• The constitution of India divides all powers- legislative, executive and financial between the centre and the states
• Maximum harmony and coordination centre and state is essential for the effective operation of the federal system. Thereby, the constitution incorporates several provisions to ensure this.
• Centre-state relations can be better understood under the following three heads:
• Legislative relations
• Administrative relations
• Financial relations

1. Legislative Relations

There are four aspects in the Centre-state legislative relations:

• Territorial extent of central and state legislation
• Distribution of legislative subjects
• Parliamentary legislation in the state field
• Centre’s control over state legislation

Territorial extent of central and state legislation

• Parliament can make law for the whole or any part of the territory of India (territory includes union, state, UT)
• State legislature can make laws for the whole or any part of the state. Laws made by the state are not applicable outside the state, except when there is sufficient relation between the state and object
• Parliament can alone make ‘extra-territorial’ legislation
• Instances when laws made by the Parliament are not applicable:
• President can make regulations which has a same effect as that of the law made by parliament for- Andaman and Nicobar islands, Daman and Diu, Dadra and Nagar Haveli and Lakshadweep
• Governor is empowered to direct that an act of parliament does not apply to a scheduled area in the state or apply with specified modifications and exceptions
• Governor of Assam can likewise direct that an ac of Parliament does not apply or apply with some modification. The same power is vested in President in relation to Meghalaya, Tripura and Mizoram

Distribution of Legislative subjects

• Constitution provides for three-fold classification- union list, state list and concurrent list
• Parliament has exclusive powers vis-à-vis the union list
• State legislature in normal circumstances has exclusive powers to make laws with matters enumerated in the state list
• Both state and centre can make laws on matters enumerated in the concurrent list

42^nd amendment act of 1976 transferred five subjects to constitution

• Education
• Forests
• Weights and measures
• Protection of wild animals and birds
• Administration of justice; constitution and organization of all courts except the supreme court and the high courts
• Power to make laws with residuary subject is vested in the Parliament
• Union list has precedence over state list and concurrent list has precedence over state list
• In case of conflict between central law and state law on a subject enumerated in the concurrent list, the central law prevails over the state law. However, if the state law has been reserved for the consideration of the president and has received his assent, then the state law prevails in the state. Still, parliament can override the state law by subsequently making a law on that matter

In USA, only powers concerning the federal government are mentioned in the constitution and the other powers are left to the states. In Canada, however, two lists are enumerated- centre and the state and the residuary powers is vested with the centre

This scheme of enumeration of legislative subjects was borrowed from Government of India act, 1935, except for the provision which vested the residuary powers in the governor-general

Parliamentary legislation in state field

• Constitution empowers the Parliament to make laws on any matter enumerated in the state list under the following five extraordinary circumstances:
• If Rajya Sabha passes a resolution supported by a 2/3^rd members present and voting empowering parliament to make a law on a matter enumerated in the state list in the best interest of the country. Such a resolution stays in effect for a year. Such a resolution can be renewed any number of times but not for more than a year at a time. The laws made under this cease to have an effect after expiration of six months of the resolution. However, state can make a law on the same subject, but if there is an inconsistency between state and union law, the latter prevails
• When a proclamation of National emergency is in vogue then the Parliament can legislative on a matter enumerated in state list. The laws made under this cease to have an effect after expiration of six months of national emergency. Here also, a state law can make a law on the subject, however, the union law would prevail if there is any inconsistency
• When states make a request for Parliament by passing a resolution to that effect than Parliament becomes empowered to legislate on matters enumerated in the resolution. Once this resolution is passed, the state forfeits every right with regards to that subject
• Parliament can enacts laws on matters enumerated in the state list so as to enforce international agreements
• Parliament becomes empowered to enact a law on the state matter during the time of operation of President’s rule. The law made during this time would continue even after the expiration of the president’s rule. However, the state can later pass an act to either modify, or nullify the act as it sees fit

Centre’s control over state legislation

• Constitution has empowered the centre to exercise control over the state’s legislative matters in the following ways:
• Governor can reserve certain types of bills passed by state legislature for the consideration of the president. The president enjoys absolute veto over them
• Bills on certain matters enumerated in the state list can be introduced in the state legislature only with prior recommendation of the President. Ex: Inter-state trade and commerce

During a financial emergency, president can call upon a state to reserve money bills and other financial bills for his consideration

2. Administrative Relations

• The executive power has been divided between the centre and the states on the lines of distribution of legislative powers
• The power of the centre extends to the whole of India on matters where it has exclusive jurisdiction (union list) and to the exercise of rights, authority and jurisdiction conferred on it by any treaty or agreement
• The jurisdiction of the state extends to those matters enumerated in the state list
• In matters related to concurrent list, the executive power rests with the states
• Obligation of states to the centre:
  • State’s executive power has to be conducted in such a way so as to ensure compliance with the laws made by the Parliament
  • And not to impede or prejudice the exercise of executive power of the centre in a state
• These directions are coercive in nature (Article 365) since any failure to abide by them could invite the use of Article 356
• Centre has been empowered to issue advice to states in the following instances:
  • Construction and maintenance of means of communication declared to be of national importance or military importance by the state
  • Measures to be taken for the protection of the railways within the state
  • Provision of adequate facilities for instruction in the mother-tongue at the primary stage of education to children belonging to linguistic minority groups
  • The drawing up and execution of the specified schemes for the welfare of the ST in the states
• The coercive sanction behind the central directions under article 365 is also applicable in this case
• Mutual delegation of functions: The constitution provides for inter-governmental delegation of executive functions in order to mitigate the rigidity and avoid a situation of deadlock
  • The president with the consent of the state government may delegate the executive functions of the union to the state
  • The governor with the consent of the central government may delegate the executive functions of the state to the union
  • This mutual delegation could be either conditional or unconditional
  • The constitution also provides for delegation of union executive functions to the state without the consent of the state. However, such delegation is made by Parliament and not President. However, a state cannot delegate its executive power in the same way
• Cooperation between the centre and the states: The following provisions have been included to secure cooperation and coordination between the centre and the states
  • Parliament can provide for the adjudication of any dispute or complaint with respect to the use, distribution and control of waters of any inter-state river and river valleys
  • President can establish an Inter-state council to investigate and discuss subject of common interest between the centre and the states.
  • Full faith and credit is to be given throughout the territory of India to public acts, records and judicial proceedings of the centre and every state
  • Parliament can appoint an appropriate authority to carry out the purposes of the constitutional provisions relating to the interstate freedom of trade, commerce and intercourse

All-India services

• In 1947, the colonial Indian Civil Service (ICS) and Indian Police (IP) was replaced by Indian Administrative Service (IAS) and Indian Police Service (IPS) respectively
• In 1966, Indian forest service (IFS) was created as the third All-India service
• Article 312 of the Indian constitution enables Parliament to create an All-India service based on a resolution passed by the Rajya Sabha to that effect
• These three form a single service with common rights and status and uniform scales of pay throughout the country
• Importance of AIS:
• help in maintaining high standard of administration in the centre as well in the states
• help to ensure uniformity of the administrative system throughout the country
• they further liaison, cooperation, coordination and joint action on the issues of common interest between the centre and the states

Public Service Commission

• In this field, the centre-state relations is as follows:
• Chairman and members of the state public service commission are appointed by the governor, however, they can only be dismissed the President
• Parliament can appoint a joint public service commission if two or more states request for it, in such cases, President appoints the chairman and members of the state public service commission
• UPSC can serve the needs of the state public service commission on the request of the governor and the approval of the President
• UPSC assists the states in framing and operating schemes of joint recruitment for any services for which candidates possessing special qualifications are required

Integrated Judicial system

• An integrated judicial system has been setup even though India has a dual polity
• This single system of court enforces both the central as well as the state laws
• The judges of a high court are appointed by the President of India in consultation with the Chief Justice of India and governor of the state. They can also be removed or transferred by the President
• Parliament has been authorized to setup common high courts for two or more states

Relations during emergency

• During National emergency, the centre can issue directions to a state on any matter
• During President’s rule, the president can assume to himself the functions of the state government and powers vested in the governor or any other executive authority in the state
• During financial emergency, the centre can direct the states to observe canons of financial propriety and the President can give other necessary directions including the reduction of salaries of persons serving in the state and the high court judges

Other provisions related to centre-state relations in the executive sphere

• Article 355 imposes two duties in the centre:
  • To protect every state against external aggression and internal disturbance
  • To ensure that the government of every state is carried in accordance with provisions of the constitution
• The governor of state is appointed by the president. He holds office during the pleasure of the President.
• The state election commissioner though appointed by the governor of the state, can be removed only by the President
• Apart from the above, there are various extra-constitutional methods to seek centre-state cooperation. Ex: Forums such as National Integration council, chief minister’s conference etc

3. Financial Relations

Allocation of taxing powers

• Parliament has the exclusive power to levy taxes on subjects enumerated in the Union list
• State legislature has the exclusive power to levy taxes on subjects enumerated in the state list
• Both union and state can levy taxes on matters enumerated in the concurrent list
• Residuary power of taxation is vested in the Parliament

Restriction placed by constitution on taxation power of the state

• A state legislature can impose taxes on profession, trades, callings and employments. But, the total amount payable by any person should not exceed Rs 2500 per annum
• A state can impose taxes on sale or purchase of goods (other than newspaper). But, this power of state to impose sales tax is subjected to four restrictions:
  • No tax can be imposed n the sale or purchase of taking place outside the states
  • No tax can be imposed on the sale or purchase taking place in the course of import or export
  • No tax can be imposed on the sale or purchase taking place in the course of inter-state trade and commerce
  • A tax imposed on the sale or purchase of goods declared by the Parliament to be of special importance in inter-state trade and commerce is subject to the restrictions and conditions specified by the Parliament
  • State cannot impose tax on sale of electricity in the following circumstances- consumed by the centre or sold to the centre, consumed in the construction, maintenance or operation of any railway by the centre or sold to the railway company for the same purpose
  • A state can impose tax on sale of water or electricity sold to an authority established by Parliament for regulating or developing Inter-state River. However, such imposition can be undertaken through a law which has received the assent of the President

Distribution of tax revenues

• Taxes are imposed by the centre but are collected and appropriated by the state (Article 268). The proceeds under this form part of the consolidated fund of the state. Ex: Stamps duty, excise duty
• Taxes are levied and collected by the centre but assigned to the states (article 269). Ex: Taxes on the sale or purchase of goods (other than newspapers) in the course of inter-state trade. The proceeds under this form part of the consolidated fund of the state.
• Taxes are levied and collected by the centre but distributed between the centre and the states (Article 270). This category includes all taxes except those mentioned above, surcharges and cess. The matter of distribution of these taxes is prescribed by the President based on the recommendation of the Finance Commission
• Parliament at any point can levy the surcharges on taxes and duties referred to in Article 269 and article 270. Such proceeds from surcharges go exclusively to the centre
• Taxes levied and collected and retained by the states: These are the taxes belonging to the states exclusively. They are enumerated in the state list. Ex: Taxes on agriculture income, excise duties on alcohol, taxes on professions, ceilings etc

Distribution of Non-tax revenues:

• The centre: The receipts from the following form the major sources of non-tax revenues of the centre: i) posts and telegraphs; ii) railways; iii) banking; iv) broadcasting; v) coinage and currency; vi) central public sector enterprise; and vii) escheat and lapse
• The states: The receipts from the following form the major sources of non-tax revenues of  the states: i) irrigation; ii) forests; iii) fisheries; iv) state public sector enterprise and v) escheat and lapse
• Grants-in-Aid to the states: Constitution provides for grants-in-aid to the state from the central resources. There are two types of grants-in-aid: statutory grants and discretionary grants
• Statutory grants:
  • Article 275 empowers the parliament to make grants to the states which are in need of financial assistance and not to every state
  • These sums can be different for different states. These sums are charged on the Consolidated Fund of India every year
  • These are given to the states based on the recommendation of the Finance Commission
• Discretionary grants:
  • Article 282 empowers both the centre and the states to make any grants for any public purpose, even if it is not within their legislative competence.
  • The centre is under no obligation to give these grants and the matter lies within its discretion
• Other grants:
  • Constitution provided for a temporary grant for specific purpose. Ex: grants for the states of Assam, Bihar, Odisha and West Bengal in lieu of export duties on jute and jute products.
  • These grants were to be given for a period of 10 years from the commencement of the constitution based on the recommendation of the Finance Commission

Finance Commission

• Article 280 provides for this quasi-judicial body
• It is constituted by the President every five years or even earlier
• It is required to make recommendations to the President on the following matters:
  • Distribution of net proceeds of taxes shared between the centre and the states, and the allocation between the states, the respective shares of such proceeds
  • Principles which should decide the grants-in-aid as per article 275
  • Measures needed to augment the Consolidated Fund of the state to supplement the resources of panchayats and municipalities in the state based on the recommendation of the state finance commission
  • Any other matter referred to it by the President
• Some bills can be introduced in the Parliament only on the recommendation of the President so as to protect the financial interests of the states:
  • A bill which imposes or varies any tax or duty in which states are interested
  • A bill which varies the meaning of the term ‘agricultural income’ as defined for the purposes of the enactments relating to the income tax
  • A bill which affects the principles on which moneys are or may be distributable to states; and
  • A which imposes any surcharge on any specified tax or duty for the purpose of the centre
• Borrowing by the centre and the states
  • The central government can borrow either within India or outside upon the security of the Consolidated Fund of India or can give guarantees, but both within the limits fixed by the parliament. As of now, no such law has been enacted by the Parliament
  • A state government can borrow within India and not abroad upon the security of the consolidated fund of the state or can give guarantees but both within the limits fixed by the legislature of that state
  • The central government can make loans to any state or give guarantees in respect of loans raised by any state. Any sums required for the purpose of making such loans are to be charged on the consolidated fund of India
  • A state cannot raise any loan without the consent of the centre, if there is still outstanding any part of loan made to the state by the centre or in respect of which a guarantee has been given by the centre
• Inter-governmental tax immunities
  • The property of centre is exempted from all taxes imposed by a state or any authority within a state like municipalities, district boards, and panchayats and so on. However, Parliament can remove this ban. This exemption is not applicable to companies or corporations created by the central government.
  • The property and income of a state is exempted from central taxation. However, the centre can tax commercial operations of a state if Parliament provides for it. The property and income of local authorities situated within a state are not exempted from central taxation.

The 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

• During emergencies: financial relations between centre and the states
  • National emergency:
    • President can modify revenue distribution between the centre and the states.
    • Such modification continues till the end of the financial year in which the emergency ceases to operate
  • Financial emergency
    • • Centre can give directions to the states- to observe the specified cannons of financial propriety, reduce the salaries and allowances of all class of persons serving in the state and to reserve all money bills and other financial bills for the consideration of the President

GST Council (Centre state relations)

• The GST has taken away much of the autonomyavailable to states and has made the country’s indirect tax regime unitary in nature.
• After the introduction of the GST in 2017, state governments lost their independent taxation powers.
  • Liquor and fuel are the only two significant avenues left for statesto generate their own tax revenues, without having to seek approval from the Union government, since they are outside the GST regime.
• India’s GST is precariously held together by the loose thread of "compensation guarantee", under which states surrendered their fiscal powers in return for guaranteed revenues.
  • However, during the Covid-19 pandemic, the Union government repeatedly violated the compensation guarantees to the States under the GST regime. Delay in paying the States their due worsened the impact of the economic slowdown.
  • The GST compensation period expires in June 2022, and despite multiple requests from the States, the deadline has not been extended.
• Recently, the Supreme Court in a judgment invoking the spirit of "Cooperative Federalism"for the well-being of democracy, held that Union and State legislatures have “equal, simultaneous and unique powers” to make laws on Goods and Services Tax (GST) and the recommendations of the GST Council are not binding on them.
  • The apex court’s decision came while confirming a Gujarat High Court ruling that the Centre cannot levy Integrated Goods and Services Tax (IGST)on ocean freight from Indian importers.
• In simple terms, Parliament and State Legislatures have simultaneous powers to legislate under the GST.

Tensions in the centre-state relations

• • Mode of appointment and dismissal of governor
  • Discriminatory and partisan role of governors
  • Imposition of President’s rule for partisan interests
  • Deployment of central forces in the states to maintain law and order
  • Reservation of state bills for the consideration of the President
  • Discrimination in financial allocations to the states
  • Management of All-India services
  • Use of electronic media for political purposes
  • Encroachment by the centre on the state list

Recommendations

Administrative reforms commission

• Establishment of an Inter-state council under Article 263 of the constitution
• Appointment of persons having long-experiences in public life and non-partisan attitudes as governors
• Delegated maximum powers 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
• Rajamannar committee appointed by Tamil Nadu government made various recommendation to address the asymmetry between powers of centre and the state
• Punjab through Anandpur Sahib resolution and West Bengal through a memorandum made similar recommendations to address these asymmetry
• Government appointed Sarkaria Commission in 1983 and Punnchi Commission in 2007 to examine the status of centre-state relations

Sarkaria commission recommendation

• Setting up a permanent inter-state council
  • Article 356 should be used sparingly
  • Institution of all-India service should be strengthened
  • Residuary power should remain with the parliament
  • Reasons should be communicated to the state when state bills are vetoed by the President
  • 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
  • Procedure of consulting the chief minister in the appointment of the state governor should be prescribed in the constitution itself
  • Governors should be allowed to complete their term of five years
  • Commissioner for linguistic minorities should be activated

Punchhi commission

• • Giving a fixed term of five years to the governors and their removal by the process of impeachment
  • Union should be extremely restrained in asserting Parliamentary supremacy in matters assigned to the states
  • It prescribed certain conditions that one should keep in mind while appointing governors:
    • He should be eminent in some walk of life
    • He should be a person from outside the state
    • He should be a detached figure and not connected with the local politics
    • He should not be connected with politics in recent past
  • Government should be given a fixed tenure of five years
  • Procedure given for the impeachment of the President could be made applicable to governor as well
  • Governor should insist on Chief Minister proving his majority on the floor of the house for which he should prescribe a time-limit
  • Bommai case guidelines should be kept in mind while deciding cases related to President’s rule
  • Inter-state council should be made more use of to further centre-state relations

Looking forward

• A Reformed Approach toward States:The Centre could strive to be more conciliatory towards States’ concerns and fiscal dilemmas.
  • The Council should also meet more oftento nurture the critical fiscal federalism dialogue in the right direction and minimize trust deficits.
  • There are many pending reformsthat require the Centre to work more cohesively with States to take India’s economy forward and lift those left behind - land, labor markets as well as the agrarian sector.
• Horizontal and Vertical Level Cooperation:Cooperation between the Centre and states is required at both vertical (between Centre and states) and horizontal (among states) levels and on various fronts.
  • This includes fine-tuning of developmental measuresfor desired outcomes, development-related policy decisions, welfare measures, administrative reforms, strategic decisions, etc.
• Reforms in GST Council:It may be time already for reform of the GST. What is needed is statesmanship at the GST Council even if the Court has said that the Council is a place as much for political contestation as for co-operative federalism.
  • The Council should transcend political rivalriesof the day.
  • The States should have the right to dissent in the Counciland their voice should not be drowned in the pursuit of unanimity in decision-making.