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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 Service tax levied by Union and collected and | appropriated by the Union and the states | (Repealed) |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and may be distributed between the Union and the | states (Repealed) | 273.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(Repealed) | 279.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. |
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