Centre State Relations - Legislative, Administrative & Financial

In centre-state relations, the Indian constitution divides all legislative, executive, and financial authority between the centre and the states. However, the court has no separation of powers because the Constitution established a single judicial system to uphold federal and state laws. The federal system must function with the greatest possible harmony and coordination between the federal government and each state.

Centre-State Relations is one of the most important topics for the UPSC IAS exam. It covers a significant part of the Polity subject in the Mains General Studies Paper-II syllabus and General Studies Paper-1 of the UPSC Prelims Syllabus.

In this article, we shall study the legislative, administrative, and financial relations of centre-state relations.

About Centre-State Relations

All powers in India are divided into three categories: legislative, executive, and financial, shared between the central government and the states, creating an integrated system. Consequently, we can analyze the Centre-state relationship in three dimensions: legislative, administrative, and financial. States wield substantial decision-making authority on various matters, although the central government can impose restrictions. This division is evident in the State List, where some matters fall under exclusive state jurisdiction. Conversely, the Union List designates subjects for major decisions by the central government. There's also a Concurrent List, where the center and states have decision-making roles on specific matters.

Checkout the video on 'Centre-State Relations' and boost your preparation.

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Types of Centre State Relations

Part XI of the Indian Constitution focuses on center-state relations, covering legislative and administrative connections, while Part XII deals with financial relations.

Legislative Relations

• Articles 245-255 discuss legislative relations between the Union (Parliament) and the states (state legislatures).
• They define the scope of legislative powers, with Parliament having overriding authority.
• Provisions address subjects for legislation, inconsistency between state and national laws, and residual powers.
• Schedule VII categorizes Union List, State List, and Concurrent List.

Administrative Relations

• Articles 256-263 cover administrative ties between the Central and state governments.
• India, while federal, has unitary traits, requiring states to obey national laws.
• Cooperative federalism, as suggested by the Sarkaria Commission, aims to improve relations between the two levels of government.

Financial Relations

• Part XII, Articles 264-293, govern financial relations between the Center and states.
• India's federal nature dictates tax division, with the Center allocating funds to states.
• Schedule VII outlines taxation powers, regulations on levies, grants, surcharges, and notable examples like the Goods and Services Tax (GST).

Financial Relations between Centre and State

These are mentioned in articles 268 to 293 in part XII of the constitution. These can be studied under the following heads-

Allocation of taxing powers between centre and state

• Parliament can levy taxes on subjects listed in the union list (13 in number).
• The state legislature has the power to levy tax on subjects listed in the state list (18 In number).
• After the 101st Amendment Act of 2016, Parliament and state legislature can make laws governing goods and services tax.
• Residuary power of taxation is vested in Parliament (gift tax, wealth tax, and expenditure tax).
• Restrictions on taxing powers of the state.
• The state legislature can impose taxes on professions, trades, and employment but at most 2500 per annum.
• The state legislature is prohibited from imposing the tax on the supply of goods or services when the supply takes place outside the state OR when the supply occurs in the course of import or export.
• The state legislature can tax the consumption or sale of electricity. Still, it cannot impose on the consumption or sale of electricity consumed by the centre, sold to the centre, or consumed in the maintenance of railways.
• The state legislature can impose any water tax, but that water should not be distributed or sold by any authority established by Parliament.

Also read: Biosphere Reserves in India for UPSC here.

Distribution of Tax Revenues

• 80th Amendment Act of 2000, enacted to give effect to the recommendation of the tenth finance commission (out of total income obtained from certain Central taxes and duties, 29% should go to the state).
• The 101st amendment has introduced a new tax regime ( goods and services tax GST).
• Taxes levied by the Centre but collected and appropriated by the states:
  •  Bill of exchange, cheque, promissory note, insurance policies, shares, etc.
• Taxes levied and collected by the Centre but assigned to the states:
  • Sale or purchase of goods in the course of inter state trade consignment of goods in the course of interstate trade.
  • Levy and collection of goods and services tax during interstate trade.

Distribution of Non Tax Revenues

• Article 268 Duties levied by the Union but collected and appropriated by the States.
• Article 269 Taxes levied and collected by the Union but assigned to the States.
• Article 270 states that Taxes levied and distributed between the Union and the States 
• Parliament may enact the taxes and levies surcharges in Articles 269 and 270. The surcharge's proceeds are only used for the centre.

Grant-in-aids to States

• Statutory grants: Under Article 275, the Parliament can make grants to states in need of financial assistance. Example: grant for the Welfare of scheduled tribes in a state.
• Discretionary grants: Under Article 282, the centre and state can make any grant for a public purpose.

Borrowing by Centre and States

• The Central Government can borrow within the country or outside up to a certain limit fixed by the parliament.
• The state government can borrow only within the country from the central government.

Also, read Mid day Meal Scheme for UPSC here.

Administrative Relations Between Centre and State

These are mentioned in articles 256 to 263 in part XI of the constitution. Administrative Relations between centre and state can be studied in two parts – Based on the territorial extent and the basis of subjects.

Based on territorial extent:

• Administrative power of the centre or Union prevails on the whole of India or any State or UT.
• The administrative power of States prevails on its Territory or State only.

Also, read Child Marriage Restraint Act here.

Based on subjects

• Central officer Union officials will execute laws on subjects listed in the union list.
• State officers will execute laws on subjects listed in the state list.
• State officers will execute laws on subjects listed in concurrent lists.

Under Centre – State Administrative relation Centre can give directions to state/s for the execution of:

• Article 257 (1) – not to make any hurdle in the way of Central execution power.
• Article 257 (2) – maintenance of the structure of national importance and military importance.
• Article 257 (3) – protection of Railways.
• Article 250 (A) – regarding mother language.

If the state is unable or doesn’t follow these directions, then – Article 365 states:

• It will be assumed that it is a failure of the constitutional system in that state, and on this basis, the president can use the power mentioned in Article 356 and rule in that state.
• Under executive/administrative Centre-state relations by mutual understanding, centre and state can transfer their power to each other for administration in the following ways:
  • Governor can request a centre for administration in the state.
  • President can request the state for administration.

Mutual Delegation of Functions

The executive functions are shared between the federal government and the states. The state governments may approve the federal government's carrying out these duties. The distribution of executive power between the union and the states is the mutual delegation function.

With the federal government's consent, the governor may transfer the union to the state's executive functions. This delegation of authority can be conditional or unconditional. The state may provide the union executive authority without the state's approval under the terms of the constitution. However, Parliament, not the President, is the body that creates such delegations. 

Cooperation Between Centre and States

Any dispute or complaint affecting the management, distribution, and use of water resources in interstate rivers and river valleys may be decided by Parliament. The President has the authority to call a meeting of the inter-state council to discuss issues of mutual interest to the centre and the states.

The federal government's public actions, documents, and judicial procedures and each state must be given complete faith and credit by all of India. Parliament has the power to appoint the relevant agencies to carry out the constitutional duties relating to interstate trade, commerce, and intercourse.

Legislative Relations Between Centre and State

These are mentioned in articles 245 to 255 in part 11, which deals with legislative relations between centre and states. Legislative relations are further divided into two parts – Based on the territorial extent and the basis of Legislative subjects.

Based on the territorial extent – Article 245

• Laws made by parliament apply to the whole of India and on matters related to extraterritorial legislation.
• Laws made by Parliament are not applicable in the following cases:- In five union territories (Andaman and Nicobar Islands, Lakshadweep, Dadra and Nagar Haveli Daman, and Diu and Ladakh).
• Only the president can make regulations/ amend or repeal any act of parliament for them.
• Governor can direct that an act of Parliament does not apply to scheduled areas in that state.
• The Governor of Assam may direct that a certain act of Parliament does not apply to a tribal area of the state; similarly, the president enjoys the same power concerning Tribal areas and Meghalaya Tripura and Mizoram.
• The State's laws apply to its own state only or territorial extension.

Know more about the Schedules Of the Indian Constitution here.

Based on Legislative subjects

There are 3 kind of lists provided in the seventh schedule in the constitution:

• The union list includes approximately 98 subjects. Examples – Defence, banking, atomic energy etc. Only Parliament can make laws on these subjects.
• The state list includes approximately 61 subjects. Examples – Politics, fisheries, and police. Only the state legislature has the power to make laws on these subjects.
• The concurrent list includes approximately 52 subjects. Example – population control and civil procedure. Both Parliament and the state can make laws on these subjects. In cases of disputes, the laws made by the Parliament prevails.

Residual subjects

• Article 248 – Those subjects not included in any of the three lists are called residual subjects, and Parliament has the power to legislate on these subjects.
• Article 200 – Governor can reserve a bill for the president's assent.
• Article 201 – President can give assent to or disapprove the bill reserved by the governor.

The Centre can make laws on a state list under 5 conditions.

• Article 249 – If Rajya Sabha passes a resolution by, 2/3rd of the members present and voting.
• Article 250 – If National Emergency prevails (a result of 352 articles).
• Article 252 – If two or more States request Parliament to make laws on subjects of state list.
• Article 253 – To fulfill the terms of international agreement or treaty.
• Article 356 – If president rule prevails in any state.

Centre’s Control Over State Legislation

The Constitution authorises the federal government to exert the following influence over state legislative affairs:

• The governor may reserve particular state laws passed by the legislature for presidential consideration. The president has complete authority over them.
• Only with the President's prior approval may bills on certain topics included in the state list be introduced in the state legislature. Interstate commerce and trade, for instance.
• In a financial emergency, the President may request that a state set aside money bills and other financial bills for his consideration.
• According to the Indian Constitution, the central government may, with few exceptions, take control of the state legislatures' laws and the Parliament's authority over the states to enact legislation relating to state affairs.

Parliamentary Legislation in the State Field

The following five exceptional situations allow Parliament to pass laws on any subject covered by the state list:

• Approval of Resolution by Rajya Sabha: When two-thirds of the members present and vote support a resolution in Rajya Sabha. 
  • It gives parliament the power to pass legislation on a state list issue that is best for the country. One year is the duration of such a resolution. 
  • This resolution can be extended several times, but only for a year. 
  • Six months after its passage, the resolution's enacted laws are no longer in effect.
  • In a conflict between state and union law, the latter takes precedence. 
  • Yet, legislation on the same subject may be passed by a state.
• Enforcement of Declaration of National Emergency: The Parliament may make laws on any subject covered by the state list when a proclamation of a national emergency is in effect. 
  • The laws passed under this are only in effect for a short time, which is six months. 
  • The issue may also be addressed by state law, but union law will prevail in the event of a conflict.
• Parliamentary Request by State: Parliament is given the authority to act when a state requests that Parliament take action on a number of topics by passing a resolution to that effect. 
  • After this resolution is approved, the state loses all rights there. 
  • The parliament can pass laws on any topic included in the state list for implementing international treaties, accords, and conventions to put international agreements into effect.
• Imposition of President's Rule: When President's Rule is implemented, the legislature of a state gains the authority to pass legislation relating to any issue on the State List.

Dispute Between Centre and State

In India, numerous rivers flow across state borders, leading to disputes over their regulation and development. These disputes concern water utilization, control, and distribution from inter-state rivers for purposes like irrigation and power generation. In the Indian Constitution, water-related issues within a single state fall under the State List, while matters related to inter-state river waters are placed in the Union List.

Recognizing the persistent nature of these river water disputes, the framers of the Constitution exclusively vested the authority to address them in Parliament. As a result, Parliament has the authority to enact laws for resolving disputes or complaints regarding the use, distribution, or control of such waters. In 1956, Parliament enacted the Inter-State Water Disputes Act, establishing tribunals responsible for adjudicating water disputes referred to them.

Punchhi Commission Recommendations

The commission gave recommendations for Centre-state relations, which include the following-

• There should be a broad agreement between the centre and state on concurrent list laws.
• The centre should follow the principle of a subsidiary.
• The selection of governors should be based on their apolitical personality.
• The tenure for the Governor should be fixed for 5 years.
• The impeachment process for the president should be extended to the Governor.
• The Governor should not be chancellor of the university.
• There should be equal seats for all states in the Rajya Sabha.
• The zonal council should meet at least twice a year.
• All India services for health education and Judiciary should be created.

Early Phase of Centre-State Relations Trends (1950-67)

• This phase was dominated by the Centre, with the Party system serving as the most important intervening factor in the functioning of a federal political system.
• Thanks to Nehru's charismatic leadership, the Congress party controlled the center and the states during this time.
• As an internal matter, disagreements in centre state relations were resolved at the leadership level.
• Established by executive resolutions, the Planning Commission and the National Development Council (NDC) were the Centre’s state supremacy vehicles.
• The Planning Commission managed state-run social services such as education, medicine, health, agriculture, collaboration, social welfare, and industrial housing.
• The first phase of Indian Federalism was marked by central domination over the states, which even relinquished some of their powers to the center.
• The States Reorganization Act established the Zonal Councils as advising institutions to improve cooperative federalism in establishing standard policies in socioeconomic concerns. They were, however, formed within the framework of a central dominance system over the states.

Centre – State Relations (UPSC Polity Notes): Download PDF Here!

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