The Relation between Centre and State in India!

Position of the States in Indian Union:

In India, before the formation of the federation the States were not ‘sovereign’ entities.

As such, there was no need for safeguards to protect ‘States’. On account of the exigencies of the situation, the Indian federation has acquired characteristics which are quite different from the American model.

(i) The residuary powers under the Indian Constitution are assigned to the Union and not to the States. However, it may be noted that the Canadian Constitution does the same mode of distrib­uting the powers cannot be considered as eroding the federal nature of the Constitution.

(ii) Though there is a division of powers between the Union and the States, the Indian Constitution provides the Union with power to exercise control over the legislation as well as the administration of the States. Legislation by a State can be disallowed by the President, when reserved by the Governor for his consideration.

The Governor is appointed by the President of the Union and holds office “during his pleasure”. Again these ideas are found in the Canadian Constitution though not in the Constitution of the U.S.A.

(iii) The Constitution of India lays down the Constitution of the Union as well as the States, and no State, except Jammu and Kashmir, has a right to determine its own (State) Constitution.

(iv) When considering the amendment of the Constitution we find that except in a few specific matters affecting the federal structure, the States need not even be consulted in the matter of amendment of the Constitution. The bulk of the Constitution can be amended by a Bill in the Union Parliament being passed by a special majority.

(v) In the case of the Indian Constitution, while the Union is indestructible, the States are not. It is possible for the Union Parliament to reorganise the States or to alter their boundaries by a simple majority in the ordinary process of legislation.

The ‘consent’ of the State Legislature concerned is not required; the President has only to ‘ascertain’ the views of the Legislatures of the affected States. The ease with which the federal organisation may be reshaped by an ordinary legislation by the Union Parliament has been demonstrated by the enactment of the States Reorganisation Act, 1956. A large number of new States have, since, been formed.

(iv) Under the Indian Constitution, there is no equality of representation of the States in the Council of States. Hence, the federal safeguard against the interests of the lesser States being overridden by the interests of the larger or more populated States is absent under our Constitution. Its federal nature is further affected by having a nominated element of twelve members against 238 repre­sentatives of the States and Union Territories.

Distribution of Powers: Legislative, Administrative and Financial:

Our Constitution is one of the very few that has gone into details regarding the relationship between the Union and the States. A total of 56 Articles from Article 245 to 300 in Part XI and XII are devoted to the State-Centre relations. Part XI (Articles 245-263) contains the legislative and administrative relations and Part XII (Articles 246-300) the financial relations.

By going into great details of the relations, the Constitution framers hope to minimize the conflicts between the centre and the states. By and large, the confrontations between the two have been minimal.

Legislative Relations (Articles 245-255):

From point of view of the territory over which the legislation can have effect, the jurisdiction of a State Legislature is limited to the territory of that State. But in the case of Parliament, it has power to legislate for the whole or any part of the territory of India i.e.

States, Union Territories or any other areas included for the time being in the territory of India. Parliament has the power of ‘extraterritorial legislation’ which means that laws made by the Union Parliament will govern not only persons and property within the territory of India, but also Indian subjects resident and their property situated anywhere in the world. Only some provisions for scheduled areas, to some extent, limit the territorial jurisdiction of Parliament.

Legislative Methods of the Union to Control over States:

(i) Previous sanction to introduce legislation in the State Legislature (Article 304).

(ii) Assent to specified legislation which must be reserved for consideration [Article 31 A (1)].

(iii) Instruction of President required for the Governor to make Ordinance relating to specified matters [Article 213(1)].

(iv) Veto power in respect of other State Bills reserved by the Governor (Article 200).

The Three Lists:

As for the subjects of legislation the Constitution has adopted, as if directly from the Government of India Act, 1935, a three-fold distribution of legislative powers between the Union and the States, a procedure which is not very common with federal constitutions elsewhere.

The Constitutions of the United States and Australia provided a single enumeration of powers—power of the Federal Legislature— and placed the residuary powers in the hands of the States.

Canada provides for a double enumeration, dividing the legislative powers between the Federal and State legislatures. The Indian Constitution introduces a scheme of three-fold enumeration, namely, Federal, State and Concurrent.

List I includes all those subjects which are in the exclusive jurisdiction of Parliament.

List II consist of all the subjects which are under exclusive jurisdiction of the State Legislature, and

List III which is called the Concurrent List, consists of subjects on which both Parliament and the State legislatures can pass laws.

(i) Union List:

List I, or the Union List, includes 99 items, including residuary powers, most of them related to matters which are exclusively within the jurisdiction of the Union. Subjects of national importance requiring uniform legislation for the country as a whole are inducted in the Union List.

The more important examples are defence, armed forces, arms and ammunition, atomic energy, foreign affairs, coinage, banking and insurance. Most of them are matters in which the State legislatures have no jurisdiction at all.

But, there are also items dealing with inter-state matters like inter-state trade and commerce regulation and development of inter-state rivers and river valleys, and inter-state migration, which have been placed under the jurisdiction of the Union Parliament.

Certain items in the Union List are of such a nature that they enable Parliament to assume a role in certain spheres in regard to subjects which are normally intended to be within the jurisdiction of the States; one such example is that of industries.

While assigned primarily to the State List; industries, the control of which by the Union is declared by a law of Parliament, to be expedient in the public interest’ are to be dealt with by parliamentary legislation alone. Parliament, by a mere declaration, can take over as many industries as it thinks fit.

It is under this provision that most of the big industries, like iron, steel and coal, have been taken over by Parliament under its jurisdiction. Similarly, while museums, public health, agriculture etc. come under State subject, certain institutions like the National Library and National Museum at New Delhi and the Victoria Memorial in Calcutta have been placed under the jurisdiction of Parliament on the basis of a plea that they are financed by the Government of India wholly or in part and declared by a law of Parliament to be institutions of national importance.

The university is a State subject but a number of universities have been declared as Central Universities and placed under the exclusive jurisdiction of Parliament. Elections and Audit, even at the State level, were considered matters of national importance. The Extensive nature of the Union List thus places enormous powers of legislation even over affairs exclusively under the control of the States in the hands of Parliament.

(ii) State List:

List II or the State List, comprises 61 items or entries over which the State Legislature has exclusive power of legislation. The subject of local importance, where variations in law in response to local situations may be necessary, has been included in the State List.

Some subjects of vital importance in the list are State taxes and duties, police, administration of justice, local self-government, public health, agriculture, forests, fisheries, industries and minerals.

But, in spite of the exclusive legislative jurisdiction over these items having been given to the States, the Constitution, through certain reservations made in the Union List has given power to Parliament to take some of these items under its control. Subject to these restrictions, one might say, the States have full jurisdiction over items included in the State list.

(iii) Concurrent List:

The inclusion of List III or the Concurrent List, in the Constitution gives a particular significance to the distribution of legislative power in the Indian federal scheme. The Concurrent List consists of 52 items, such as criminal law and procedure, civil procedure, mar­riage, contracts, port trusts, welfare of labour, economic and social planning.

These subjects are obviously such as may at some time require legislations by Parliament and at other by a State Legislature. The provision of a Concurrent List has two distinct advantages.

In certain matters in which Parliament may not find it necessary or expedient to make laws, a Sate can take the initiative, and if other States follow and the matter assumes national importance, Parliament can intervene and bring about a uniform piece of legislation to cover the entire Union Territory.

Simi­larly, if a State finds it necessary to amplify a law enacted by Parliament on an item included in the Concurrent List in order to make it of a greater use of its own people, it can do so by making supplementary laws.

The items included in the Concurrent List can be broadly divided into two groups-those dealing with general laws and legal procedure, like criminal law, criminal procedure, marriage, divorce, property law, contracts etc, and those dealing with social welfare such as trade unions, social security, vocational and technical training of labour, legal, medical and other professions etc.; while the items coming under the first group are of primary importance to the Union Government, they have been left, by convention, to Parliament. In matters of social welfare, it is open to the State legislatures either to take the initiative in making laws or to enact laws which are supple­mentary to the Parliamentary laws.

Predominance of Union Law:

In case of over-lapping of a matter between the three Lists, predominance has been given to the Union Legislature, as under the Government of India Act, 1935. Thus, the power of the State Legislature to legislate with respect to matters enumerated in the State List has been made subject to the power of the Union Parliament to legislate in respect of matters enumerated in the Union and Concurrent Lists, and the entries in the State List have to be interpreted accordingly.

In the Concurrent sphere, in case of repugnancy between a Union and a State law relating to the same subject, the former prevails. If however, the State law was reserved for the assent of the President and has received such assent, the State law may prevail notwithstanding such repugnance. But it would still be competent for Parliament to override such State law by subsequent legislation.

Residuary Powers:

The Constitution vests the residuary power, i.e., the power to legislate with respect to any matter not enumerated in any one of the three Lists in the Union Legislature (Art. 248). It has been left to the courts to determine finally as to whether a particular matter falls under the residuary power or not.

It may be noted, however, that since the three lists attempt an exhaustive enumeration of all possible subjects of legislation, and courts generally have interpreted the sphere of the powers to be enumerated in a liberal way, the scope for the application of the residuary powers has remained considerably restricted.

Expansion of the Legislative Powers of the Union under Different Circumstances:

(a) In the National Interest:

Parliament shall have the power to make laws with respect to any matter included in the State List for a temporary period, if the Council of States declares by a resolution of 2/ 3 of its members present and voting, that it is necessary in the national interest.

(b) Under the Proclamation of National or Financial Emergency:

In this circumstance, Parliament shall have similar power to legislate with respect to State Subjects.

(c) By Agreement between States:

If the Legislatures of two or more States resolve that it shall be lawful for Parliament to make laws with respect to any matters included in the State List relating to those States, Parliament shall have such power.

It shall also be open to any other State to adopt such Union legislation in relation to itself by a resolution passed on behalf of the State legislature. In short, this is an extension of the jurisdiction of the Union Parliament by consent of the Legislatures.

(d) To implement treaties:

Parliament shall have the power to legislate with respect to any subject for the purpose of implementing treaties or international agreements and conventions.

(e) Under a Proclamation of Failure of Constitutional Machinery in the States:

When such a Procla­mation is made by the President, the President may declare that the powers of the Legislature of the State shall be exercisable by or under the authority of Parliament.

Administrative Relations (Articles 256-263):

The distribution of executive powers between the Union and the States follows, in general, the pattern of distribution of the legislative powers. The executive power of a State is treated as coexten­sive with its legislative powers, which means that the executive power of a State extends only to its territory and with respect to those subjects over which it has legislative competence.

Looking at from the point of view of the Union Government, we can say that the Indian Constitution provides exclu­sive executive power to the Union over matters with respect to which Parliament has exclusive powers to make laws, (under List I of Schedule VII) and over the exercise of powers conferred upon it, under Article 73, by any treaty or agreement at the international level. On the other hand, the States have exclusive executive powers over matters included in List II.

In matters included in the Concurrent List (List III) the executive function ordinarily remains with the States, but in case the provisions of the Constitution or any law of Parliament confer such functions expressly upon the Union, the Union Government is empowered to go beyond giving directions to the State executive to execute a Central law relating to a Concurrent subject and take up the direct administration of Union law relating to any Concurrent subject.

In the result, the executive power relating to Concurrent subjects remains with the States, ex­cept in two cases-(a) Where a law of Parliament relating to such subject vests some executive functions specifically in the Union, e.g., the Land Acquisition Act, 1894; the Industrial Disputes Act, 1947 [Provision to Art. 73(1)].

So far as these functions specified in such Union Law are concerned, it is the Union and not the States which shall have the executive power while the rest of the execu­tive power relating to the subjects shall remain with the States, (b) where the provisions of the Constitution itself vest some executive functions upon the Union.

Thus, (i) the executive power to implement any treaty or international agreement belongs exclusively to the Union; (ii) the Union has the power to give directions to the State Governments as regards the exercise of their executive power in certain matters.

The Constitution has devised techniques of control over the States by the Union to ensure that the State governments do not interfere with the legislative and executive of the Union. Some of these administrative avenues of control are as under:

In Normal Times:

(i) The power to appoint and dismiss the Governor (Article 155-156)

(ii) The power to appoint other dignitaries in the State such as judges of the High Court, members of the State Public Service Commission (Article 217, 317).

There are some other specified agencies for Union Control

(i) Directions to the State Government:

The Constitution prescribes a Coercive Sanction for the enforcement of the directions issued under any of the foregoing powers, namely the power of the President to make a Proclamation under Article 356.

(ii) Delegation of Union Functions:

While Legislating on a Union Subject, Parliament may delegate powers to the State Governments and their officers in so far as the Statute is applicable in the respective States [Article 258 (2)].

(iii) All-India Services:

Besides the person serving under the Union and the States, there are certain services which are ‘common to the Union and the States’. There are called ‘All-India Services’ of which the Indian Administrative service and the Indian Police Service are the existing examples [Article 312 (2)].

The Indian Constitution has provision for the Organisation of certain all-India services, recruited and controlled by the Union Government as far as their general administration is concerned. The British Government had instituted the Indian Civil Services (ICS) in order to establish a kind of direct control over the provincial administration.

The idea was adopted by the Constituent Assem­bly and, under Article 312; power has been given to the Council of States, by a resolution sup­ported by not less than a two-thirds majority of the members present and voting, to constitute all- India service common to the Union and the States.

It was further provided that the Indian Admin­istrative Service (IAS) and the Indian Police Service (IPS), which had been constituted before the Constitution came into force, would be deemed to have been constituted under this Article. The Union Government is able to penetrate quite deep into the administrative affairs of the States through these all India services.

The IAS and the IPS are not the only all-India services. Serial new services, governed by the same conditions, have been added, like the Indian Engineering Service, the Indian Economic Service, the Indian Statistical Service, the Indian Agriculture Ser­vice and the Indian Education Service.

(iv) Grant-in-Aid:

The Parliament is given such powers to make such grants as it may deem neces­sary to give financial assistance to any State which is in need of such assistance (Article 275). Besides this, the Constitution provides for specific grants on the following two matters:

(i) (a) For schemes of development;

(b) For welfare of scheduled tribes;

(c) For raising the level of administration of scheduled areas.

(ii) To the State of Assam, for the development of the tribal areas in that State [Article 275 (1)]

(v) Inter-state Council:

Article 263 says that the President is empowered to establish an inter-State Council. The Constitution assigned three fold duties to this body.

(a) To investigate and discuss subjects of common interest between the Union and the States or between two or more States;

(b) Research in such matters as agriculture, forestry, public health etc., and

(c) To make recommendations for co-ordination of policy and action relating to such subjects.

The Sarkaria Commission has recommended the Constitution of a permanent inter-State Council. Such a council, consisting of six Union Cabinet Ministers and the Chief Ministers of all the States, has been created in April 1990.

(vi) Inter-State Commerce Council:

For the purpose of enforcing the provisions of the Constitution, relating to the freedom of trade, commerce and intercourse throughout the territory of India (Article 301-305), Parliament is empowered to constitute as authority similar to the Inter-State Commerce Commission in the U.S.A. and to confer on such authority such powers and duties as it may deem fit (Article 307).

(vii) Extra-Constitutional Bodies:

Apart from the above Constitutional agencies for Union Control, there are some advisory bodies and conferences which held at the Union level which further the co-ordination of State policy and eliminate differences as between the States.

(viii) Planning Commission:

This extra-Constitutional and non-statutory body was set up by a reso­lution (1950) of the Union Cabinet and its main objective was to formulate an integrated Five Year Plan for economic and social development and to act as an advisory body to the Union Government.

(ix) National Development Council (NDC):

This council was formed in 1952 as an adjunct to the Planning Commission to associate the States in the formulation of the Plans. The main func­tions of this council are:

(a) To strengthen and mobilize the efforts and resources of the nation in support of the plans;

(b) To promote common economic policies in all vital spheres; and

(c) To ensure the balanced and rapid development of all parts of the country.

(x) National Integration Council (NIC):

Another non-constitutional body was created in 1986 to deal with the welfare measures for the minorities on an all India basis. Some of the burning issues before it were communal harmony, increased violence by secessionists, the problems in respect of Punjab, Kashmir, and Ram Janambhoomi-Babri Masjid.

During Emergency:

In ‘Emergencies’ the government under the Indian Constitution will work as if it were a unitary government.

Some of the important Provisions during ‘Emergency’ are as under:

(i) During a Proclamation of Emergency, the power of the Union to give directions extends to the giving of directions as to the manner in which the executive power of the State is to be exercised, relating to any matter [Article 353(a)]. (So as to bring the State Government under the complete control of the Union, without suspending it).

(ii) Upon a Proclamation of failure of Constitutional machinery in a State, the President shall be entitled to assume to himself all or any of the executive powers of the State [Article 356(1)].

During a Proclamation of Financial Emergency:

(a) To observe canons of financial propriety, as may be specified in the directions [Article 360(3)].

(b) To reduce the salaries and allowances of all or any class of persons serving in connection with the affairs of the Union including the Judges of the Supreme Court and High Courts [Article 360(4)(b)].

(c) To require all Money Bills or other Financial Bills to be reserved for the consideration of the President after they are passed by the Legislature of the State [Article 360(4)].

Financial Relations Related to the Distribution of Revenue (Article 264-281):

Financial Relations:

All feasible sources of taxation have been listed and allocated either to the Centre or to the States. These are as follows:

(i) There are certain items of revenue in the State List which are levied, collected and appropriated by the States. For example, naval revenue etc.;

(ii) There are certain-items of revenue in the Union List which are levied, collected and appropriated by the Union, e.g. Customs duties etc.;

(iii) There are certain duties levied by the Union but collected and appropriated by the States. For example, stamp duties etc.;

(iv) There are certain taxes levied and collected by the Union but assigned to the States e.g. succes­sion and estate duties, taxes on railway fares and freights, etc;

(v) There are certain taxes levied and collected by the Union and distributed between the Union and the States, e.g. excise duties etc.

Consolidated Funds and Public Accounts of India and of the States:

Subject to the provi­sions of Article 267 and to the provisions of this Chapter with respect to the assignment of the whole or part of the net proceeds of certain taxes and duties to States, all revenues received by the Government of India, all loans raised by that Government by the issue of treasury bills, loans or ways and means advances and all moneys received by that Government in repayment of loans shall form one Consolidated Fund to be entitled “the Consolidated Fund of India”, and all revenues re­ceived by the Government of a State, all loans raised by that Government by the issue of treasury bills, loans or ways and means advances and all moneys received by that Government in repayment of loans shall form one consolidated fund to be entitled “the Consolidated Fund of the State” [Article 266(1)].

All other public money received by or on behalf of the Government of India or the Government of a State shall be credited to the Public Account of India or the Public Account of the State, as the case may be (Article 266(2)).

No money out of the Consolidated Fund of India or the Consolidated Fund of a State shall be appropriated except in accordance with law and for the purposes and in the manner provided in this Constitution [Article 266(3)].

Contingency Fund:

Parliament may by law establish a Contingency Fund in the nature of an impress to be entitled “the Contingency Fund of India” into which shall be paid, from time to time, such sums as may be determined by such law, and the said Fund shall be placed at the disposal of the President to enable advances to be made by him out of such Fund for the purposes of meeting unforeseen expenditure pending authorisation of such expenditure by Parliament by law under Ar­ticle 115 or Article 116 [Article 267(1)].

The Legislature of a State may by law establish a Contingency Fund in the nature of an impress to be entitled “the Contingency Fund of the State” into which shall be paid from time to time such sums as may be determined by such law, and the said Fund shall be placed at the disposal of the Governor of the State to enable advances to be made by him out of such Fund for the purposes of meeting unforeseen expenditure pending authorisation of such expenditure by the Legislature of the State by law under Article 205 or Article 206 [Article 267(2)].

Finance Commission:

Arts. 270, 273, 275 and 280 provide for the Constitution of a Finance Commission (at stated inter­vals) to recommend to the President certain measures relating to the distribution of financial re­sources between the Union and the States, for instance, percentage of the net proceeds of income- tax which should be assigned by the Union to the States and the manner in which the share to be assigned shall be distributed among to the States [Art. 280].

The Constitution of the Finance Commission is laid down in Art. 280, which has to be read with the Finance Commission (Miscellaneous Provisions) Act of 1951, which has supplemented the pro­visions of the Constitution. Briefly speaking, the Commission has to be reconstituted by the Presi­dent, every five years.

The Chairman must be a person having ‘experience in public affairs’, and the other four members must be appointed from amongst the following

a) A High Court Judge or one qualified to be appointed as such;

(b) a person having special knowledge of the finances and ac­counts of the Government;

(c) a person having wide experience in financial matters, and administra­tion;

(d) a person having special knowledge of economics,

(e) a person familiar with treasures needed to augment the consolidated fund of a State to supplement the resources of the Panchayat, in the State.

It shall be the duty of the Commission to make recommendations to the President as to:

(a) the distribution between the Union and the States of the net proceeds of taxes which are to be or may be, divided between them under this Chapter and the allocation between the States of the respective shares of such proceeds; (b) the principles which should govern the grants-in-aid of revenues of the States out of the Consolidated Fund of India; (c) any other matter referred to the Commission by the President in the interests of sound finance.

The First Finance Commission was constituted in 1951, with Sri Neogy as the Chairman and it submitted its report in 1953.

Some Details of Distribution:

(i) Taxes which are exclusively central, and the revenues which are wholly appropriated for the use of the Central Government form one group. These include export duties, corporation tax, taxes on the capital value of the assets, exclusive of agricultural land of individuals and companies, (ii) Income tax constituting a separate category in as much as while it is the Centre which levies, fixes rates and collects the tax, it has to share the proceeds with the States as prescribed by the President on the basis of the recommendations made by the Finance Commis­sion. (iii) Union duties of excise other than duties which have been given to States, which may be shared if Parliament has so decided.

The Constitution has left it to the discretion of Parliament to decide by law whether any of the union duties of excise should be shared with the States, how these are to be shared, and how the shares are to be distributed to the States, (iv) Taxes which are to be levied and collected by the Centre, but to be distributed entirely (except for those proceeds which are attributable to the Union territories) to the States in accordance with such principles of distribution as may be laid down by Parliament by law.

These taxes consist of succession and estate duties; termi­nal taxes on passengers and goods carried by rail, sea or air taxes on railway fares and freights; taxes on the sale or purchase of newspapers; sale or purchase taxes on inter-State trade, (v) Taxes levied by the Centre but collected by the States and appropriated by them for their own use.

They are stamp duties and excise duties on medicinal and toilet preparations containing alcohol; in connection with these two taxes, the Centre only levies the tax, and fixes the rate of duty to be paid on the alcohol contained in the medical and toilet preparations, but each State collects the tax and appropri­ates it for its own purpose.

Grants and Loans:

Besides the devolution of revenues the Union meets the financial needs of the State in two other ways: (i) by making grants-in-aid of State revenues and other grants, and (ii) by giving loans. According to the Constitution, both the Union and the States are empowered to make grants.

But by virtue of the sums at its disposal, the Union’s power is greater. The Union can make grants for purposes outside its legislative jurisdiction, and it is under this provision that many of the large capital grants for national development schemes are made.

Grant-in-aid may be made to a State to defray its budgetary deficits, or it may make grant-in-aid on the basis of budgetary need, and to aid States whose revenues, even after devolution fall short of their expenditures.

Efforts are generally made to keep these grants-in-aid to a minimum by making devolution adequate. Other grants are generally unconditional, but in certain cases, as in Assam, grants have been made for the development of backward areas and tribes.

Besides grants-in-aid, States also sometimes depend heavily on the Union for loans. The Union government has unlimited power to borrow either within India or outside, and may exercise this power subject only to such limits as might be fixed by Parliament from time to time.

In the case of the States, however, their borrowing power is subject to a number of Constitutional limitations. A State cannot borrow outside India. The State executive has the power to borrow within the territory of India, subject to many conditions.

Borrowing Powers:

The Union has unlimited power of borrowing, upon the security of the rev­enues of India either within India or outside. The Union Executive can exercise the power; subject only to such limits as may be fixed by Parliament from time to time.

The borrowing power of a State is, however, subject to a number of Constitutional limitations:

(i) It cannot borrow outside India, (ii) The State Executive shall have the power to borrow, within the territory of India upon the security of the revenues of the State, subject to the following conditions: (a) limitation as may be imposed by the State Legislature; (b) if the Union has guaranteed an outstanding loan of the State, no fresh loan can be raised by the State without consent of the Union Government; (c) The Government of India may itself offer a loan to a State, under a law made by Parliament; so long as such a loan or any part thereof remains outstanding, no fresh loan can be raised by the State without the consent of-the Government.

Distribution of Taxes between Union and the States:

The distribution of the tax-revenue be­tween the Union and the States, according to the foregoing principles, stands as follows:

1. Taxes Belonging to the Union Exclusively:

(i) Customs, (ii) Corporation tax. (iii) Taxes on capital value of assets of individuals and Companies, (iv) Surcharge on income tax, etc. (v) Fees in respect of matters in the Union List (List I).

2. Taxes belonging to the States Exclusively:

(i) Land Revenue, (ii) Stamp duty except in docu­ments included in the Union List, (iii) Succession duty, estate duty, and Income tax on agricultural land, (iv) Taxes on passengers and goods carried on inland waterways, (v) Taxes on lands and buildings, mineral rights, (vi) Taxes on animals and boats, on road vehicles, on advertisements, on consumption of electricity, on luxuries and amusements, etc. (vii) Taxes on entry of goods into local areas, (viii) Sales Tax. (ix) Tolls, (x) Fees in respect of matters in the State List, (xi) Taxes on professions, trades, etc., not exceeding Rs. 2,500 per annum (List II).

3. Duties Levied by the Union but Collected and Appropriated by the States:

Stamp duties on bills of Exchange, etc., and Excise duties on medicinal and toilet preparations containing alcohol, though they are included in the Union List and levied by the Union, shall be collected by the States insofar as leviable within their respective territories, and shall form part of the States by whom they are collected (Article 268).

4. Taxes Levied as well as Collected by the Union, but Assigned to the States within which they are Leviable:

(i) Duties on succession to property other than agricultural land, (ii) Estate duty in respect of property other than agricultural land, (iii) Terminal taxes on goods or passengers carried by railway, air or sea. (iv) Taxes on railway fares and freights, (v) Taxes on stock exchange other than stamp duties, (vi) Taxes on sales of and advertisements in newspapers, (vii) Taxes on the sale or purchase of goods other than newspapers, where such sale or purchase takes place in the course of Inter-State trade or commerce, (viii) Taxes on Inter-State consignment of goods (Article 269).

5. Taxes Levied and Collected by the Union and Distributed between Union and the States:

Certain taxes shall be levied as well as collected by the Union, but their proceeds shall be divided between the Union and the States in a certain proportion, in order to effect an equitable division of the financial resources. These are:

(i) Taxes on income other than on agricultural income (Article 270).

(ii) Duties of excise as are included in the Union List, excepting medicinal and toilet preparations may also be distributed, if Parliament by law so provides (Article 272).

Distribution of Non-Tax Revenue:

The principal sources of non-tax revenues of the Union are the receipts from:

Railways; Posts and Telegraphs; Broadcasting; Opium; Currency and Mint; Industrial and Commercial Undertakings of the Central Government relating to the subjects over which the Union has jurisdiction.

Of the Industrial and Commercial Undertakings relating to Central subjects may be mentioned. The Industrial Finance Corporation; Air India; Indian Airlines.

Industries in which the Government of India have made investments; such as the Steel Authority of India; the Hindustan Shipyard Ltd; the Indian Telephone Industries Ltd.

The States, similarly, have their receipts from: Forests, Irrigation and Commercial Enterprises (like Electricity, Road Transport) and Industrial Undertakings (such as Soap, Sandalwood, Iron and Steel in Karnataka, Paper in Madhya Pradesh, Milk Supply in Mumbai, Deep-sea Fishing and Silk in West Bengal).

Role of the Planning Commissions:

The institution which is sometimes held responsible for giving the maximum strength to the forces of centralisation in the country and yet has continued to remain an extra-statutory and extra-constitutional body is the Planning Commission.

A Planning Commission was set up under Nehru’s Chairmanship by the Indian National Congress more than ten years before the country became independent to draw up a national plan. It had produced some voluminous reports.

A Planning and Development Department was set up and a Development Board was organised by the British Government during the Second World War but these were, comparatively, minor efforts. One might, therefore, say that real planning began with the setting up of the Planning Commission in 1950.

No attempt was, however, made to take resort to legislation or to an amendment of the Constitution. It was set up by a simple resolution of the Union Cabinet put forward by Prime Minister Nehru with himself as its Chairman, to formulate an integrated five-year plan for the economic and social development of the country and to act as an advisory board to the Union Government in this sphere.

But, even though the Planning Commission was set up without legislation or constitutional amendment, it has been growing in strength from year to year. Consisting of the Prime Minister, some important Cabinet Ministers of the Union and some non-officials, it has grown over the years as a heavy bureaucratic organisation.

The function of the Planning Commission, in theory, is to prepare a plan for the most effective and balanced utilisation of the country’s resources, with a view to initiate “a process of development which will raise living standards and open out to the people new opportunities for a richer and more varied life”. Its function, in other words, is to formulate a plan.

Development being related mostly to State subjects, the implementation of the plan rests with the States. The role that the Commission plays with regard to the States is merely advisory. Once the advice has been tendered by the Plan­ning Commission, it has no direct means of securing the implementation of the plan. The practice, however, is different.

The States have to depend on the Centre for financial assistance without which the plans cannot be implemented. Since the States cannot implement the plans without financial assistance from-the Centre, and the Union would like different States to follow a more or less uniform policy the Centre comes to exercise an immense control over the implementation part of the plans in the States.

National Development Council (NDC):

Constituted as the another part of the Planning Commission, it works in close cooperation with the Government of India. In order to promote coordination with the States, a National Development Council, consisting of all the Cabinet Ministers of the Government of India, the Members of the Planning Commission and the Chief Ministers of all the States, was set up. Having no statutory or constitutional basis, the National Development Council is an ad hoc improvised body, but, thanks to a convention, its decisions are regarded as binding on the Centre as well as on the State government.

It is interesting to note that there is no body analogous to the Planning Commission at the State level, though generally there are Planning Departments and sometimes Development Commission­ers in the States. All planning is done at the Union level and it is the responsibility of the States to implement the plans.

Part XI Articles 245-293: A Combination of Conflicts and Cooperation:

The relationship between the Centre and the States covers a wide range and embraces a very large part of the functions and activities in the administrative, social and economic spheres. Since 1950, many events have occurred which have a direct or indirect bearing on the Centre-State relations.

For instance, the Planning Commission was set up by a resolution of the Government of India in March, 1950 with the object of accelerating the economic growth of the country and to meet the social urge for the extension of social services.

Though not a creation of the Constitution, not even endowed with a statutory sanction, the Planning Commission assumed the role of the architect of India’s destiny. There were widespread complaints and it was contended that Five-Year Plans had reduced the federal structure to almost a unitary system.

The reorganisation of the States in 1956 and there­after, especially with the emergence of non-Congress Governments in some States after the 1967 gave the issue of Centre-State relations a new dimension and importance.

Grievance of States in General against the Centre:

(i) The States regard as inadequate the resources placed at their disposal and demand transfer of more financial resources. The tight control exercised by the Centre over the financial institutions of India restricts the action of States.

The States have, consequently, to look to the Centre for funds in case of unforeseen calamities or to carry out various schemes. They do not see eye to eye with the Centre on the issue of overdraft facilities and debt and repayment liabilities of State governments.

(ii) The Centre has the prerogative to decide finally the location of various industries and projects. Undue delays in clearance of projects have adversely affected the interests of the States.

(iii) The States resent the Centre’s encroachment into their sphere, evidence in the transfer of subjects from the State List to the Concurrent List. It may be noted that even the Congress-ruled States have objected to this. Nor do the States like the persistence of the Centre in the matter of getting sales tax abolished.

(iv) The States disapprove of the Centre’s practice of unilaterally increasing the wages and salaries of its staff, as this creates problems for the State governments vis-a-vis their own staff. The administered prices are controlled by the Centre, and arbitrary and drastic increase in the prices upset State budgets.

(v) Resentment is also caused because of conflicting interests in location of new and important projects and industries.

Grievances of ‘Opposition-Ruled’ States against the Centre:

Besides the general grievances stated above, there are some specially felt by the States ruled by parties different from that of ruling at the Centre.

(i) They are critical of the role of the Governors; the manner of their appointment, transfers and dismissals. They feel that party considerations outweigh constitutional conventions in the matter Of Governors’ appointment. They see the Governor as the Centre’s agent.

(ii) They resent the frequent (and sometimes arbitrary) imposition of President’s Rule and dismissal of State governments. This is seen as unwarranted and unconstitutional action on the Centre’s part.

(iii) The State governments resent deployment of paramilitary forces such as CRPF, RPF, Central Industrial Security Force, etc. in the States without requisition from the States.

(iv) The States allege that the Centre shows little respect for the views expressed by State Chief Ministers or Ministers at conferences convened by the Centre. The Centre is alleged to expect unquestioned submission by the State governments like the appointment of Commission of in­quiry by the Centre against the governments and ministries, invariably, of those States ruled by parties other than that at the Centre.

Centre’s Grievances against States:

The Centre, for its part, feels displeased at the attitude of the States over various issues. Its aim is to achieve equitable development of the country. It feels perturbed at the objections of the more advanced States over its special concessions and measures to develop the backward areas.

The Centre also alleges that State governments tend to divert funds allocated for a particular scheme to other purpose. The Centre also resents the States’ claiming credit for the successful implementation of Centrally-sponsored projects.

Reforming Centre-State Relations:

Some of the major recommendations made by different committees and teams are as under:

1. The Setalvad Study Team:

The Setalvad Study Team had recommended the Constitution of an inter- State Council composed of the Prime Minister and other central ministers holding key portfolios, Chief Ministers and others, invited or co-opted. It suggested measures to rationalize the relationship between the Finance Commission and the Planning Commission.

Besides, it recommended that the office of Governor be filled by a person having ability, objectivity and independence and the incumbent must regard himself as a creation of the Constitution and not as an errand boy of the Central Government

2. The Administrative Reforms Commission:

The Administrative Reforms Commission noticed that the Central Government had even moved into the fields earmarked for the States under the Constitu­tion and asked it to withdraw from such areas.

It recommended the setting up of an inter-State Council but made a novel suggestion about its composition. Instead of giving seats in this body to all the Chief Ministers, it wanted to have five representatives one each from the five zonal councils.

Much more importantly, the ARC highlighted the need for formulation of guidelines for governors in the exercise of their discretionary powers. This would ensure uniformity of action and eliminate all suspicions of partnership or arbitrariness.

The question whether a Chief Minister enjoys majority support or not should be tested on the floor of the Legislature and for this he should summon the Assembly when­ever a doubt arises.

It also opined that when a ministry suffers a defeat in the Legislative Assembly on major policy issues and the outgoing chief minister advises the governor to dissolve the Assembly with a view to obtaining the verdict of the electorate, the governor should normally accept the advice.

3. Rajamannar Committee Report:

The DMK government of Tamil Nadu appointed a Commission with a direction to suggest changes in the existing level of Union-State relations. Their terms of reference were to examine the entire question regarding the relationship that should exist between the Centre and the States in a federal set-up and to suggest amendments to the Constitution so as to “secure utmost autonomy to the States.”

The Committee headed by P.V. Rajamannar, a retired Chief Justice of Madras High Court, presented its report on May 27, 1971. Some of the important recommendations of the Committee were:

(i) The Committee recommended the transfer of several subjects from the Union and Concurrent Lists to the State List. It recommended that the ‘residuary power of legislation and taxation’ should be vested in the State Legislatures.

(ii) An Inter-State Council comprising Chief Ministers of all the States or their nominees with the Prime Minister as its Chairman should be set up immediately.

(iii) The Committee recommended the abolition of the existing Planning Commission and that its place must be taken by a statutory body, consisting of scientific, technical, agricultural and economic experts, to advise the States which should have their own Planning Boards.

(iv) The Committee advocated deletion of those articles of the Constitution empowering the Centre to issue directives to the States and to take over the administration in a State. The Committee was also opposed to the emergency powers of the Central Government and recommended the deletion of Articles 356, 357 and 360.

(v) The Committee recommended that every State should have equal representation in the Rajya Sabha, irrespective of population.

(vi) The Governor should be appointed by the President in consultation with the State Cabinet or some other high power body that might be set up for the purpose and once a person had held this office, he should not be appointed to any other office under the Government.

(vii) On recruitment to the services, the Committee recommended that Article 312 should be so amended as to omit the provision of the creation of any new All-India cadre in future.

(viii) The High Courts of States should be the highest courts for all matters falling within the jurisdic­tion of States.

(ix) The Committee said that ‘territorial integrity’ of a State should not be interfered with in any manner except with the consent of the State concerned.

(x) It recommended that the States should also get a share of the tax revenues from corporation tax, customs and export duties and tax on the capital value of assets and also excise duties.

4. Sarkaria Commission Report:

In view of the various problems which impeded the growth of healthy relations between the Centre and the States, the Central Government set up a Commission in June 1983, under the Chairmanship of Justice R.S. Sarkaria mainly to suggest reforms for an equitable distribution of powers between the Union and the States. The Commission submitted its report in 1988.

Major Recommendations:

(i) Though the general recommendations tilt towards the Centre – advocating the unity and integrity of the nation, the Commission suggested that Article 258 (e.g. the Centre’s right to confer authority to the States in certain matters) should be used liberally.

(ii) Minimal use of Article 356 should be made and all the possibilities of formation of an alternative government must be explored before imposing President’s Rule in the State. The State Assem­bly should not be dissolved unless the proclamation is approved by the Parliament.

(iii) It favoured the formation of an Inter-Government Council consisting of the Prime Minister and the Chief Ministers of States to decide collectively on various issues that cause friction be­tween the Centre and the States.

(iv) It rejected the demand for the abolition of the office of Governor as well as his selection from a panel of names given by the State Governments. However, it suggested that active politicians should not be appointed Governors.

When the State and the Centre are ruled by different political parties, the Governor should not belong to the ruling party at the Centre. Moreover, the retiring Governors should be debarred from accepting any office of profit.

(v) It did not favour disbanding of All India Services in the interest of the country’s integrity. Instead, it favoured addition of new All India Services.

(vi) The three-language formula should be implemented in its true spirit in all the States in the interest of unity and integrity of the country.

(vii) It made a strong plea for Inter-State Councils.

(viii) The Judges of the High Courts should not be transferred without their consent.

(ix) It did not favour any drastic changes in the basic scheme of division of taxes, but favoured the sharing of corporation tax and ‘every of consignment tax.

(x) It found the present division of functions between the Finance Commission and the Planning Commission as reasonable and favoured the continuance of the existing arrangement.

Bargaining Federalism: Emerging Trends:

The end of one party rule in the Centre after the debacle of the Congress in 1996 has seen five national elections and governments in 1989, 1991, 1996, 1998 and 1999. In between 1996-97 the Central Government was run by the United Front made up of regional parties.

The regional leaders like Chandrababu Naidu, Karunanidhi, Mulayam Singh Yadav, G.K. Moopnar, Prafulla Kumar Mohanta emerged as the Prime Minister maker at the centre. With 24 allies, some of them volatile, Vajpayee has managed to run the coalition government successfully, because of bargaining.

The government’s stability depended on its bargaining capacity coping with the diverse demands put up by the allies. The new emerging trend that is seen is that the regional parties forming the government in various provinces and they start the process of political bargaining with the coalition government at the centre.

This bargaining for sharing power at the Centre, apparently for the fulfillment of regional aspira­tions, was evident in the formation of the government after 1998, and 1999 elections.

Whether it was Mamta Banerjee wanting a Bengal Package, Telegu Desam Party wanting Central grants or the Lok Sabha speakership, or Miss Jayalalitha demanding waters from the Cauvery or Samata Party setting up a New Railway Zone in Bihar—all have tried to extract the maximum share of the spoils and to seek solutions of the problems in their respective states.