Centre-State Relations in India:part 2
Centre-State Relations on Financial Matters
Articles 268 to 293 in Part XII of the Constitution of India deal with the financial relations between the Centre and the States. These provisions ensure fiscal federalism, i.e., an equitable division of resources and financial powers between the Union and the States.
1. Allocation of Taxing Powers
| Aspect | Centre | States |
|---|---|---|
| Taxation powers | Exclusive power to levy taxes on subjects in the Union List | Exclusive power to levy taxes on subjects in the State List |
| Residuary powers | Only Parliament can levy taxes on subjects not mentioned in the Seventh Schedule | None |
2. Grants-in-Aid
| Provision | Description |
|---|---|
| Article 275(1) | Parliament can provide grants-in-aid to states as it deems necessary. Different amounts may be allocated to different states. |
| Article 282 | Union or State can make grants for any public purpose, even outside specific constitutional obligations. |
3. Goods and Services Tax (GST)
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Introduced by the 101st Constitutional Amendment Act, 2016.
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Jointly levied by Centre and States.
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Ensures uniform tax structure and eliminates cascading effect of multiple indirect taxes.
4. Finance Commission (Article 280)
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A quasi-judicial body appointed every 5 years by the President.
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Functions:
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Recommend distribution of net proceeds of taxes between Centre and States.
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Suggest allocation among states themselves.
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Recommend grants-in-aid to states in need.
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5. Issues Pertaining to Centre-State Financial Relations
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Allocation of resources:
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Disputes over fund distribution, taxes, and grants.
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Revenue-sharing criteria of Finance Commission sometimes contested.
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GST-related concerns:
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Uniform GST vs. state autonomy; compensation issues for revenue shortfall.
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Challenging Centre laws:
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States like Kerala and Chhattisgarh have challenged central laws like CAA and NIA Act in courts.
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Misuse of Article 356:
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Historically, President’s Rule sometimes used politically rather than constitutionally.
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Role of Governor:
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Appointment by Centre sometimes creates friction; seen as a tool for political influence.
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6. Measures to Ensure Harmonious Centre-State Financial Relations
A. Recommendations by Commissions
| Commission | Recommendations |
|---|---|
| Sarkaria Commission (1983) | Strengthen All-India Services; Union should act on concurrent subjects only where uniformity is needed; rest left to states. |
| M.M. Punchhi Commission (2007) | Define devolution to local bodies; fixed 5-year tenure for Governors; removal of Governors only by state Assembly impeachment. |
| NCRWC (2000) | Establish Inter-State Trade and Commerce Commission; emergencies and disaster management included in Concurrent List. |
B. Other Measures
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Strengthen Centre-State institutions like Inter-State Council, Finance Commission, NITI Aayog.
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Promote fiscal federalism for equitable resource distribution.
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Revisit Seventh Schedule to introduce local government list for better decentralization.
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Encourage state-level innovations for development and governance.
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Ensure effective power-sharing to prevent over-centralization.
Key Takeaways for UPSC
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India follows cooperative fiscal federalism.
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Finance Commission, GST, and grants-in-aid are crucial mechanisms.
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Centre-State disputes often arise due to taxing powers, resource allocation, and political influence.
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Commissions and constitutional bodies ensure balance, fairness, and cooperation between levels of government.
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