INDIA’S GOVERNANCE: CENTER STATE RELATIONS & FISCAL FRAMEWORK

INDIA’S GOVERNANCE: CENTER STATE RELATIONS & FISCAL FRAMEWORK

• Parliament/ State legislature can make laws for the whole or any part of the territory of India/ State.
• Extraterritorial legislation (Indian citizens and their property in any part of the world) = By parliament alone
• Constitution restrictions on the territorial jurisdiction of the parliament.
• The President can make regulations for the peace, progress and good governance of the four UTs – Andaman and Nicobar Islands, Lakshadweep, Dadra and Nagar Haveli and Daman and Diu. A regulation so made has the same force and effect as an act of Parliament. It may also repeal or amend any act of Parliament in Center State Relations to these union territories.
• The 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.
• The Governor of Assam may likewise direct that an act of Parliament does not apply to a Tribal Area (autonomous district) in the state or apply with specified modifications and exceptions. The President enjoys the same power with respect to Meghalaya, Tripura and Mizoram.

Distribution of legislative subjects:

• Center list – 97 (Present – 100)
• State list – 66 (Present – 61)
• Concurrent list – 47 (Present – 52)

• Union list > Concurrent list > State list
• Normally, Central law prevails over the state law. But there is an exception.
• If the state law has been reserved for the consideration of the president and has received his assent, then the state law prevails in that state.

• Necessary in the national interest
• Must be supported by 2/3 of the members present and voting
• Remains in force for one year
• Does not restrict the power of a state legislature to make laws

During presidents’ rule (Art 356):

• Parliament is empowered to make laws with respect to any matter in the State List in Center State Relations.
• Even after the president’s rule, Parliament law continues to be operative
• Such law can be repealed or altered or re-enacted by state legislature

During a National Emergency (Art 352):

• Parliament acquires power to legislate with respect to State List
• state legislature can make laws on same subject, but center law will prevail
• Ceased to exist after 6 months

When States Make a Request:

• When two or more state legislature pass resolutions
• Law enacted applies only to concerned states.
• Amended or repealed only by Parliament and not by state legislature. EX: Wildlife Act, 1972; Water Act, 1974

To Implement International Agreements:

• Can make laws on any matter in the State List for implementing the international treaties, agreements or conventions. EX: Geneva Convention Act, 1960; TRIPS.

• Governors can reserve certain types of bills passed by the State Legislature for consideration of the President. The President enjoys absolute veto over them.
• Bills on certain matters in the State List can be introduced in the state legislature only with the previous sanction of the president. EX: Bills imposing restrictions on freedom of trade and commerce – Art. 301).
• Reserve money bills and other financial bills passed by state legislature for President’s consideration during a financial emergency

• Coextensive with legislative power.
• On concurrent list, parliament law can override state law. (exception-president assent on reserved bill)
• However, laws on concurrent lists are executed by states.
• Center State Relations Directions to the States (Art. 257)
• Mutual delegation of states:
• Cooperation between Center State Relations
• Constitutional restrictions on the executive power of the state:
• Art. 256 – Power of state should be exercised to ensure compliance to laws of the Parliament and GOI can also give direction for that.

Two restrictions on the executive power of the states:

1. to ensure compliance with the laws made by the Parliament
2. not to impede or prejudice the exercise of executive power of the Center State Relations.

• Art 312: Constitution authorizes the Parliament to create new All-India Services (AIS) on the basis of a Rajya Sabha resolution.
• AIS are controlled jointly by Center State Relations. The ultimate control lies with the Central government while the immediate control vests with the state governments.

• Dual polity – Center State Relations
• No dual system of administration of justice
• Parliament can establish a common high court for two or more states. EX: Maharashtra and Goa or Punjab and Haryana.

1. National Emergency (Art.352) – the Center State Relations becomes entitled to give executive directions to a state on ‘any’ matter. Thus, the state governments are brought under the complete control of the Centre, though they are not suspended.
2. President’s Rule (Art. 356) – 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.
3. Financial Emergency (Art. 360) – the Center State Relations can direct the states to observe canons of financial propriety and can give other necessary directions including the reduction of salaries of persons serving in the state.

Other provisions:

• Article 355: To protect states against external aggression and internal disturbance + To ensure state governments should be carried on in accordance with the provisions of the Constitution.
• Governor– Appointed by President + Acts as an agent of Center State Relations.
• State election commissioner: Appointed by Governor + Removed by President.

• Art. 266- There will be a Consolidated fund for India and Consolidated fund of State.
• Consolidated Fund of India is related to all revenues received by the government and expenses made by it, excluding the exceptional items.
• No money can be withdrawn from this fund without the Parliament’s approval.

• It is in the nature of an imprest (money maintained for a specific purpose). Accordingly, Parliament enacted the Contingency fund of India Act 1950.
• The fund is held by the Finance Secretary (Department of Economic Affairs) on behalf of the President of India and it can be operated by executive action.

Allocation of taxation powers:

• The Constitution divides the taxing powers and also places some restrictions on Center State Relations.
• The residuary power is vested in the Parliament. Under this provision, the Parliament has imposed gift tax, wealth tax and expenditure tax.
• There are no tax entries in the Concurrent List. In other words, the concurrent jurisdiction is not available with respect to tax legislation.
• The 101st Amendment Act of 2016 has made an exception by making a special provision with respect to GST. This Amendment has conferred concurrent power upon Parliament and State Legislatures to make laws governing GST.

Grants in aid to states:

Other Grants

• The Constitution also provided for a third type of grants-in-aid, but for a temporary period.
• A provision was made for grants in lieu of export duties on jute and jute products to the States of Assam, Bihar, Orissa and West Bengal.
• These grants were to be given for a period of ten years from the commencement of the Constitution.
• These sums were charged on the Consolidated Fund of India and were made to the states on the recommendation of the Finance Commission.

PROTECTION OF THE STATE’S INTEREST:

Following bills can be introduced in the Parliament only on the recommendation of the President:

1. bill which imposes or varies any tax or duty in which states are interested;
2. bill which varies the meaning of the expression “agricultural income”
3. bill which affects the principles on which moneys are or may be distributable to states;
4. bill which imposes any surcharge on any specified tax or duty for the purpose of the Centre.

Borrowing by the Centre and the States:

• Can borrow on CFI (Within + Outside India) within limits fixed by parliament.
• Can make loans to any state or give guarantees in respect of loans raised by any state.

• Cannot raise any loan without center consent (If remaining outstanding loan to center)
• Can borrow on CFS (Within but, NOT Outside India) within limits fixed by parliament

(Art. 285)

• Centre’s property is exempted from all taxes imposed by a state or any authority within a state like municipalities, district boards, panchayats and so on. But, the Parliament is empowered to remove this ban.
• The property may be used for sovereign (like armed forces) or commercial purposes.
• The corporations or the companies created by the Central government are not immune (as they are separate legal entity) from state taxation or local taxation.

Exemption of State property from central taxation

(Art. 289)

• The property and income of a state is exempted from Central taxation. Such income may be derived from sovereign functions or commercial functions.
• But the Centre can tax the commercial operations of a state if Parliament provides so.
• The property and income of local authorities situated within a state are not exempted from the Central taxation.
• Likewise, the property or income of corporations and companies owned by a state can be taxed by the Centre.
• 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 – advisory opinion of the Supreme Court, 1963.

Effects of Emergency

• The President can modify the constitutional distribution of revenues between Center State Relations.
• Can either reduce or cancel the transfer of finances (both tax sharing and grants-in-aid) from the Center State Relations.
• Such modification continues till the end of the financial year in which the emergency ceases to operate.

1. To observe the specified canons of financial propriety.
2. To reduce the salaries and allowances of all class of persons serving in the state; and
3. To reserve all money bills and other financial bills for the consideration of the President.

Revenues do not form part of the consolidated fund of India.