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(f) The role, responsibility and jurisdiction of the Centre in
adopting approaches and policies based on positive
discrimination in favour of backward States.
(g) The impact of the recommendations made by the 8th to 12th
Finance Commissions on the fiscal relations between the
Centre and the States, especially the greater dependence of
the States on devolution of funds from the Centre.
(h) The need and relevance of separate taxes on the production
and on the sales of goods and services subsequent to the
introduction of Value Added Tax regime.
(i) The need for freeing inter-State trade in order to establish a
unified and integrated domestic market as also in the context
of the reluctance of State Governments to adopt the relevant
Sarkaria Commission’s recommendation in chapter XVIII of its
report.
(j) The need for setting up a Central Law Enforcement Agency
empowered to take up suo moto investigation of crimes
having inter-State and/ or international ramifications with
serious implications on national security.
(k) The feasibility of a supporting legislation under Article 355 for
the purpose of suo moto deployment of Central forces in the
States if and when the situation so demands.
The Commission submitted its report to the government in April
2010. In finalising the 1,456 page report, in seven volumes, the
Commission took extensive help from the Sarkaria Commission
report, the National Commission to Review the Working of the
Constitution (NCRWC) report and the Second Administrative Reforms
Commission report. However, in a number of areas, the Commission
report differed from the Sarkaria Commission recommendations.
After examining at length the issues raised in its Terms of
Reference and the related aspects in all their hues and shades, the
Commission came to the conclusion that ‘cooperative federalism’ will
be the key for sustaining India’s unity, integrity and social and
economic development in future. The principles of cooperative
federalism thus may have to act as a practical guide for Indian polity
and governance.
In all, the Commission made over 310 recommendations, touching
upon several significant areas in the working of Centre-state relations.
The important recommendations are mentioned below:
1. To facilitate effective implementation of the laws on List III
subjects, it is necessary that some broad agreement is reached
between the Union and states before introducing legislation in
Parliament on matters in the Concurrent List.
2. The Union should be extremely restrained in asserting
Parliamentary supremacy in matters assigned to the states.
Greater flexibility to states in relation to subjects in the State List
and “transferred items” in the Concurrent List is the key for better
Centre-state relations.
3. The Union should occupy only that many of subjects in
concurrent or overlapping jurisdiction which are absolutely
necessary to achieve uniformity of policy in demonstrable
national interest.
4. There should be a continuing auditing role for the Inter-state
Council in the management of matters in concurrent or
overlapping jurisdiction.
5. The period of six months prescribed in Article 201 for State
Legislature to act when the bill is returned by the President can
be made applicable for the President also to decide on assenting
or withholding assent to a state bill reserved for consideration of
the President.
6. Parliament should make a law on the subject of Entry 14 of List I
(treaty making and implementing it through Parliamentary
legislation) to streamline the procedures involved. The exercise
of the power obviously cannot be absolute or unchartered in
view of the federal structure of legislative and executive powers.
7. Financial obligations and its implications on state finances
arising out of treaties and agreements should be a permanent
term of reference to the Finance Commissions constituted from
time to time.
8. While selecting Governors, the Central Government should
adopt the following strict guidelines as recommended in the
Sarkaria Commission report and follow its mandate in letter and
spirit :
(i) He should be eminent in some walk of life
(ii) He should be a person from outside the state
(iv) He should be a person who has not taken too great a par
politics generally and particularly in the recent past
9. Governors should be given a fixed tenure of five years and their
removal should not be at the sweet will of the Government at the
Centre.
10. The procedure laid down for impeachment of President, mutatis
mutandis can be made applicable for impeachment of Governors
as well.
11. Article 163 does not give the Governor a general discretionary
power to act against or without the advice of his Council of
Ministers. In fact, the area for the exercise of discretion is limited
and even in this limited area, his choice of action should not be
arbitrary or fanciful. It must be a choice dictated by reason,
activated by good faith and tempered by caution.
12. In respect of bills passed by the Legislative Assembly of a state,
the Governor should take the decision within six months whether
to grant assent or to reserve it for consideration of the President.
13. On the question of Governor’s role in appointment of Chief
Minister in the case of an hung assembly, it is necessary to lay
down certain clear guidelines to be followed as Constitutional
conventions. These guidelines may be as follows:
(i) The party or combination of parties which commands the wid
support in the Legislative Assembly should be called upon to f
the Government.
(ii) If there is a pre-poll alliance or coalition, it should be treated
one political party and if such coalition obtains a majority,
leader of such coalition shall be called by the Governor to f
the Government.
(iii) In case no party or pre-poll coalition has a clear majority,
Governor should select the Chief Minister in the order
preference indicated here.
(a) The group of parties which had pre-poll alliance
commanding the largest number
(b) The largest single party staking a claim to form the
government with the support of others
(c) A post-electoral coalition with all partners joining the
government
(d) A post-electoral alliance with some parties joining the
government and the remaining including independents
14. On the question of dismissal of a Chief Minister, the Governor
should invariably insist on the Chief Minister proving his majority
on the floor of the House for which he should prescribe a time
limit.
15. The Governor should have the right to sanction for prosecution
of a state minister against the advice of the Council of Ministers,
if the Cabinet decision appears to the Governor to be motivated
by bias in the face of overwhelming material.
16. The convention of Governors acting as Chancellors of
Universities and holding other statutory positions should be done
away with. His role should be confined to the Constitutional
provisions only.
17. When an external aggression or internal disturbance paralyses
the state administration creating a situation of a potential break
down of the Constitutional machinery of the state, all alternative
courses available to the Union for discharging its paramount
responsibility under Article 355 should be exhausted to contain
the situation and the exercise of the power under Article 356
should be limited strictly to rectifying a “failure of the
Constitutional machinery in the state”.
18. On the question of invoking Article 356 in case of failure of
Constitutional machinery in states, suitable amendments are
required to incorporate the guidelines set forth in the landmark
judgement of the Supreme Court in S.R. Bommai V. Union of
India (1994). This would remove possible misgivings in this
regard on the part of states and help in smoothening Centre-
state relations.
19. Given the strict parameters now set for invoking the emergency
provisions under Articles 352 and 356 to be used only as a
measure of “last resort”, and the duty of the Union to protect
states under Article 355, it is necessary to provide a
Constitutional or legal framework to deal with situations which
require Central intervention but do not warrant invoking the
extreme steps under Articles 352 and 356. Providing the
framework for “localised emergency” would ensure that the state
government can continue to function and the Assembly would
not have to be dissolved while providing a mechanism to let the
Central Government respond to the issue specifically and locally.
The imposition of local emergency is fully justified under the
20. Suitable amendments to Article 263 are required to make the
Inter-State Council a credible, powerful and fair mechanism for
management of interstate and Centre-state differences.
21. The Zonal Councils should meet at least twice a year with an
agenda proposed by states concerned to maximise co-ordination
and promote harmonisation of policies and action having inter-
state ramification. The Secretariat of a strengthened Inter-State
Council can function as the Secretariat of the Zonal Councils as
well.
22. The Empowered Committee of Finance Ministers of States
proved to be a successful experiment in inter-state coordination
on fiscal matters. There is need to institutionalise similar models
in other sectors as well. A forum of Chief Ministers, Chaired by
one of the Chief Minister by rotation can be similarly thought
about particularly to co-ordinate policies of sectors like energy,
food, education, environment and health.
23. New all-India services in sectors like health, education,
engineering and judiciary should be created.
24. Factors inhibiting the composition and functioning of the Second
Chamber as a representative forum of states should be removed
or modified even if it requires amendment of the Constitutional
provisions. In fact, Rajya Sabha offers immense potential to
negotiate acceptable solutions to the friction points which
emerge between Centre and states in fiscal, legislative and
administrative relations.
25. A balance of power between states inter se is desirable and this
is possible by equality of representation in the Rajya Sabha. This
requires amendment of the relevant provisions to give equality of
seats to states in the Rajya Sabha, irrespective of their
population size.
26. The scope of devolution of powers to local bodies to act as
institutions of self-government should be constitutionally defined
through appropriate amendments.
27. All future Central legislations involving states’ involvement
should provide for cost sharing as in the case of the RTE Act.
Existing Central legislations where the states are entrusted with
the responsibility of implementation should be suitably amended
providing for sharing of costs by the Central Government.
28. The royalty rates on major minerals should be revised at least
compensated for any delay in the revision of royalty beyond
three years.
29. The current ceiling on profession tax should be completely done
away with by a Constitutional amendment.
30. The scope for raising more revenue from the taxes mentioned in
article 268 should be examined afresh. This issue may be either
referred to the next Finance Commission or an expert committee
be appointed to look into the matter.
31. To bring greater accountability, all fiscal legislations should
provide for an annual assessment by an independent body and
the reports of these bodies should be laid in both Houses of
Parliament/state legislature.
32. Considerations specified in the Terms of Reference (ToR) of the
Finance Commission should be even handed as between the
Centre and the states. There should be an effective mechanism
to involve the states in the finalisation of the ToR of the Finance
Commissions.
33. The Central Government should review all the existing cesses
and surcharges with a view to bringing down their share in the
gross tax revenue.
34. Because of the close linkages between the plan and non-plan
expenditure, an expert committee may be appointed to look into
the issue of distinction between the plan and non-plan
expenditure.
35. There should be much better coordination between the Finance
Commission and the Planning Commission. The synchronisation
of the periods covered by the Finance Commission and the Five-
Year Plan will considerably improve such coordination.
36. The Finance Commission division in the Ministry of Finance
should be converted into a full-fledged department, serving as
the permanent secretariat for the Finance Commissions.
37. The Planning Commission has a crucial role in the current
situation. But its role should be that of coordination rather that of
micro managing sectoral plans of the Central ministries and the
states.
38. Steps should be taken for the setting up of an Inter-State Trade
and Commerce Commission under Article 307 read with Entry
42 of List-I. This Commission should be vested with both
advisory and executive roles with decision making powers. As a
party aggrieved with the decision of the Commission may prefer
an appeal to the Supreme Court.
The Report of the Commission was circulated to all stakeholders
including State Governments / UT Administrations and Union
Ministries / Departments concerned for their considered views on the
recommendations of the Commission. The comments received from
the Union Ministries / Departments and the State Governments / UT
Administrations are under the consideration of the Inter-State
Council.28
NOTES AND REFERENCES
1. Even now, the last entry is numbered as 97 but the total
number of entries is 98. The entries numbered as 2A, 92A
and 92B have been added and entries 33, 92 and 92C have
been omitted. See Appendix II.
2. Even now, the last entry is numbered as 66 but the total
number of entries is 59. The entries numbered as 11, 19,
20, 29, 36, 52 and 55 have been omitted. See Appendix II.
3. Even now, the last entry is numbered as 47 but the total
number of entries is 52. The entries numbered as 11A, 17A,
17B, 20A and 33A have been added. See Appendix II.
3a. The provision for goods and services tax was added by the
101st Amendment Act of 2016.
3b. Ibid.
4. Report of the Commission on centre-state Relations, Part I
(Government of India, 1988) PP. 28–29.
5. For example, under the Essential Commodities Act, made
by the Parliament on a concurrent subject, the executive
power is vested in the Centre.
6. This provision (the power of the states to entrust functions
to the Centre) was added by the 7th Constitutional
Amendment Act of 1956. Before that, only the Centre had
the power.
7. For details in this regard, see Chapter 15.
8. Constituent Assembly Debates, Volume VII, PP. 41–42.
9. For details, see Chapter 54.
10. For details, see Chapter 78.
12. Entries–82, 83, 84, 85, 86, 87, 88, 89, 90, 91, 92A, 92B and
96. See Appendix II.
13. Entries–45, 46, 47, 48, 49, 50, 51, 53, 54, 56, 57, 58, 59,
60, 61, 62, 63, and 66. See Appendix II.
14. In this regard, the 101st Amendment Act of 2016 inserted
Article 246-A in the Constitution.
15. Originally, this limit was only ₹250 per annum. The 60th
Amendment Act of 1988 raised it to ₹2,500 per annum.
16. These provisions are contained in Article 286, as amended
by the 101st Amendment Act of 2016.
17. This amendment deleted Article 272 (Taxes which are
levied and collected by the Centre and may be distributed
between the Centre and the states).
18. Entry 52 (taxes on the entry of goods into a local area for
consumption, use or sale therein) and entry 55 (taxes on
advertisements other than advertisements published in the
newspapers and advertisements broadcast by radio or
television) were omitted by the 101st Amendment Act of
2016.
19. See ‘Property of the Union’ in Chapter 67.
20. See ‘Property of the States’ in Chapter 67.
21. M.P. Jain: Indian Constitutional Law, Wadhwa, Fourth
Edition, PP. 342–43.
22. Article 279-A(1) says that the President shall, within sixty
days from the commencement of the Constitution (One
Hundred and First Amendment) Act, 2016, by order,
constitute a Council to be called the Goods and Services
Tax Council.
23. This function was added by the 73rd and 74th Amendment
Acts of 1992 which have granted constitutional status on the
panchayats and the municipalities respectively.
24. In Re. Sea Customs Act (1963).
25. The other two members of the committee were Dr.