Center State Relation

Category : UPSC

 Center State Relation




Contents of the Chapter

  • Legislative Relations
  • Union’s Power to Legislate on States’ Subjects
  • Administrative Relations
  • Union Power to Give Directions to States
  • Water Disputes
  • Responsibility of the Union
  • Role of Governors
  • Judicial System
  • State Government’s Power
  • Financial Relations
  • Fiscal Matters
  • Sarkaria Commission
  • Composition of committee
  • Members
  • Finance Commission
  • Planning Commission
  • Controversy



The Constitution of India provides a dual polity with a clear division of powers between the Union and the States, each being supreme within the sphere allotted to it. The States in India are not the creation of the Centre nor do they draw their authority from the Union Government. On the other hand, like the Union Government, they draw their authority directly from the Constitution and are free to operate in the field allocated to them by the Constitution. At the outset, it may be noted that the Constitution of India has made most elaborate provisions regarding relationship between the Union and the States. This was done with a view to minimize the conflicts between the Centre and the States. But the actual Operation of the Centre-State relations for all these years has given rise to a controversy about the wisdom of arrangements made under the Indian Constitution. Critics have expressed doubts about the existing arrangements and demanded reallocation and adjustment of the Centre-State relations. The relations between the Centre and the States can be conveniently studied under the following categories.




  • The Union State relations in the legislative sphere have been dealt by Articles 245 to 254. The Constitution clearly provides that the Parliament shall have exclusive jurisdiction to make law for the whole or any part of the territory of India with regard to subjects mentioned in the Union List. This list contains 97 subjects like defence, foreign affairs, currency, union duties, communication, etc.


  • On the other hand, the State enjoys exclusive power over the 66 items enumerated in the State List. This List contains subjects like public order, health, sanitation, agriculture etc. In addition, there is a Concurrent list containing 47 subjects like criminal law and procedure, marriage, contracts, trust, social insurance etc. over which both the Union and the State Governments can legislate.


  • The constitution also vests the residuary powers (viz., enumerated in any of the three Lists) with the Central Government. It may be noted that in this distribution of powers, the Union Government has certainly been given a favoured treatment. It has not only been granted more extensive powers than the States, even the residuary powers have been granted to it contrary to the convention in other federations of the world, where the residuary powers are given to the States.


  • If the law of the Union Government and the State Government come into clash with each other the former prevails. However, a State law on the Concurrent List shall prevail over the Central law if the same had been reserved for the consideration of the President and his consent had been received before the enactment of the Central law on the same subject. This clearly gives some leeway to the States.


Union’s Power to Legislate on States’ Subjects

 Though under ordinary circumstances the Central Government does not posses power to legislation on subjects enumerated in the State List, but under certain special conditions the Union Parliament can make laws even on these subjects. In the following cases Union Parliament can legislate on the subject listed in the State List.


  • If the Rajya Sabha declares by a resolution Supported by not less than two thirds of the members present and voting that it is necessary or expedient in the national interest that the Parliament should make laws with respect to any matter, enumerated in the State List, specified in the resolution. After such a resolution is passed it is lawful for the Parliament to make laws for the whole or any part of the territory of India with respect to that matter while the resolution remains in force. Such a resolution remains in force for a period of one year and can be further extended by one year by means of a subsequent resolution. It may be observed that this provision has been used only in very few cases and has not added to the powers of the Parliament.


  • The Parliament can legislate on the subjects mentioned in the State List when the Proclamation of Emergency has been made by the President on grounds of internal disturbances or external aggression. However, the laws thus made by the Parliament shall cease to have effect on the expiration of a period of six months after the Proclamation has ceased to operate, except as respects things done or omitted to be done before the expiry of the said period. Thus, during emergency the Parliament can legislate on subjects in all the three lists and the Federal Constitution gets converted into unitary one.


  • The President can also authorise the Parliament to exercise the powers of the State legislature during the Proclamation of Emergency due to breakdown of constitutional machinery in a state. But all such laws passed by the Parliament cease to operate six months after the Proclamation of Emergency comes to an end.


  • The Parliament can also be authorised to legislate on a state subject if the legislatures of two or more states feel it desirable that any of the matters with respect to which the Parliament has no power to make laws for the states should be regulated in such states by Parliament by law and if resolutions to that effect are passed by legislatures of those states. Thereafter, any act passed by the Parliament shall apply to such states and to any other state by which it is adopted afterwards by resolution passed in that behalf by the house, or, where there are two houses, by each house of the legislature of that state. The Parliament also reserves the right to amend or repeal any such act.


  • The Parliament can make law for the whole or any part of the territory of India for implementing any treaty, agreement or convention with any other country or countries or any decision made at any international conference, association or other body, Any law passed by the Parliament for this purpose cannot be invalidated on the ground that it relates to the subject mentioned in the state list.


  • Certain bills passed by the state legislature have to be reserved by the Governor of the state for the consideration of the President. These bills become law only after the President gives his assent. The bills which the Governor must reserve for the consideration of the President relate to compulsory acquisition of property, or those which adversely affected the Powers of the High Court.


It is quite evident from the above discussion that the Union enjoys a position of superiority in the legislative sphere and at times the states are completely at its mercy.      



  • The administrative jurisdiction of the Union and the State Governments extends to the subjects in the union list and state list respectively, which clearly establishes the superiority of the Union Government in the administrative sphere as well. In addition, the Constitution contains a number of provisions which accord a position of superiority to the Union Government.


  • Article 256 lays down that the executive power of every state shall be so exercised as to ensure compliance with the laws made by Parliament and any existing laws which apply in that State, and the executive power of the Union shall extend to the giving of such directions to a state as may appear to the Government of India to be necessary for that purpose.


  • Similarly, Article 257 of the Constitution provides that the executive power of every state shall be so exercised as not to impede or prejudice the exercise of the executive power of the Union, and the executive power of the Union shall extend to giving of such directions to a state as may appear to the Government of India to be necessary for that purpose.


  • In short, the Union Government can issue directions to the state Government even with regard to the subjects enumerated in the state list.


Union Power to Give Directions to States

  • The Union Government can also give directions to the state with regard to construction and maintenance of the means of communication declared to be of national or military importance. It can also ask the state Governments to construct and maintain means of communication as part of its functions with respect to naval, military and air force works.


  • It can also issue them necessary directions regarding the measures to be taken for the protection of the railways within the jurisdiction of the state. It may be noted that the expenses incurred by the state Governments for the discharge of these functions have to be reimbursed by the Union Government.


  • It may be noted that the state Governments cannot ignore the directions of the Union Government, otherwise the president can take the plea that the Government of the state cannot be carried on the accordance with the provisions of the Constitution and impose President's rule on the state. In such an eventuality the President shall assume to himself all or any of the functions of the state Government.


  • The President of India can also entrust to the officers of the State certain functions of the Union Government. However, before doing so the President has to take the consent of the state Government. Further, the extra cost incurred by the states in the discharge of these obligations has to be reimbursed by the Union Government.


All-India Services

  • The presence of the All India Services like the. Indian Administrative Services, and the Indian police Services etc. further accords a predominant position to the Union Government. The members of these services are recruited and appointment held by the Union Public Service Commission.


  • The members of these services are posted on key posts in the states, but remain loyal to the Union Government. The right to create new All India Services also rests with the Union Parliament.


  • The Union Parliament can create a new All India Service only if the Rajya Sabha passes a resolution by two-thirds majority of the members present and voting that it is necessary in the national interest to do so.


Water Disputes

  • The Parliament has been vested with power to adjudicate any dispute or complaint with respect to the use, distribution or control of the waters of, or in any interstate river of river-valley. In this regard, the Parliament also reserves the right to exclude such disputes from the jurisdiction of the Supreme Court or other Courts.


Responsibility of the Union

  • Under the Constitution, it is the responsibility of the Union Government to protect the states from external aggression and internal disturbances. This leaves much scope for Centre’s interference in the spheres of the state.


  • The President can declare national emergency in case of war or possible threat of war as well as armed rebellion. During this emergency the Centre can give directions to the states as to the manner in which their executive power is to be exercised.


  • The President can authorise the Parliament to make laws with respect to any matter including power to make laws conferring powers and imposing duties or authorising the conferring of power and the imposition of duties upon the Union officers and authorities of the Union as respects that matter unmindful of the fact, that the matter does not belong to the Union list. Similarly, it is the duty of the President to ensure that the government of the state is carried on in accordance with provisions of the Constitution.


  • If the President is satisfied that the government of the state cannot run along constitutional lines, he can declare constitutional emergency in the state and assume to himself all or any of the functions of the Government of the state and all powers of the State other than those exercised by the legislature and High Court of the State.


  • The President can also declare that the powers of the state legislature shall be exercised under the authority of the Parliament and make such incidental and consequential provisions as appear to him to be necessary or desirable for giving effect to the objects of the Proclamation.


Role of Governors

  • The Central Government exercises effective administrative control over states through the Governors of State who are appointed by the President and hold office during his pleasure. The Governors can reserve certain bills passed by the State legislatures for the consideration of the President.


  • President can also issue directions and orders to the Governor which are binding on him. Thus, the Centre can exercise effective control over the States through the Government to topple State Governments which are irksome to the Central Government.


Judicial System

  • As the Constitution of India provides for a single judicial system both the Union and the State Governments are duty bound to give full faith and credit to public acts, records, proceedings and judicial decisions of the Supreme Court and the High Court. The manner in which these acts, records and proceedings have to be preserved is determined by Parliament by law and the slates do not have any say in this regard.


  • In the matter of appointment of the Chief Justice and the Judges of the Supreme Court as well as the High Courts, the states have no say. They are appointed by the President in consultation with the Chief Justice of India and such other judges of the supreme courts and the High Court as he deems fit to consult.


  • The initiative for the removal of these judges also rests with the Parliament which can pass necessary resolution for their impeachment and recommend to the President to take necessary action. The States are in no way connected with the appointment or removal of the judges of the Supreme Court or High Court.


State Government’s Power

  • The State Governor can entrust conditionally or unconditionally certain functions with respect to the executive powers of the state to the officers of the Union with the consent of the Union Government (Article 258A).


  • It may be observed that the original Constitution did not contain this provision. This provision was added through Seventh Amendment in 1956 in view of the objections by the Comptroller and Auditor-General over construction of Hirakund Dam by the Central Government on behalf of the Orissa Government and debiting of cost to the state accounts.


Impact of the 42nd Amendment Act

  • A new turn was given to the Centre-State Relations in the administrative sphere by the Forty-Second amendment of 1976, which empowered the Central Government to deploy armed forces for dealing with any grave situation of law and order in the States.


  • The contingents so employed were to act in accordance with the instructions of the Central Government and not to work under the direction, superintendence and control of the state government concerned, unless specifically directed by the Central Government. This change naturally greatly restricted the autonomy of the states and was resented by the states. Ultimately this provision was nullified by the 44th Amendment.


  • It is thus, evident that in the administrative sphere the states cannot act in complete isolation and have to work under the directions and in cooperation with others of the federation.



Generally, in typical federation along with the distribution of legislative and administrative powers, the financial resources of the country are also so distributed as to ensure financial independence of the units. However, the Indian Constitution does not make a clear cut distribution of the financial resources and leaves much to be decided by the Central Government from time to time. The financial resources which have been placed at the disposal of the state are so meagre that they have to look up to the Union Government for subsidies and contributions. The distribution of financial resources in India has broadly been made as follows.


  • Taxes exclusively assigned to the Union: Income from certain subjects like customs and export duties, income tax, excise duty on tobacco, jute, cotton etc., corporation tax, taxes on capital value of assets of individuals and companies; estate duty and succession duty in respect of property and other than agricultural land; and income from the earning departments like the railways and postal departments have been exclusively assigned to the Union Government by the Constitution.


  • Taxes exclusively assigned to States: Income from land revenue, stamp duty except on documents included in the Union List; succession duty and estate duty in respect of agricultural land; income tax on agricultural lands; taxes on goods and passengers carried by road or inland water; taxes on vehicles used on roads, animals, boats, taxes on the consumption or sale of electricity, tolls, taxes on lands and buildings; taxes on professions, traders, calling and employment; duties on alcoholic liquors for human consumption, opium, Indian hemp and other narcotic drugs, taxes on the entry of goods into local areas, taxes on luxuries, entertainments, amusements, betting and gambling, etc. has been assigned to the States.


  • Taxes leviable by Union but collected and appropriated by the State: The taxes on the following items are levied by the Union Government but the actual revenue from them is collected and appropriated by the States; (i) stamp duties on bills of exchange, cheques, promissory notes, bills of landing, letters of credit, policies of insurance, transfer of shares etc.; (ii) Excise duties on medicinal toilet preparation containing alcohol or opium or Indian hemp or other narcotic drugs.


  • Taxes levied and collected by the Union but assigned to states: The taxes in this category are levied and collected by the Union Government although they are subsequently handed over to the states where from they have been collected. Such taxes included duties In respect of succession to property other than agricultural land; state duty in respect of property other than agricultural land terminal taxes on goods or passengers carried by railways, sea or air, taxes on railway freights and fares; taxes other than stamp duties on transactions in stock exchanges and future markets; taxes on the sale or purchase of newspapers and on advertisements published therein; taxes on purchase or sale of goods other than newspapers where such sale or purchases take place in the course of inter-state trade or commerce.


  • Taxes levied and collected by the Union but shared with the States: Taxes on income other than agricultural income and excise duties other than those on medicinal and toilet preparations are levied and collected by the Union Government but shared with the states on an equitable basis. The basis of distribution is determined by the Parliament through a law.



Arising out of the nature of Centre – State relations as well as difference in political ideology of the ruling parties at the Centre and States, following major areas of tension have emerged in Indian federalism.

  • Role of Governor as a representative of the central Government with regard to appointing and dismissing State ministers and dissolution of the State Assemblies. 3 Misuse of powers of imposition of President's Rule under Article 356.


  • Reservation of Bills for the consideration of the President under Article 201.


  • Sharing of finances, and central approval of state projects.


  • Demand for autonomy by the States Within these five major areas, there are several other issues of administrative and political processes that cause tensions in Centre State relations


Role of Governor

  • Such interferences by Governors in State Government affairs and abuse of their powers for partisan reason has been giving rise to a feeling of insecurity among State and demand for settling the issues of appointment and dismissal of Governors themselves, their compulsion to act on the advice of Council of Ministers, and definite code for the exercise of discretionary powers. Governors role in the government of particular state often based on ruling party of the centre, This is the reason the ruling party reshuffle the post whenever it forms new government.


Misuse of Article 356

  • The provision for imposition of President’s rule in States under Article 356 was made to deal with serious situations as a life saving device to be used as a measure of last resort. However, in practice this article has been so frequently used for purely partisan interests that it has become almost poisonous for Indian political system.


  • The use of Article 356 rests on the subjective satisfaction of the President. President’s rule can be imposed either on the recommendations of Governor or even-without that, that is, on the satisfaction of President (Prime Minister) himself.


  • In the same manner, the Prime Minister can also make use of Article 365 to ensure that the administration in State is carried on in accordance with the provisions of the Constitution, and if otherwise, dissolve the State Government on the basis of his own assessment of the representative character or otherwise.


  • The Sarkaria Commission drawing attention to the repeated abuse of Article 356 has pointed out that during the period from 1951 to 1987, of the 75 occasions when the President's rule was imposed, only in 26 cases was President’s rule inevitable. In resent past Bihar government was dissolved in the use of article 356.


  • Article 200 & 201


  • The power of the Governor to reserve all bill, passed by the legislature for the President’s assent is another cause of tension between the Centre and the State.


  • This has especially been so in case where the Governor has reserved a bill against the advice of the State Ministry, presumably under the direction of the Central Government. The main purpose of this provision is that the Centre wants to keep a watch on the activities of the States.



  • One of the most controversial areas between the Centre and the State in a federal system is that of financial relations and the Indian federal system is no exception to this.


  • The demand of the states for greater fiscal autonomy has now become one of the most debated issues of the Indian federation. The tension between Centre and States with regard to fiscal relations arises because of:
  • Comparative powers of taxation,
  • Statutory versus discretionary grants, and
  • Economic planning.



Fiscal Matters

  • Sources of revenue to the Centre are relatively elastic and expansive as against those of the states. The Centre also controls vast resources generated through deficit financing, loans from organized money market in the country as well as huge funds of foreign aid.


  • The residuary powers of taxation are also vested with the Central Government. In addition to this. Constitution also authorizes the Centre to collect surcharges on taxes to raise additional funds in times of emerging.


  • In practice surcharge has become a permanent feature of income tax structure. Another loophole in taxation system, on account of which states suffers, is the cooperate tax/which keeps on expanding and is in the exclusive purview of the Centre. The states therefore have to be dependent on Central assistance.


Grants- in-Aid

  • With regard to sharing of resources and assignment of certain resources entirely to the State, Articles 280 and 281. Provide for the appointment of an independent Finance Commission every fifth year or earlier as the President of India desires.


  • The provision, of Finance Commission was to regulate, co-ordinate and integrate the finances of the Government of India and the State Government. Originally, the Finance Commission was intended to cover all the financial transfers from the Centre to States.


  • However, slowly Planning Commission has also been brought in for the purpose and now it plays a rather important part in devolution of resources from the Centre to the States. Since the Planning Commission is a completely Central Institution and the politically influenced States have a sense of discrimination in location of grants.


  • States are sore not only because of the fact that the Planning Commission's authority to determine the scope and pattern of a major portion of Central assistance to States has relegated the role of Finance Commission to a subsidiary one but also because, the Centre does not seem to be much serious even about the reduced role of the Finance Commission. In addition, provision for grants in-aid by the Centre is purely a political and arbitrary means of devolution and centre has been making use of this more and more and that too in a controversial manner.


  • Centre gives grant-in-aid to States under Article 281 on its discretion for undertaking welfare schemes, meet natural calamities or for removal of disparities etc. A close scrutiny of the Central relief to the States affected by natural calamities indicates that no will considered norms were followed in this regard. The Central teams preoccupied by political considerations have always assessed the damage done by droughts, flood, etc. in an ad hoc perfunctory manner.


  • The States therefore, have sharply questioned the need for the Centre to wield heavy financial clout in the shape of discretionary grants. There are about the inherent danger of their being used as a political weapon against a State that happens to be out of favour with the Centre.


Economic Planning

  • It is generally agreed that the process of planning in India has tended to push the political system to greater centralisation due to both the central control over resources for development and the preponderance of the centralised planning machinery.


  • The gravest and most harmful consequence of the atrophy of the state’s domain in the economic field is in regard to industries and economic planning.


  • Similarly it is alleged that in the name of national planning, the centre for political considerations has been inordinately delaying viable and important state projects. On the contrary. Centre has been super-imposing its schemes on the States which deemed by State governments to be irrelevant to the conditions prevailing in the States


Demand for Autonomy

  • The constituent units of the Indian Union i.e. the States have been developing a feeling of deprivation on the ground that the Centre has denied them the autonomy that has been guaranteed under the Constitution. Unfortunately despite changes in Government, the trend towards centralization has not been weakend.


  • In this context the demand for a greater and more meaningful devolution of power has been assertively and more stridently articulated over the years. The Administrative Reforms Commission (appointed in 1967) recommended that powers should be delegated to the maximum extent to the States.


  • It also expressed the opinion that centralized planning had tended towards excessive interference in the freedom of States to work out their policies and programmes.


  • The Commission made some recommendations with regard to the office of Governor and also suggested the need to establish an Inter-State Council under Article 263 of the Constitution. The recommendations of the Commission however remained on paper and process of centralization continued.


Sarkaria Commission

  • The decades of the eighties witnessed a struggle to get the federal issue on the nation’s agenda. And when the political challenge assumed new dimensions and tensions between the Centre and the States grew in sharpness, it became necessary to ease the situation.


  • It was in this context that the Government of India announced on March 24, 1983 the appointment of a Commission to examine and review the working of existing arrangements between the Union and the States in regard to powers, functions and responsibilities in all spheres and recommend appropriate charges and measures.


  • The Commission came to be known as the Sarkaria Commission on Centre-State Relations after the name of its Chairman R.S. Sarkaria. The Commission was asked to keep in view the social and economic developments that have taken place over the years as also the scheme and the framework of the Constitution and the need for preserving the unity and integrity of the country.


  • The Sarkaria Commission in submitted its report on October 27, 1987. The Commission favoured a strong Centre as the only safeguard to national integrity which was being threatened severely in the light of recent fissiparous tendencies in the body politics. But, the Commission did not equate strong Centre with centralisation of powers. Intact, it viewed centralisation as dangerous for national integration.


Salient Recommendations of Sarkaria Commission are:

  • More extensive and generous use of Article 258 which gives powers to Union government to confer powers, etc. to State governments should be made than as hitherto being done.


  • Any move to disband the All India Service or to permit the State government to opt out the scheme must be regarded as retrograde and harmful to the larger interest of the country. The All India Services should be further strengthened and greater emphasis given on the role expected to be played by them.


  • Amend Article 248 to provide the legislature of the state with exclusive power to make any law with respect to any matter listed in the Union List or Concurrent List. That is, the residuary power on the federation should lie with the states.


  • Delete Article 249 that gives power to Parliament to legislate on the State List, by the concurrence of the Rajya Sabha on a matter deemed by it to be of national interest. This short circuit the amending process laid down in Article 368, and unilaterally transfers a subject from the State List to the Concurrent List. A better and more equitable alternative is any how available in Article 252 (1) even if it be cumbersome and time consuming.


  • Amend Article 280 (regarding the Finance Commission), and provide for the transfer of seventy five per cent of the total revenue raised by the Centre from all sources, to the States.


  • Delete Article 302 (regarding the power of Parliament to impose restrictions on trade and commerce with a State or between the States)


  • Delete Articles 356 and 357 (Emergency provisions, giving right to the Centre to dissolve a State Assembly and dimpose Presidential rule).


  • Delete Article 360 (Financial provision) that empowers the President to interfere in State administration, on ground of threat of financial instability.


  • Delete Article 200 and 201 which empower the Governor to withhold assent to bills, and reserve them for Presidential approval.


  • Amend Article 368, to ensure that no amendment of the constitution is possible without two thirds majority of the members of Parliament, present and voting.


  • Amend Article 3, to ensure that the name and area of a State cannot be changed by Parliament without the consent of the state legislative concerned,


  • Whenever the Union proposes to undertake legislation with respect to a matter in the Concurrent List, there should be prior consultation not only with the State government, individually, but also collectively. There should be regular consultations on the management of All India Services between the Union and the State governments.


  • The Planning Commission and the National Development Council are to be reformed assuring at the same time of full and effective consultation with the States at all stages of the planning process so that they feel that their role in it is not that of a supplicant, but of an equal participant.


  • Before the Union government deploys its armed and other forces in a state in aid of. the civil power otherwise than on request from the State government or declare an area within a State as disturbed, it is desirable that the State government should be consulted, wherever feasible, and its cooperation sought, even though prior consultation with the State government is not obligatory.


  • Convention as to consultation with State governments in Concurrent List individually as well as collectively should be strictly adhered to except in extreme emergency.


  • Article 356 (emergency provisions) should be used very sparingly in extreme cases as a measure of last resort when ail available alternatives fail.


  • An expert committee should be constituted to enquire into and revive from time to time in consultation with the States, the operational feasibility of the scope for levying taxes and duties under Article 269 and the complementary measures, the State governments would be required to (Taxes levied under this article are collected by the Union Government and assigned to the States).


  • In order to ensure effective consultation with the State Chief Minister, in the selection of a person to be appointed as Governor, the procedure of consultation should be prescribed in the Constitution itself by suitably amending it.


  • Residuary powers of legislation in regard to taxation matters should continue to remain exclusively in the competence of parliament while the residuary subjects other than that of taxation should be placed in the Concurrent List.


  • Safeguards should be incorporated in Article 356 to enable Parliament to revive continuance in force of a proclamation.


  • The Constitution should be suitably amended to add the subject of taxation of ‘advertisement broadcast by radio or television to the present Entry 92, List (Union list) and Article 269 (1) relating to duties and taxes levied and collected by the Union assigned to States.


  • Inter State River Water Disputes Act may be amended to make it mandatory on the Union government to constitute a tribunal within one year of receipt of an application from a State and should be amended to empower the Union government to appoint a tribunal when it is satisfied that a case exists, to require States to furnish necessary data to the tribunal, to make the award of the tribunal effective within 5 years to give the award of the tribunal the same sanction and force as that of a decree of a Supreme Court.


  • On top of this elaborate scheme of establishing cooperative Union State relations, was the recommendation relating to the setting up of a permanent Inter State Council under Article 263 of the Constitution to discuss many of the problems of common Union-State interest.


  • Consisting of a General Body with Prime Minister as Chairman and all Union Cabinet Ministers and all Chief Ministers as members, and Standing Committee with the Prime Minister as chairman. Six Union Cabinet Ministers and Six chief Ministers one from each zone as members, such a Council is expected to provide a forum for discussion in an era among senior statesmen. The arrangement is expected to promote proper understanding and mutual confidence among the Chief Executive of the Union and the States.


  • In the light the recommendations of the Sarkaria Commission, the Ministry of Home Affairs issued an order dated 28th May, 1990 by which an Inter-State Council was established under article 263 of the Constitution. A copy of the relevant notification is appended at the end of the chapter.


  • The Interstate Council consists of the Prime Ministers, Chief, Ministers of all States and Union territories with or without a Legislative Assembly and six Ministers of Cabinet rank in the Union Council of Ministers to be nominated by the Prime Ministers or Ministers of State having independent charge in the Union Government when any item under their charge comes up for discussion. The Prime Minister is the Chairman of the Council.



The Commission has been set up to look into the new issues of Centre-State relations keeping In view the sea changes that have been 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.


Composition of Committee

Chairman: Shri Justice Madan Mohan Punchhi (Retd.) Former Chief Justice of India



  • Shri Dhirendra Singh, Former Secretary to the Government of India


  • Shri Vinod Kumar Duggal Former Secretary to the Government of India


  • N.R. Madhava Menon Former Director, National Judicial Academy, Bhopal, and


  • National Law School of India, Bangalore


  • Shri Vijay Shanker, IPS (Retd.) Former Director, Central Bureau of Investigation, Govt of India


The terms of reference of the Commission:


  • The Commission will 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.


  • 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 will 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 would also need 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.


  • While examining and making its recommendations on the above, the Commission shall have particular regard, but not limit its mandate to the following:


  • 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.


  • 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.


  • 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 6th Schedule of the Constitution within a specified period of time.


  • The role, responsibility and jurisdiction of the Center vis-a-vis States in promoting the concept and practice of independent planning and budgeting at the District level.


  • 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.


  • The role, responsibility and jurisdiction of the Centre in adopting approaches and policies based on positive discrimination in favour of backward States.


  • 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.


  • 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.


  • 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.


  • 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.


  • 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.


  • Union Government has extended the term of a Commission, which was set up to analyze the centre-state relations in the backdrop of the changes in the polity and the economy.


  • The Commission headed by Justice M M Punchhi was set up in 2007 to look into the new issues of centre-state relations in view of the sea changes that have been taken place in the polity and economy since the Sarkaria Commission had last looked into these issues.


  • The Commission was to examine and review, among other things, the working of the existing arrangements between the Centre and the States as per the Constitution, the healthy precedents being followed, various pronouncements of the courts with regard to powers, functions and responsibilities in all spheres.



Indian Constitution has made an effort to allocate every possible source of revenue either to the Union or the states. For the purpose of allocation of certain sources of revenue, between the Union and the state Governments, the Constitution provides for the establishment of a Finance Commission. On the other hand, the Planning Commission is neither a constitutional body nor even statutory. Moreover, Planning Commission does not have representation of States. Mutual overlapping of these two bodies is often a source of tensions in Centre – State relations.


Finance Commission

The Constitution of India contains the following provisions regarding the Finance Commission:

  • The President shall, within two years from the commencement of this Constitution and thereafter at the expiration of every fifth year or at such earlier time as the President considers necessary, by order constitute a Finance Commission which shall consist of a Chairman and four other members to be appointed by the President.
  • Parliament may by law determine the qualifications which shall be requisite for appointment as members of the Commission and the manner in which they shall be selected.


  • It shall be the duty of the Commission to make recommendations to the President as to
  • The distribution between the Union and the States of the net proceeds of taxes which are to be, or may be, divided between them under this Chapter and the allocation between the States of the respective shares of such proceeds;

The principles which should govern the grants-in-aid of the revenues of the States out of the Consolidated Fund of India;


  • The measures needed to augment the Consolidated Fund of a State to supplement the resources of the Panchayats in the State on the basis of the recommendations made by the Finance Commission of the State;


  • The measures needed to augment the Consolidated Fund of a State to supplement the resources of the Municipalities in the State on the basis of the recommendations made by the Finance Commission of the State;


  • Any other matter referred to the Commission by the President in the interests of sound finance.


  • The Commission shall determine their procedure and shall have such powers in the performance of their functions as Parliament may by law confer on them.
  • Ever since the inauguration of the Constitution, Finance Commissions have been appointed at regular intervals regarding sharing of revenues between the Centre and the States, So far, thirteen (13) such Commissions have been set up.


  • One notable feature of the Finance Commission has been that the terms of reference have been made wider and wider with each Finance Commission.


  • Even issues like debt burden of the state, financing of relief expenditure and returns of public sector undertakings have been placed under the purview of Finance Commissions. Further, the Union Government has mostly accepted the recommendations of the Finance Commissions.


  • Despite this liberal attitude of the Union Government in financial matters, certain states have disapproved of the existing arrangement for distribution of resources and emphasizes that the distribution of resources should be more progressive favoring the relatively poorer states.


Planning Commission

  • The Planning Commission also plays a vital role in the financial relations between the Centre and the States. Though the Planning Commission is an extra-constitutional body it plays a leading role in deciding the outlays of the plans of the States as well as the Centre. It also decides how much money should be allotted to the various states for expenditure on various items.


  • As the Planning Commission is headed by the Prime Minister (who acts as its chairman) and some of the important ministers of the Union Cabinet are also associated with it, has virtually become a handmade of the Central Government.


  • The National Development Council, which was created in 1952 as an adjunct to the Planning Commission, to review the plans also works more or less as an agency of the Centre, even though the Chief Ministers of the State are also its members. It has been alleged that the Planning Commission plays more important role in the allocation of funds and grants to the state than the Finance Commission.



  • It has been alleged by critics that the role assigned to the Finance Commission has been greatly undermined to the creation of the Planning Commission which has tended to play increasing role in determining the transfer of funds to the states. According to a study, more funds were transferred to the states through the Planning Commission and the Finance Ministry than the Finance Commission.


  • The Finance Commission is only required to plug the non-development budgetary gaps in the finances of the states only, while the plan outlays are determined by the Planning Commission. Similarly the discretionary grants are also regulated by the Finance Ministry and the Planning Commission and the Finance Commission hardly play any role in this respect.


  • It is clear from the above discussion that the states in India do not possess adequate finances and have to look to the Union Government for assistance. The increasing dependence on the Union Government inevitably results in the curtailment of their autonomy, which poses a serious threat to the existence of a federal structure. In view of the weak position of the state, in the financial sphere, there has been a growing demand for allocation of more financial resources to the states so that they may be able to enjoy greater autonomy.


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