaders like Gokhale and Banerjee saw decentralization as a step towards
establishing a Federation of India. Despite the absence of terms like "provincial
authority," scholars like Bisheshwar Prasad noted the implicit trajectory towards
federalism in the decentralization schemes of the era.99

The proposals for separating provincial finances from the control of the Government of
India, granting legislative freedom to provincial Legislative Councils, and demanding
partial executive accountability to representative bodies represent a somewhat vague
concept. The prevailing idea was that Provincial Governments, which primarily
administered the country, should have legislative freedom under the oversight of their
respective Legislative Councils.

99 Bisheshwar Prasad, op. cit., n. 1, p.245.

64
5.2.FEDERAL FINANCE UNDER THE GOVERNMENT OF INDIA ACT 1935:

By incorporating the principle of federal finance, the Government of India Act, 1935,
brought about a significant change in the fiscal landscape of the provinces. This marked
the first instance where the Montford Reforms allocated independent and distinct income
sources to both the Centre and the Provinces. However, the arrangement, although
initially disadvantaging the Centre with provincial contributions to the Central Fiscal,
gradually shifted to the detriment of the provinces. The revenue sources assigned to them
were insufficient and relatively inflexible, all while being tasked with the responsibility of
developing social services and national projects. Consequently, most provinces
experienced budget deficits, with provincial Finance Members lamenting the scarcity of
funds hindering their ability to carry out essential economic and social development
programs.

The Act of 1935 introduced significant alterations in the financial dynamics between the
Centre and the provinces, aiming to grant financial autonomy to the provinces while
ensuring the financial stability and sustainability of the Centre. These enhancements
ultimately bolstered the financial standing of the provinces and introduced a degree of
flexibility to their revenues. Apart from delineating federal and provincial revenue
sources, the Government of India Act, 1935, introduced a system of mutual taxation, with
income tax (excluding agricultural and corporate income) being a prominent example.
Furthermore, the Act ensured financial equilibrium for provinces by specifying duties to
be imposed and collected by the Federation, thereby allocating more funds to the
provinces. This included duties on salt, excise duties, and export duties, embedding a
level of inflexibility in the adopted provisions. Finally, the Act enhanced provincial
borrowing capabilities, enabling them to access credit from the open market, albeit
subject to prior sanction by the federal government in cases of transactions outside India.

In the context of financial relations between the Centre and the provinces, the revisions to
the 1935 Constitution primarily aimed at enhancing the general notion of financial
autonomy for the provinces. However, it would be inaccurate to claim that these revisions
conferred absolute financial autonomy. Criticism has been leveled against the system,
suggesting that revenue sources were distributed in a manner that deliberately prioritized
the security of the Centre over the stability and growth of the provinces, with the

65
Government of India monopolizing key revenue streams. While there is some validity to
this critique, it is worth noting that similar criticisms are often directed towards the
financial provisions of our current constitution, which draw heavily from those
established in the 1935 Act. Additionally, it is true that the legislation has significantly
bolstered the economic standing of the provinces and has provided a degree of financial
independence by allowing them to enhance their revenue streams to meet their expenses.

5.3. THE CONSTITUTION AND THE ACT OF 1935

The allocation of financial resources between the Central government and the provinces
stands as one of the most crucial and complex challenges faced by federal systems. Few
federations worldwide have managed to address this issue entirely successfully. The
framers of the Indian Constitution wisely followed the path of the "Government of India
Act, 1935," regarding financial relations between the Center and the provinces. In doing
so, the Constitution aimed to delineate the financial resources of the Center and the States
as much as possible, avoiding the requirement for concurrent decision-making prevalent
in older federations' financial spheres. However, this demarcation is not absolute,
recognizing that it's neither feasible nor desirable to entirely segregate the financial
powers of the Center and the units.
Similar to the provisions in the 1935 Act, the Indian Constitution segregates tax resources
and shares tax revenue. The list of taxes exclusively assigned to the States largely mirrors
that of the 1935 Act, with a few additions. Additionally, akin to the "Government of India
Act, 1935," the Constitution allows for the sharing of the net proceeds of non-agricultural
income tax and, subject to Union legislation, Union excise duties. The Constitution also
continues the tradition from 1935 by providing for both general and specific central
grants-in-aid to the States.
The Constitution diverges from the Act of 1935 in two significant aspects. Firstly, while
the Act left the allocation of residuary powers to the discretion of the Governor General,
the Constitution vests these powers, including financial resources, in the Centre.
Secondly, the establishment of the Finance Commission marks another departure. Unlike
the Act of 1935, where tax sharing and central grant-in-aid were regulated by executive
orders of the Governor General, the Constitution mandates that the sharing of income tax
proceeds between the Centre and the States, as well as the distribution of the States' shares
among themselves, must be determined by Presidential orders after considering the

66
 Finance Commission's recommendations. Additionally, parliamentary legislation is
required for the sharing of Union excise duties, with an advisory role assigned to the
Finance Commission.

During the formulation of the Free Indian Constitution by the Constituent Assembly, the
inclusion of former Princely States addressed the financial balance between the Centre
and the component units. These states, which enjoyed greater financial autonomy under
British rule, were initially reluctant to join the all-India Federation proposed by the
Government of India Act of 1935 due to their desire to maintain fiscal independence.

Initially, the Expert Committee, chaired by N.R. Sarkar, recommended that states
acceding to the Indian Union should relinquish their right to levy internal customs without
compensation. However, the administration of maritime customs was to be taken over by
the Central Government with compensation to affected states. The Committee further
proposed that Indian income tax and central excise duties should be enforced in the states,
with suitable compensation provided for the loss of privileges and immunities previously
enjoyed by them.

The recommendations put forth by the Sarkar Committee quickly became outdated due to
the rapidly evolving political landscape. Thanks to the adept leadership of Sardar Patel,
the Ministry of States efficiently convinced or coerced princely states within India's
borders to accede based on the acceptance of List I and List II (excluding financial
provisions) of the Seventh Schedule, achieving this feat within a year of independence.
Consequently, the matter of financial relations between the union and the states required
reconsideration. To address this, the Ministry of States established a new committee,
known as "The Indian States Finance Enquiry Committee," with V.T. Krishnamachari at
its helm. Advocating for constitutional equality between states and provinces in all
aspects, the committee reached the conclusion that:100 From the standpoint of considering
States and Provinces as equal partners, it logically follows that the Central Government
should operate within States with the same scope of authority and powers as within
Provinces. This approach is crucial for strengthening the Union of India and enhancing
the effectiveness of its policies. No federation exists where the Central Government holds
varying degrees of power and authority across its constituent units.

100 Report of the Indian States‟ Finance Enquiry Committee, 1948-49, para ii.

67
As a natural extension of this principle, the Committee emphasized the notion of equal
financial contributions to the Central treasury. It recommended that former princely states
should financially support the Union on par with the provinces, receiving grants-in-aid and
other forms of financial assistance on an equitable basis. Consequently, upon the completion
of the constitution's framing, uniform financial relations were established between the Union
and all its component units, including the former princely states integrated into the Union as
states of the 'B' or 'C' parts.

During the deliberation of the Draft Constitution, K. Santhanam remarked on the need to
eliminate the artificial distinction between Provinces and States promptly. He acknowledged
certain financial interests hindering this process but proposed a formula to safeguard the
states from financial repercussions. He suggested adopting the principle that no state should
suffer financially by aligning with the Provinces and advocated providing a guarantee that
they would be compensated from Central funds for any losses incurred. (Constituent
Assembly Debates, vii, 3, pp. 264-65)

5.4. FINANCE COMMISSION OF INDIA

The architects of the Constitution understood that a permanent solution wouldn't suffice
indefinitely due to evolving socioeconomic conditions, necessitating ongoing adjustments
in the redistribution of revenue from the Centre to the States. Thus, they devised a flexible
system for central revenue allocation to the States, adaptable based on practicality,
prevailing economic conditions, and the financial positions of both the Centre and the
States. This system was designed to operate seamlessly over time without sparking inter-
governmental tensions. Lessons from Canada and Australia highlighted the
ineffectiveness of fixed mechanisms for central grants, prompting the need for periodic
reevaluation.

To achieve these goals, the Constitution established provisions for the periodic formation
of the Finance Commission, an apolitical body tasked with facilitating inter-governmental
financial adjustments. Article 280(1) mandates the President to appoint a Finance
Commission every five years or sooner if deemed necessary. Article 281 stipulates that
the President must present the Commission's recommendations, along with an explanatory

68
memorandum detailing actions taken, to both Houses of Parliament. According to Article
280(3), the Commission's functions include making recommendations to the President.

The Finance Commission serves as the pivotal link in managing financial affairs between
the Indian Federal Centre and the States. While inspired by Australia's Commonwealth
Grant Commission, there are distinct differences between the two entities. Constituted
once every five years, this commission holds constitutional authority. Its
recommendations extend beyond tax-sharing to encompass "fiscal need" grants. Integral
to shaping intergovernmental financial relations, the Indian Commission plays a pivotal
and effective role. Recognizing finance as crucial to effective governance, the
Commission aims to sustain the Indian federal system without undue strain. Envisioned
by the Constitution's framers as an apolitical expert body, the Commission removes
resource devolution from political bargaining. Throughout its operations, it gathers
reports, hears testimonies, and engages with diverse stakeholders, including private
entities. Before finalizing its report, it conducts discussions in all state capitals with
government representatives. Since the Constitution's inception, fifteen Finance
Commissions have been appointed, shedding light on the evolution of Central-State
financial relations over the past seventy years.

5.5 14TH FINANCE COMMISSION RECOMMENDATION REGARDING

REVENUE DISTRIBUTION

The 14th Finance Commission was established on January 2, 2013, under the leadership
of Y.V. Reddy. Its recommendations became effective in April 2015, having been
accepted on February 24, 2015. Aligned with the principles of cooperative federalism,
these recommendations cover the period from 2015-16 to 2019-20.

69
Key recommendations include:

1. Increasing the States' share in central taxes from 32% to 42%.

2. Higher tax devolution translates to greater autonomy for States in financing, allowing
them to tailor schemes to their specific needs when their treasuries are robust.
3. Allocation of grants totaling Rs. 2.88 lakh crore to States for gram panchayats and
municipal bodies over a five-year period.
4. Augmented devolution resulted in States receiving Rs. 3.48 lakh crore in 2014-15
and Rs. 5.26 lakh crore in 2015-16.
5. The share of States in the Centre's net tax receipts increased by Rs. 178,000 crore in
2015-2016.

5.6 15TH FINANCE COMMISSION’ REPORT FOR THE YEAR 2020-21

The Commission was mandated to deliver two reports. The initial report includes
recommendations for the 2020-21 period and was presented to Parliament on February 1,
2020. The conclusive report containing recommendations for the 2021-2026 period is
scheduled for submission by October 30, 2020.

5.7 THE RECOMMENDATIONS IN THE FIRST REPORT 2020-21:

1. The share of states in the Centre's taxes decreased from 42% during the period of
2015-2020 to 41% for the fiscal year 2020-21. This 1% decrease is attributed to the
newly formed Union Territories of Jammu, Kashmir, and Ladakh.
2. An expert group should be established to draft legislation aimed at providing a
statutory framework for effective public financial management.
3. Special grants allocated to the states of Karnataka, Mizoram, and Telangana have
declined in the fiscal year 2020-2021 compared to 2019-20. The Commission has
recommended special grants totaling Rs. 6764 crore for these states.

5.8 SOME CHALLENGES IN IMPLEMENTATION OF GST:

The Commission identified several challenges in the implementation of GST, including:

 Shortfall in tax collection compared to forecasts.
 Accumulation of a large amount of integrated GST credit.
 Issues with invoice and input tax matching.

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  Delays in processing refunds.
Furthermore, the Commission noted a significant reliance of states on compensation
from the Central government to offset revenue shortfalls, with 21 out of 29 states
relying on this in 2018-2019. This dependency is a major concern. The Commission
recommended that the structural implications of GST for states with high consumption
rates should be carefully considered.

5.9 JOURNEY OF PLANNING COMMISSION

Planning Commission is a cooperative entity in India where the Centre in
consultation with the States lays down the essential planning norms. The Centre supplies a
substantial volume of funds, and States provide the primary administrative machinery.
The planning commission, formed in March 1950 in a formal resolution by the
Government of India, forms the core of the country's planning organization. The functions
of the Commission are:
(a) “To make an assessment of the material, capital and human resources of the
country, including technical personnel and to investigate the possibility of aug-
menting such of these resources as are found to be deficient in relation to the
nation‟s requirements.

(b) To formulate a plan for the most effective and balanced utilization of the coun-
try‟s resources.”

(c) “To define the stage in which the plan should be carried out on a basis of prior-
ities and purpose of allocation of resources for proper completion of every
stage.

(d) To indicate the elements that retard economic development and to determine
conditions which should be established for the success of plan”

(e) “To determine the nature of machinery to secure the successful implementation
of the plan.

(f) To appraise from time to time the progress of the plan and to recommend for
necessary adjustments of policy and measures and.

(g) To make recommendations either for facilitating the discharge of its duties or
for a consideration of the prevailing economic conditions, current policies

71
 measures and development programmes or for an examination of problems re-
ferred to it for advice by the Centre or State Government.”101

A brief examination of the Commission's functions reveals the significant role it plays in
shaping the nation's economic policies. Despite lacking constitutional or statutory status,
the Commission has effectively taken on the role of shaping India's future.

5.10 THE ESSENCE OF COOPERATIVE FEDERALISM IN PLANNING SYSTEM.

The central authority, integral to national planning, is clearly evident. However, its role
has primarily been focused on establishing overarching development policies and goals to
ensure consistent progress across the nation. Furthermore, this authority operates largely
through cooperation and mutual agreement. The hallmark of planning at every stage is the
collaborative partnership between the central government and the states.102 The Planning
Commission initiates the drafting of a five-year plan outline. States then develop their
own plans based on the broad targets outlined in the draft. Subsequent discussions occur
between the Planning Commission and the States, leading to the formulation of final State
plans. As mentioned earlier, the Planning Commission adjusts and modifies State plans in
the final stage, aligning them with national policies and priorities. This illustrates the
decentralized nature of planning in India. The active participation of State governments in
the planning process highlights the opportunities for initiative at the State level.

The Planning Commission has also decided to further decentralize the planning process.
Cooperation between the Centre and the States is crucial during the implementation stage
of planning. Many schemes and programs outlined in the five-year plans fall within the
jurisdiction of the States. Therefore, adequate cooperation from the States is essential for
successful plan implementation. However, States often lack the necessary resources to
finance their schemes and projects. In such cases, the Centre significantly supplements
State resources, providing financial cooperation for the implementation of schemes within
the State sector of the plans. Thus, the planning system in India functions as a mechanism
for Centre-State cooperation.

101 Gazette of India, March 15, 1950 Sec 4 of the resolution.

102 Amal Ray , Intergovernmental Relations in India, Asia Publishing House,1966,p.138

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5.11 PLANNING COMMISSION TO NITI AAYOG

Following a significant announcement by Prime Minister Sh. Narendra Modi on

Independence Day, the Union Government established NITI Aayog (National Institution
for Transforming India) on Jan. 1, 2015, replacing the Planning Commission. This move
followed extensive consultations involving various stakeholders, including state
governments, experts in different fields, and relevant institutions.

NITI Aayog was instituted with the aim of offering crucial direction and strategic input
into the development process. It is designed to function as a think tank, providing advice
to both the central and state governments on policy matters. The objective is to address
the sluggish implementation of policies by enhancing coordination between ministries and
fostering better cooperation between the central and state governments (known as
cooperative federalism). Unlike the Planning Commission, which operated through five-
year plans and allocated resources to meet specific economic targets, NITI Aayog is
envisioned as more of a forum for discussion and idea generation.

The composition of NITI Aayog includes leaders from India's 29 states and seven union
territories. However, its full-time staff, comprising a deputy chairman, Chief Executive
Officer, and experts, will report directly to the Prime Minister, who serves as its
chairman. Unlike the Planning Commission, which reported to the National Development
Council, NITI Aayog operates under a different structure.

One significant departure in the approach between NITI Aayog and the Planning
Commission is the emphasis on greater involvement of states in planning. While the
Planning Commission adopted a top-down approach with standardized plans, NITI Aayog
aims to engage states more directly, tailoring policies to their specific needs. While the
Planning Commission primarily provided advisory services, NITI Aayog has the authority
to allocate resources to states based on their individual requirements.

Previously, states had limited influence on policy planning, as this was predominantly
handled by the Planning Commission. However, with the establishment of NITI Aayog, the

73
indirect involvement of states through the National Development Council is no longer
applicable. The Prime Minister serves as the ex-officio chairman of NITI Aayog, with Shri
Arvind Panagariya as vice chairman and Shri Amitabh Kant as Chief Executive Officer. 103

Functions of NITI Aayog

1. “To evolve a shared vision of national development priorities sectors and strategies
with the active involvement of States in the light of national objectives.
2. To foster cooperative federalism through structured support initiatives and mecha-
nisms with the States on a continuous basis, recognizing that strong States make a
strong nation.
3. To develop mechanisms to formulate credible plans at the village level and aggre-
gate these progressively at higher levels of government.
4. To ensure, on areas that are specifically referred to it, that the interests of national
security are incorporated in economic strategy and policy.
5. To pay special attention to the sections of our society that may be at risk of not
benefitting adequately from economic progress.
6. To design strategic and long term policy and programme frameworks and initia-
tives, and monitor their progress and their efficacy. The lessons learnt through
monitoring and feedback will be used for making innovative improvements, in-
cluding necessary mid-course corrections.”

5.12. RELATION BETWEEN FINANCE COMMISSION AND THE PLANNING

COMMISSION ( NOW NITI AAYOG)

Considerable concerns have been raised regarding the incursions made by the
planning commission, an entity beyond the constitution and legislation, into domains
believed to be solely under the purview of the Finance Commission. There is consensus
regarding the need for the Finance Commission to attain permanence, and for the
Planning Commission to periodically assume the role of a Finance Commission.
Moreover, it's imperative to delineate a specific legislative role and jurisdiction for the
Planning Commission. Much of the discourse revolves around legal and analytical
arguments. A system ensuring that finance commissions adequately address State revenue

103 Government establishes NITI Aayog (National Institution for Transforming India) to replace Planning
Commission, <https://www.pmindia.gov.in/en/news_updates/government-establishes-niti-aayognational-
institution-for-transforming-india-to-replace-planning-commission/>, last Visited on July 2020 831Niti Aayog
(National Institution For Transforming India), https://niti.gov.in/content/functions, last visited on July 2020.

74
needs, while the Planning Commission scrutinizes program revenue and capital
conditions, fostering incremental growth and providing funds for States, would benefit the
nation. The Planning Commission cannot pursue the same objectives as the Finance
Commission, given its foundation. To date, there hasn't been a mechanism to reconcile the
conflicting views of the Union and the States regarding national capital resource
utilization. While the Finance Commission's mandate was limited to revenue matters, its
terms of reference further constrained its scope to revenue transfer proposals. Although
certain issues, like State debt and overdraft distress, have been referred to the Finance
Commission for "sound finance," recommendations on capital resource allocation
between the Centre and States remain absent. Consequently, finance commissions
primarily address State revenue accounts. Typically, the revenue segment of the plan
accounts for no more than 30% of the annual budget, minimizing the finance
commissions' impact. Therefore, except for surplus states, the finance commissions
balance the non-plan account, leaving the entire income aspect to be covered by additional
state taxation and discretionary grants from the Centre.
There is a debate surrounding the enhancement of the Finance Commission's role. In
response, the approach toward meeting essential needs at current levels versus fulfilling
additional requirements incrementally must be markedly different. This fundamental
difference in methodology poses a significant challenge for someone tasked with both
roles. It appears beneficial for another agency, apart from the Finance Commission, to
assume the planning role, necessitating an entirely different strategy.

The next point of discussion pertains to selecting a suitable agency to fulfill the nation's
planning role. Criticism regarding the impartiality and position of the Planning
Commission cannot be overlooked. Planning is situated within the Concurrent List of the
Constitution, representing both the Center's shared responsibility and that of the States. In
the 1967 era, planning in the country predominantly fell under the Central Government's
jurisdiction, with States having limited scope for action and planning primarily on a
residual basis.

The organization lacks authority to conduct an independent and conclusive evaluation of

the Center's resources. Its role in determining and overseeing the Government of India's
non-plan expenditure levels, particularly in defense, is minimal. The organization's
function has devolved into allocating Central Assistance among competing States on a

75
residual basis while also assessing the scale of state plans using available resources
systematically. To ensure the success of planning and adherence to agreed priorities, a
planning body encompassing both state and central governments should be established.
This could be achieved by removing it from the control of the Government of India, in
line with the statute or constitutional status of the planning commission.

In this regard, Article 263 of the Constitution allows for the creation, through minor
constitutional amendments, of an Inter-State Committee, which could be constituted as an
executive planning body by a national planning commission when necessary. Preference
should be given to a specific scheme that maintains independence in its assessments and
aligns with the overarching objectives of the program. Such a national planning
organization, acting as a State planning board representing the National Planning
Organization, could have affiliates at the national level and offer guidance to the States on
planning matters.

5.13 JOURNEY OF GST

The final aspect of constructing fiscal federalism in India post-1991 revolves around
diminishing the fiscal authority of state-level governments under the guise of efficiency
through a unified tax system at a standardized rate. The amalgamation of all indirect taxes
at both central and state levels into a single tax - the Goods and Services Tax (GST) - as
facilitated by the 122nd Constitutional Amendment (GST) Bill of 2014, has prompted a
reevaluation of the centralizing tendencies within India's fiscal federalism in the current
context.

The adoption of GST is viewed as a pivotal step towards establishing a "unified national
market" and creating a cohesive tax framework. Despite being the largest economy
globally, the United States has not adopted a Value Added Tax (VAT)/GST system;
instead, it maintains a system of state-level sales taxes. This raises questions about why a
common national market was not deemed necessary.

The pursuit of a common market in India within the framework of fiscal federalism is
influenced by the Maastricht Treaty, which aimed to establish a unified European market.
This endeavor aimed at forging a political and economic union among sovereign

76
European nation-states, a goal currently facing challenges due to inherent contradictions.
The absence of a coherent state theory, particularly within the context of the nation-state,
in shaping a robust financial framework, suggests a misguided perception of replicating
the European model in India.

The common market issue was significant in Europe due to the presence of diverse
markets divided by national borders, yet with relatively uniform consumption patterns.
The notion of "home-grown reforms" is called into question by the inexplicable conflation
of tax principles borrowed from Europe's fiscal federalism model with India's distinct
characteristics, including its diverse consumption structures among federal sub-national
units. The VAT/GST system was a precondition for European Union membership,
tailored for transitional environments where demand varied significantly across European
countries.
The focus on the economic rationale behind the VAT/GST scheme lies in its
purported "efficiency" particularly in developing economies of Asia and Africa. Contrary
to popular belief, the implementation and nature of the VAT/GST system worldwide
weren't universally driven by efficiency concerns. In the context of India's economy,
where the assumption of full employment conditions is unrealistic within its social
structure, the notion of efficiency has been simplified to "ease of business" in the design
of GST. This shift in the state's class basis is the primary reason behind this change, rather
than adherence to any specific economic theory.

The hasty adoption of GST in India indicates a neglect of prior VAT

implementation experiences, marking the initial step in the GST regime transition. The
argument was that India's existing indirect tax system was convoluted, distorted, and led
to cascading effects, hindering tax collection growth. VAT was expected to introduce an
efficient input credit tax, thereby enhancing competitiveness and driving tax revenue
growth, resulting in a higher indirect tax-to-GDP ratio. However, achieving stringent
efficiency conditions necessitated a single optimal tax rate assumption, overlooking the
diverse nature of goods and their divisibility.

Even a decade after its implementation, there's no conclusive evidence of a

significant and consistent improvement in tax buoyancy following the introduction of
VAT in India. In Bihar, for instance, most tax sectors experienced a decline in tax revenue

77
growth over five years post-VAT implementation, with only a few reporting minor
increases.

Debates surrounding GST have primarily revolved around determining the optimal
revenue-neutral rate (RNR). It has been agreed that states will be compensated for
revenue losses based on an estimated GST RNR for all states. However, these estimations
rely on datasets that impute the tax base, including assumptions about "sin goods," raising
concerns about the rigor of such calculations.

For a more thorough evaluation, data on commodity sales and tax collection at the
circle level across all states is essential. Despite the availability of such information
through state government tax officials, there has been a notable lack of effort from GST
technological experts to explore the actual product bases of VAT regimes across states.
In various studies assessing the Revenue Neutral Rate (RNR) for different states
and contributing to the discussion on GST, it was found that approximately 30-35 percent
of commodities were exempted from GST. This implies that the actual tax base
considered in all RNR estimations for states, even those assuming a higher proportion of
exempted goods, is underestimated and overlooks the composition of the limited
commodity tax base in low-income states. In developed nations, the rationale for GST
revolves around achieving relative consumption uniformity rather than creating a unified
market, following years of mandatory social-democratic regulations. Without reaching a
minimum threshold of basic consumption, transitioning to GST is merely a risky leap
based on flawed economic reasoning.

The tax reforms initiated post-1991 in the context of fiscal federalism failed to
acknowledge the systemic macro-constraints and disparities within a low-income market,
where transactions are largely dominated by major monopolies and oligopolies,
accounting for at least 40% of assets, and informal activities are widespread. Over the past
two decades, India's political economy of fiscal federalism has grappled with the
inconsistencies stemming from flaws in the robust funding model and the consistent
erosion of federal laws. While the academic justification of this process may be rooted in
techno-managerialism, the political trajectory since 1991 has aligned with a policy aimed
at diminishing the relative autonomy of states, transforming them into facilitators of

78
 macroeconomic development, wherein the distribution of surplus wages gradually favors
capital.

GST constitutes a comprehensive indirect tax on the sale and purchase of goods
and services in India, based on consumption. It is imposed and collected at various points
of sale or procurement, utilizing an input tax credit system. The 101st Amendment to the
Constitution in 2016 introduced Article 269A, emphasizing the levy and collection of
goods and services tax in interstate trade or commerce, while clarifying that the tax
proceeds collected by states under Article 246A do not constitute part of the Consolidated
Fund of India, as outlined in clauses 1-A and 1-B of Article 270.

Article 270, Clause (3), elucidates that the term "prescribe" means the Finance
Commission will furnish a report to the Government delineating the current sum of net
proceeds derived from all central government-imposed taxes and duties, to be distributed
among the states. This alteration is poised to augment the revenues of the States. In the
context of GST, there exists no provision for a dissatisfied state. The recommendations of
the Finance Commission are presented to parliament, where States are not involved in the
deliberations. Products and services subject to taxation are to be treated as a unified entity
and are to be priced uniformly across the supply chain once they reach the consumers.
Generally, the responsibility for administration will rest with a singular tax-collecting
authority. GST will empower the Union to promptly levy the sales tax, while states will
likewise impose taxes on resources that were previously predominantly under the purview
of the central government.

In the GST era, State governments wield control over only 35% of their revenue. Their
revenue streams predominantly stem from two sources: own revenue and central transfers.
Central transfers encompass receipts from the devolution of union taxes and grants-in-aid
from the Centre. GST rates are determined by the GST council, limiting states' autonomy
in deciding tax rates on goods and services.

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 CHAPTER VI

CONCLUSIONS AND SUGGESTIONS

Since its inception, there has been ongoing debate surrounding the federal structure of the
Constitution. KC Where labeled it as "quasi-federal," while CH Alexandrovicz questioned
whether the Indian system truly qualifies as a federation. Our Constitution framers adopted
what is commonly referred to as the cooperative federalism model. This model emphasizes
the interdependence between the Union and its constituent units, along with a process of
administrative cooperation between the Union and state governments, despite the nominal
financial dependency of states on the Union. The relationship between the Center and the
States under this model is intentionally balanced, with cooperation being its cornerstone.
Indeed, cooperation plays a vital role in the functioning of the federal government.

Historically, regional political parties in various states have consistently demanded more
autonomy and funding to implement their strategies independent of the Center's influence. In
response to these persistent demands, the Union established a commission chaired by Justice
RS Sarkaria to "examine and review the functioning of existing arrangements between the
Union and the States regarding powers, functions, and responsibilities in all spheres." After
extensive research, deliberation, and consultations with stakeholders, including both Union
and state representatives, as well as experts, the Commission concluded that the current
constitutional framework adequately addresses the issues at hand. While advocating for a
greater role for states in decision-making, the Commission suggested only minor adjustments
to certain aspects of the Constitution to facilitate smoother cooperation between the Union
and the States, akin to the Administrative Reforms Commission of 1966-70. Additionally, the
Sarkaria Commission proposed changes to administrative and functional relationships
between the Union and the States to enhance the stability and effectiveness of the
governmental structure outlined in the Constitution.
The principles guiding both central and state governments have shifted towards emphasizing
shared cooperation and interdependence rather than autonomy and freedom. Healthy relations
between the Centre and States are crucial for a country's development. Competitive
federalism has given way to cooperative federalism. The framers of the Constitution rejected
a unitary framework, recognizing the progress made towards federalism during British rule.

80
Partition and the "Government of India Act, 1935" led to increased centralization.
Constitutionalists understood that a strong central government was necessary to maintain
unity, face external threats, address interregional economic disparities, and prevent past
destabilizing influences. However, controversies between States and between the Centre and
States are inevitable in a federal system.

The Constitution-makers were aware of this and provided elaborate mechanisms for dispute
resolution. Article 262 deals with water disputes, and Parliament has enacted laws to address
them. The Supreme Court has original jurisdiction in disputes between the Centre and States.
Mutual discussion is preferred, but if it fails, constitutional remedies are available.

Improving the dispute resolution mechanism of tribunals is essential for resolving water
disputes effectively. Cooperation between the Central Government and States is evident in
concurrent legislative powers. Parliament informs States about laws concerning concurrent
matters and shares copies of bills. Similarly, States usually consult the central government
before enacting laws in concurrent areas.
In India, a unified administrative structure exists. Consequently, the State governments in
India are tasked with managing public order, including safeguarding Railways and Central
Government properties within their jurisdictions. Operational efficiency is notably high when
the same political party controls both the Centre and the States. However, India faces
formidable centrifugal forces stemming from linguistic, religious, cultural, and geographical
disparities, occasionally endangering the integrity of the Indian federation.

The idea of federalism and inter-governmental relations is deeply rooted in ancient Hindu
theories of kingship and governance. These theories depict the king as a judge, bound by the
law, with failure to uphold it resulting in his downfall. The foundation of modern federalism
can be traced back to the "Government of India Act 1935". Cooperative federalism aims to
foster collaboration and reduce friction among the various levels of government within the
federation.

India's rich cultural diversity, coupled with its underlying unity and historical continuity,
mirrors the principles of federal unity, forming the cornerstone of Indian constitutional
culture. The integration of the Indian Princely States was a monumental task, complicated

81
further by colonial rule, which adversely affected India's socio-economic and political
landscape.

The Indian Constitution introduced the unique concept of a comprehensive concurrent

legislative field, improving upon previous legislative frameworks such as the "Government of
India Act, 1935". This concurrent field allows both the Union and State legislatures to
operate, with provisions for Union intervention to ensure legislative uniformity or address
other pertinent issues.

Contrary to popular belief, the distribution of legislative powers is not solely confined to
"Chapter I, Part XI of the Constitution". Throughout the Constitution, numerous articles
profoundly shape the power dynamics between the Centre and the States, often emphasizing
central authority over decentralized powers at the state level.

The system of listing legislative powers originated with the "Government of India Act 1919",
where provinces were granted authority over transferred subjects. This model influenced the
development of provincial legislative lists during the Round Table Conference and by the
Joint Parliamentary Committee, establishing exclusive and concurrent subject domains for
both Central and Provincial legislatures.

The composition of the subjects listed in the three categories of the Seventh Schedule of the
Constitution was not a mere copy-paste from the "Government of India Act, 1935." The
method of distributing subjects across the Lists suggests that the framers of the Constitution
did not strongly favor a federal system of governance for India. Rather than strictly adhering
to federal principles in distributing legislative powers, they prioritized national interests and
justice across various domains for the Indian populace. This was evident in Article 226 of the
Draft (Article 249 of the Constitution), which empowered Parliament, with a two-thirds
majority in the Council of States, to legislate on State List matters during normal
circumstances under the premise of being "of national concern." Such a provision,
unprecedented in federal governments, represented an innovative approach to the legislative
process.

Effective administrative relations play a pivotal role in national development. However, there
were instances where the Central government exhibited bias towards States, particularly when

82
different political parties held power at the national and state levels. If laws enacted by the
Central government for public welfare were not efficiently implemented by the States, their
purpose would be defeated. The Union's control over the States' administration is evident not
only through the presence and authority of unified all-India services but also through its
power to supervise and coordinate State activities.

Drawing from the federal experiences of countries like the USA, Canada, and Australia, the
framers of the Indian Constitution advocated for a robust Central authority with financial
control. The allocation of taxing authority under the Constitution ensures that taxes with
interstate implications belong to the Union, while those with regional implications are
allocated to the States. This distribution and division of administrative power have
established a reliance of the States on the Union.

Examining Article 258 reveals its aim to facilitate the decentralization of Union functions or
administrative powers, allowing States to assume these functions to the greatest extent
possible without compromising their autonomy. Such decentralization fosters the expansion
of State administrative authority and encourages their active involvement and accountability
in managing Union-related functions.

Article 258A, an addition to the Constitution at a later stage, aimed to address challenges
faced by the Union in effectively executing significant developments in states with the State's
consent, while bearing the costs of such development. It suggests that Article 258A would be
employed on an occasional basis. States, particularly those advocating for more power from
the Center, are unlikely to readily delegate their functions under Article 258A to the Union
Government unless they anticipate specific benefits from such delegation. Articles 258 and
258A collectively present an opportunity for cooperative efforts between the Union and State
Governments, transcending their respective powers for the greater good. The landmark S.R.
Bommai case established guidelines for the imposition of emergency under Article 356, as set
forth by the Honorable Supreme Court. Financial relations form the cornerstone of Center-
State relations, with states heavily reliant on the Center. It is imperative for both levels of
government to have independent control over financial resources to fulfill their exclusive
functions. India's equal division of income tax based on revenue potentialities between the
Union and States, alongside efforts for equitable decentralization of revenues, is noteworthy.
States enjoy a favorable position in the income tax domain under the distribution-cum-

83
decentralized system outlined in the Indian Constitution. Grants provided under Article 282
primarily cater to plan expenditures, often substantial, while occasional grants for non-plan
expenditures may also be allocated under the same article. Grants under Article 275 are
typically smaller in scale compared to those under Article 282.
The Finance Commission, a Constitutional body, plays a crucial role in the distribution and
allocation of taxes between the Central and State governments. Since its establishment in
1950, the Planning Commission has also been instrumental in formulating five-year plans,
significantly impacting the country's economic development. However, on January 1, 2015,
the Planning Commission was replaced by a new entity called NITI Aayog, which operates
solely as a think-tank, devoid of the fund allocation powers previously held by the Planning
Commission. The introduction of the Goods and Services Tax through the 101st
Constitutional amendment has brought about a significant shift in India's tax landscape,
marked by the slogan "One Country One Tax."

During India's battle against the pandemic, there were tensions in Centre-State relations,
particularly in the initial stages. Political disagreements arose over key decisions such as the
nationwide lockdown declaration without state consultations, the provision of essential
medical supplies, and the welfare of migrant workers. Several opposition-ruled states raised
concerns about these issues. However, subsequent efforts to foster cooperation between the
Centre and the States, as well as among the States themselves, helped alleviate political
discord and shape policies amidst the health crisis. As challenges to both life and livelihood
persist, enhanced federal cooperation becomes increasingly crucial. Two significant
challenges have emerged during the pandemic: firstly, the lack of comprehensive information
about the millions of migrant workers, which initially exacerbated the crisis and continues to
hinder efforts to provide them with health and socio-economic security. Secondly, the rapid
surge of COVID-19 cases in certain states has led to subnational protectionism, potentially
sparking political and economic crises between specific states.
Historical records show that relations between the Centre and the States, as well as among
the States themselves in India, have experienced turbulent periods in the past. Consequently,
collaboration between the Centre and the States has always played a crucial role in governing
a diverse nation. However, the unprecedented challenges brought about by the pandemic and
the prolonged lockdown require systematic and sincere cooperation and coordination between
the Centre and the States, as well as among the States themselves.

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The current ruling administration at the Centre, which has expressed its dedication to
"cooperative federalism," should serve as the linchpin for establishing such a cooperative
framework that involves the States. To this end, revitalizing existing institutional mechanisms
like the Inter-State Council, which has largely remained inactive, becomes imperative during
this crisis. Immediate rejection of political deception and opportunism by all stakeholders will
be crucial in shaping the course of relations among the States during this crisis.

Some Key Recommendations:

1. Prioritizing national interests should be the primary focus for political parties.
2. The Centre government should prioritize the development of infrastructure in the least
developed States.
3. Empowering the NITI Aayog with the authority for fund allocation is essential.
4. India's taxation system should be adjusted to favor the States, ensuring they receive
greater benefits.
5. Recognizing and rewarding the better performance of States should be done without
political bias.

85
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