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Centre can impose customs duty on goods imported or exported by a
state, or an excise duty on goods produced or manufactured by a
state.
Effects of Emergencies
The Centre-state financial relations in normal times (described above)
undergo changes during emergencies. These are as follows:
National Emergency
While the proclamation of national emergency (under Article 352) is in
operation, the president can modify the constitutional distribution of
revenues between the Centre and the states. This means that the
president can either reduce or cancel the transfer of finances (both tax
sharing and grants-in-aid) from the Centre to the states. Such
modification continues till the end of the financial year in which the
emergency ceases to operate.
Financial Emergency
While the proclamation of financial emergency (under Article 360) is in
operation, the Centre can give directions to the states: (i) to observe
the specified canons of financial propriety; (ii) to reduce the salaries
and allowances of all class of persons serving in the state; and (iii) to
reserve all money bills and other financial bills for the consideration of
the President.
Table 14.3 Articles Related to Centre-State Financial Relations at a
Glance
Article No. Subject Matter
Distribution of Revenues between the Union and the States
268. Duties levied by the Union but collected and
appropriated by the states
268A. Service tax levied by Union and collected and
appropriated by the Union and the states
(Repealed)
269. Taxes levied and collected by the Union but
assigned to the states
269A. Levy and collection of goods and services tax in
course of inter-state trade or commerce
270. Taxes levied and distributed between the Union
and the states
271. Surcharge on certain duties and taxes for
purposes of the Union
272. Taxes which are levied and collected by the Union
and may be distributed between the Union and the
states (Repealed)
273. Grants in lieu of export duty on jute and jute
products
274. Prior recommendation of President required to bills
affecting taxation in which states are interested
275. Grants from the Union to certain states
276. Taxes on professions, trades, callings and
employments
277. Savings
278. Agreement with states in Part B of the First
Schedule with regard to certain financial matters
(Repealed)
279. Calculation of “net proceeds”, etc.
279A. Goods and Services Tax Council
281. Recommendations of the Finance Commission
Miscellaneous Financial Provisions
282. Expenditure defrayable by the Union or a state out
of its revenues
283. Custody, etc., of Consolidated Funds, Contingency
Funds and moneys credited to the public accounts
284. Custody of suitors’ deposits and other moneys
received by public servants and courts
285. Exemption of property of the Union from state
taxation
286. Restrictions as to imposition of tax on the sale or
purchase of goods
287. Exemption from taxes on electricity
288. Exemption from taxation by states in respect of
water or electricity in certain cases
289. Exemption of property and income of a state from
Union taxation
290. Adjustment in respect of certain expenses and
pensions
290A. Annual payment to certain Devaswom Funds
291. Privy purse sums of Rulers (Repealed)
Borrowing
292. Borrowing by the Government of India
293. Borrowing by states
TRENDS IN CENTRE-STATE RELATIONS
Till 1967, the centre-state relations by and large were smooth due to
one-party rule at the Centre and in most of the states. In 1967
elections, the Congress party was defeated in nine states and its
position at the Centre became weak. This changed political scenario
heralded a new era in the Centre-state relations. The non-Congress
Governments in the states opposed the increasing centralisation and
intervention of the Central government. They raised the issue of state
autonomy and demanded more powers and financial resources to the
states. This caused tensions and conflicts in Centre-state relations.
Tension Areas in Centre-State Relations
The issues which created tensions and conflicts between the Centre
and states are: (1) Mode of appointment and dismissal of governor;
(2) Discriminatory and partisan role of governors; (3) Imposition of
President’s Rule for partisan interests; (4) Deployment of Central
forces in the states to maintain law and order; (5) Reservation of state
bills for the consideration of the President; (6) Discrimination in
financial allocations to the states; (7) Role of Planning Commission in
approving state projects; (8) Management of All-India Services (IAS,
IPS, and IFS); (9) Use of electronic media for political purposes; (10)
Appointment of enquiry commissions against the chief ministers; (11)
Sharing of finances (between Centre and states); and (12)
Encroachment by the Centre on the State List.
The issues in Centre-State relations have been under consideration
since the mid 1960s. In this direction, the following developments
have taken place:
Administrative Reforms Commission
The Central government appointed a six-member Administrative
Reforms Commission (ARC) in 1966 under the chairmanship of
Morarji Desai (followed by K Hanumanthayya). Its terms of references
included, among others, the examination of Centre-State relations. In
order to examine thoroughly the various issues in Centre-state
relations, the ARC constituted a study team under M.C. Setalvad. On
recommendations for improving the Centre-state relations. The
important recommendations are:
• Establishment of an Inter-State Council under Article 263 of the
Constitution.
• Appointment of persons having long experience in public life and
administration and non-partisan attitude as governors.
• Delegation of powers to the maximum extent to the states.
• Transferring of more financial resources to the states to reduce
their dependency upon the Centre.
• Deployment of Central armed forces in the states either on their
request or otherwise.
No action was taken by the Central government on the
recommendations of the ARC.
Rajamannar Committee
In 1969, the Tamil Nadu Government (DMK) appointed a three-
member committee under the chairmanship of Dr. P.V. Rajamannar to
examine the entire question of Centre-state relations and to suggest
amendments to the Constitution so as to secure utmost autonomy to
the states.25 The committee submitted its report to the Tamil Nadu
Government in 1971.
The Committee identified the reasons for the prevailing unitary
trends (tendencies of centralisation) in the country. They include: (i)
certain provisions in the Constitution which confer special powers on
the Centre; (ii) one-party rule both at the Centre and in the states; (iii)
inadequacy of states’ fiscal resources and consequent dependence
on the Centre for financial assistance; and (iv) the institution of Central
planning and the role of the Planning Commission.
The important recommendations of the committee are as follows: (i)
An Inter-State Council should be set up immediately; (ii) Finance
Commission should be made a permanent body; (iii) Planning
Commission should be disbanded and its place should be taken by a
statutory body; (iv) Articles 356, 357 and 365 (dealing with President’s
Rule) should be totally omitted; (v) The provision that the state
ministry holds office during the pleasure of the governor should be
omitted; (vi) Certain subjects of the Union List and the Concurrent List
should be transferred to the State List; (vii) the residuary powers
The Central government completely ignored the recommendations
of the Rajamannar Committee.
Anandpur Sahib Resolution
In 1973, the Akali Dal adopted a resolution containing both political
and religious demands in a meeting held at Anandpur Sahib in
Punjab. The resolution, generally known as Anandpur Sahib
Resolution, demanded that the Centre’s jurisdiction should be
restricted only to defence, foreign affairs, communications, and
currency and the entire residuary powers should be vested in the
states. It stated that the Constitution should be made federal in the
real sense and should ensure equal authority and representation to all
the states at the Centre.
West Bengal Memorandum
In 1977, the West Bengal Government (led by the Communists)
published a memorandum on Centre-state relations and sent to the
Central government. The memorandum inter alia suggested the
following: (i) The word ‘union’ in the Constitution should be replaced
by the word ‘federal’; (ii) The jurisdiction of the Centre should be
confined to defence, foreign affairs, currency, communications and
economic co-ordination; (iii) All other subjects including the residuary
should be vested in the states; (iv) Articles 356 and 357 (President’s
Rule) and 360 (financial emergency) should be repealed; (v) State’s
consent should be made obligatory for formation of new states or
reorganisation of existing states; (vi) Of the total revenue raised by the
Centre from all sources, 75 per cent should be allocated to the states;
(vii) Rajya Sabha should have equal powers with that of the Lok
Sabha; and (viii) There should be only Central and state services and
the allIndia services should be abolished.
The Central government did not accept the demands made in the
memorandum.
Sarkaria Commission
In 1983, the Central government appointed a three-member
Commission on Centrestate relations under the chairmanship of R.S.
arrangements between the Centre and states in all spheres and
recommend appropriate changes and measures. It was initially given
one year to complete its work, but its term was extended four times. It
submitted it’s report in 1988.
The Commission did not favour structural changes and regarded
the existing constitutional arrangements and principles relating to the
institutions basically sound. But, it emphasised on the need for
changes in the functional or operational aspects. It observed that
federalism is more a functional arrangement for co-operative action
than a static institutional concept. It outrightly rejected the demand for
curtailing the powers of the Centre and stated that a strong Centre is
essential to safeguard the national unity and integrity which is being
threatened by the fissiparious tendencies in the body politic. However,
it did not equate strong Centre with centralisation of powers. It
observed that over-centralisation leads to blood pressure at the centre
and anaemia at the periphery.
The Commission made 247 recommendations to improve Centre-
state relations. The important recommendations are mentioned below:
1. A permanent Inter-State Council called the Inter-Governmental
Council should be set up under Article 263.
2. Article 356 (President’s Rule) should be used very sparingly, in
extreme cases as a last resort when all the available alternatives
fail.
3. The institution of All-India Services should be further
strengthened and some more such services should be created.
4. The residuary powers of taxation should continue to remain with
the Parliament, while the other residuary powers should be
placed in the Concurrent List.
5. When the president withholds his assent to the state bills, the
reasons should be communicated to the state government.
6. The National Development Council (NDC) should be renamed
and reconstituted as the National Economic and Development
Council (NEDC).
7. The zonal councils should be constituted afresh and reactivated
to promote the spirit of federalism.
8. The Centre should have powers to deploy its armed forces, even
without the consent of states. However, it is desirable that the
states should be consulted.
9. The Centre should consult the states before making a law on a
10. The procedure of consulting the chief minister in the
appointment of the state governor should be prescribed in the
Constitution itself.
11. The net proceeds of the corporation tax may be made
permissibly shareable with the states.
12. The governor cannot dismiss the council of ministers so long as
it commands a majority in the assembly.
13. The governor’s term of five years in a state should not be
disturbed except for some extremely compelling reasons.
14. No commission of enquiry should be set up against a state
minister unless a demand is made by the Parliament.
15. The surcharge on income tax should not be levied by the Centre
except for a specific purpose and for a strictly limited period.
16. The present division of functions between the Finance
Commission and the Planning Commission is reasonable and
should continue.
17. Steps should be taken to uniformly implement the three
language formula in its true spirit.
18. No autonomy for radio and television but decentralisation in their
operations.
19. No change in the role of Rajya Sabha and Centre’s power to
reorganise the states.
20. The commissioner for linguistic minorities should be activated.
The Central government has implemented 180 (out of 247)
recommendations of the Sarkaria Commission. The most important is
the establishment of the Inter-State Council in 1990.
Punchhi Commission
The Second commission on Centre-State Relations was set-up by the
Government of India in April 2007 under the Chairmanship of Madan
Mohan Punchhi, former Chief Justice of India.27 It was required to look
into the issues of Centre-State relations keeping in view the sea-
changes that have taken place in the polity and economy of India
since the Sarkaria Commission had last looked at the issue of Centre-
State relations over two decades ago.
The terms of reference of the Commission were as follows:
(i) The Commission was required to examine and review the working
of the existing arrangements between the Union and States as
per the Constitution of India, the healthy precedents being
followed, various pronouncements of the Courts in regard to
powers, functions and responsibilities in all spheres including
legislative relations, administrative relations, role of governors,
emergency provisions, financial relations, economic and social
planning, Panchayati Raj institutions, sharing of resources
including inter-state river water and recommend such changes or
other measures as may be appropriate keeping in view the
practical difficulties.
(ii) In examining and reviewing the working of the existing
arrangements between the Union and States and making
recommendations as to the changes and measures needed, the
Commission was required to keep in view the social and
economic developments that have taken place over the years,
particularly over the last two decades and have due regard to the
scheme and framework of the Constitution. Such
recommendations were also needed to address the growing
challenges of ensuring good governance for promoting the
welfare of the people whilst strengthening the unity and integrity of
the country, and of availing emerging opportunities for sustained
and rapid economic growth for alleviating poverty and illiteracy in
the early decades of the new millennium.
(iii) While examining and making its recommendations on the above,
the Commission was required to have particular regard, but not
limit its mandate to the following:-
(a) The role, responsibility and jurisdiction of the Centre vis-a-vis
States during major and prolonged outbreaks of communal
violence, caste violence or any other social conflict leading to
prolonged and escalated violence.
(b) The role, responsibility and jurisdiction of the Centre vis-a-vis
States in the planning and implementation of the mega
projects like the inter-linking of rivers, that would normally
take 15–20 years for completion and hinge vitally on the
support of the States.
(c) The role, responsibility and jurisdiction of the Centre vis-a-vis
States in promoting effective devolution of powers and
autonomy to Panchayati Raj Institutions and Local Bodies
including the Autonomous Bodies under the sixth Schedule of
the Constitution within a specified period of time.
(d) The role, responsibility and jurisdiction of the Centre vis-a-vis
States in promoting the concept and practice of independent
(e) The role, responsibility and jurisdiction of the Centre vis-a-vis
States in linking Central assistance of various kinds with the
performance of the States.