Administrative/Legislative/Financial Relations

Centre-State Administrative Relations Legislative and Financial Relations Committees on Centre-State relation


The Constitution provides a federal system of government in the country even though it describes India as ‘a Union of States’. The term implies that firstly, the Indian federation is not the result of an agreement between independent units, and secondly, the units of Indian federation cannot leave the federation. The Indian Constitution contains federal and non- federal features.

The federal features of the Constitution include:
• A written constitution which defines the structure, organization and powers of the central as well as state government
• A rigid constitution which can be amended only with the consent of the state
• An independent judiciary which acts as the guardian of the constitution
• A clear division of powers between the Center and the States through three lists- Union list, State list and Concurrent lis
• The creation of an Upper House (Rajya Sabha) which gives representation to the states, etc.

The Constitution also contains a number of unitary features:
• The creation of a very strong centre
• The absence of separate constitutions for the states
• The right of Parliament to amend major portions of the constitution by itself
• A single citizenship for all
• Unequal representation to the states in the Rajya Sabha
• The right of Parliament to change the name, territory or boundary of states without their consent
• The presence of All- India Services which hold key positions in the Centre as well as the States appointment of the Governor by the President
• The granting of extensive powers to the President to deal with various kinds of emergencies
• The right of Parliament to legislate on state subjects on the recommendation of the Rajya Sabha
• The presence of a single judiciary with the Supreme Court of India at the apex
• The residuary powers under the Indian Constitution are assigned to the Union and not to the States.
• The exclusive right of Parliament to propose amendments to the Constitution.
• On account of the presence of a large number of non- federal features in the Indian Constitution India is often described as a ‘quasi-federal ‘country.

The relations between centre and state are divides as:
• Administrative relations
• Legislative relations
• Financial relations

• The administrative jurisdiction of the Union and the State Governments extends to the subjects in the Union list and State list respectively. The Constitution thus defines the clauses that deal with the administrative relations between Centre and States.

During Normal Times
1) Executive Powers of State be exercised in compliance with Union Laws: 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.

2) Executive Powers of State not to interfere with Executive Power of Union: 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.

3) Maintain means of communication of National or Military importance: The Union Government can give directions to the state with regard to construction and maintenance of the means of communication declared to be of national or military importance.

4) Protection of the Railways: Union can issue State Governments 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.

5) To ensure welfare of Scheduled Tribes in the States: Union can direct the State Governments to ensure execution of schemes essential for the welfare of the Scheduled Tribes in the States.

6) To secure instruction in the mother-tongue at the primary stage of education: Union can direct the State Governments to secure the provision of adequate facilities for instruction in the mother-tongue at the primary stage of education to children belonging to linguistic minority groups.

7) To ensure development of the Hindi language: Union can direct the State Governments to ensure the development of the Hindi language.

8) To ensure government of a State is carried on in accordance with the provision of the Constitution: Union can direct the State Governments to ensure that the government of a State is carried on in accordance with the provision of the Constitution. If any State failed to comply with any directions given by the Union in exercise of its executive power, then President may hold that, a situation has arisen in which the Government of the State cannot be carried on in accordance with the provisions of the Constitution. Thus he may proclaim President’s Rule in that State.

9) Delegation of Union’s function to State: The President of India can 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. But the Parliament can enact law authorizing the Central Government to delegate its function to the State Governments or its officers irrespective of the consent of such State Government. On the other hand, a State may confer administrative functions upon the Union, with the consent of the Union only.

10) Appointment of High Dignitaries: Union has major say in appointment and removal of Governor and appointment of Judges of High Court and Members of State Public Service Commission.

11) All India Services: The presence of the All India Services – the Indian Administrative Services, Indian Police Services – further accords a predominant position to the Union Government. The members of these services are recruited and appointmed 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.

12) Union to adjudicate Inter-State River Water Dispute: 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 Inter-State river or 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.

During Emergencies
1) Under President’s Rule: The State Governments cannot ignore the directions of the Union Government, otherwise the President can take the action against the Government of the State stating that the administration cannot be carried on in accordance with the provisions of the Constitution and thus can 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.

2) Under Proclamation of National Emergency: During a Proclamation of National Emergency, the power of the Union to give directions extends to the giving of directions as to the manner in with the executive power of the State is to be exercised relating to any matter.

3) Under Proclamation of Financial Emergency: During a Proclamation of Financial Emergency, Union can direct the State Governments to observe certain canons of financial propriety and to reduce the salaries and allowances of all or any class of person serving in connection with the affairs of the Union including the Judges of the Supreme Court and High Courts. Union also requires all Money Bills or Financial Bills to be reserved for the consideration of the President after they are passed by the Legislature of the State.
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 the Center.


Articles 245 to 255 in Part XI of the Constitution deal with the legislative relations between the Centre and the State.

1) Extent of laws made by Parliament and by the Legislatures of States
• The Parliament can make laws for the whole or any part of the territory of India. Territory of India includes the states, UTs and any other area for the time being included in the territory of India. Whereas, the state legislature can make laws for whole or any part of state.
• The Parliament can alone make ‘extra territorial legislation’ thus the laws of the Parliament are applicable to the Indian citizens and their property in any part of the world.

2) Subject-matter of laws made by Parliament and by the Legislation of States
• The Constitution divides legislative authority between the Union and the States in three lists- the Union List, the State List and the Concurrent List.
• The Union list consists of 99 items. The Union Parliament has exclusive authority to frame laws on subjects enumerated in the list. These include foreign affairs, defence, armed forces, communications, posts and telegraph, foreign trade, etc.
• The State list consists of 61 subjects on which ordinarily the States alone can make laws. These include public order, police, administration of justice, prison, local governments, agriculture, etc.
• The Concurrent list comprises of 52 items including criminal and civil procedure, marriage and divorce, economic and special planning trade unions, electricity, newspapers, books, education, population control and family planning, etc.
• Both the Parliament and the State legislatures can make laws on subjects given in the Concurrent list, but the Centre has a prior and supreme claim to legislate on current subjects. In case of conflict between the law of the State and Union law on a subject in the Concurrent list, the law of the Parliament prevails.

3) Residuary powers of legislation
• The Constitution also vests the residuary powers (subjects not enumerated in any of the three Lists) with the Union Parliament. The residuary powers have been granted to the Union contrary to the convention in other federations of the world, where the residuary powers are given to the States.
• However, in case of any conflict, whether a particular matter falls under the residuary power or not is to be decided by the court.

4) Parliament’s Power to Legislate on State List
• Though under ordinary circumstances the Central Government does not possess power to legislate on subjects enumerated in the State List, but under certain special conditions the Union Parliament can make laws even on these subjects.

a) In the National Interest (Art. 249)
• If the Rajya Sabha declares by a resolution supported by not less than 2/3rd of its 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 (Art. 249).
• After such a resolution is passed, Parliament can make laws for the whole or any part of the territory of India. Such a resolution remains in force for a period of 1 year and can be further extended by one year by means of a subsequent resolution.

b) Under Proclamation of National Emergency (Art. 250)
• Parliament can legislate on the subjects mentioned in the State List when the Proclamation of National Emergency is in operation. However, the laws made by the Parliament under this provision shall cease to have effect on the expiration of a period of six months after the Proclamation has ceased to operate.

c) By Agreement between States (Art. 252)
• The Parliament can also legislate on a State subject if the legislatures of two or more states resolve that it is lawful of Parliament to make laws with respect to any matter enumerated in the State List relating to those State.
• Thereafter, any act passed by the Parliament shall apply to such states and to any other state which passes such a resolution. The Parliament also reserves the right to amend or repeal any such act.

d) To Implement Treaties (Art. 253)
• The Parliament can make law for the whole or any part of the territory of India for implementing any treaty, international 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.

e) Under Proclamation of President’s Rule (Art. 356)
• The President can also authorize the Parliament to exercise the powers of the State legislature during the Proclamation of President’s Rule 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 President’s Rule comes to an end.

5) Centre’s control over State Legislation
• The Constitution empowers the centre to exercise control over the state’s legislature in following ways:

a) The governor can reserve certain types of Bills passed by the state legislature for the consideration of the President. The President enjoys absolute veto over them.
b) Bills on certain matters enumerated in the State List can be introduced in the state legislature only with the previous sanction of the President as imposing restrictions on freedom of trade and commerce.
c) The President can direct the states to reserve Money Bills and other Financial Bills passed by the state legislature for his consideration during a financial emergency.


• Indian Constitution has made elaborate provisions, relating to the distribution of the taxes as well as non-tax revenues and the power of borrowing, supplemented by provisions for grants-in-aid by the Union to the States.

• Article 268 to 293 deals with the provisions of financial relations between Centre and States.

• The Constitution divides the taxing powers between the Centre and the states as follows:
The Parliament has exclusive power to levy taxes on subjects enumerated in the Union List, the state legislature has exclusive power to levy taxes on subjects enumerated in the State List, both can levy taxes on the subjects enumerated in Concurrent List whereas residuary power of taxation lies with Parliament only.

• The distribution of the tax-revenue between the Union and the States stands as follows:
a) Duties Levied by the Union but Collected and Appropriated by the States: Stamp duties on bills of Exchange, etc., and Excise duties on medical and toilet preparations containing alcohol. These taxes don’t form the part of the Consolidated Fund of India, but are assigned to that state only.
b) Service Tax are Levied by the Centre but Collected and Appropriated by the Centre and the States.
c) Taxes Levied as well as Collected by the Union, but Assigned to the States: These include taxes on the sale and purchase of goods in the course of inter-state trade or commerce or the taxes on the consignment of goods in the course of inter-state trade or commerce.
d) Taxes Levied and Collected by the Union and Distributed between Union and the States: Certain taxes shall be levied as well as collected by the Union, but their proceeds shall be divided between the Union and the States in a certain proportion, in order to effect on equitable division of the financial resources. This category includes all taxes referred in Union List except the duties and taxes referred to in Article 268, 268-A and 269; surcharge on taxes and duties mentioned in Article 271 or any Cess levied for specific purposes.
e) Surcharge on certain duties and taxes for purposes of the Union: Parliament may at any time increase any of the duties or taxes referred in those articles by a surcharge for purposes of the Union and the whole proceeds of any such surcharge shall form part the Consolidated Fund of India.

• Grants-in-Aid
• Besides sharing of taxes between the Center and the States, the Constitution provides for Grants-in-aid to the States from the Central resources. There are two types of grants:-
1) Statutory Grants: These grants are given by the Parliament out of the Consolidated Fund of India to such States which are in need of assistance. Different States may be granted different sums. Specific grants are also given to promote the welfare of scheduled tribes in a state or to raise the level of administration of the Scheduled areas therein (Art. 275).
2) Discretionary Grants: Center provides certain grants to the states on the recommendations of the Planning Commission which are at the discretion of the Union Government. These are given to help the state financially to fulfill plan targets (Art. 282).

• Effects of Emergency on Center-State Financial Relations:-
1) During National Emergency: The President by order can direct that all provisions regarding division of taxes between Union and States and Grants-in-aids remain suspended. However, such suspension shall not go beyond the expiration of the financial year in which the proclamation ceases to operate.
2) During Financial Emergency: Union can give directions to the States:-
a) To observe such canons of financial propriety as specified in the direction.
b) To reduce the salaries and allowances of all people serving in connection with the affairs of the State, including High Courts judges.
c) To reserve for the consideration of the President all Money and Financial Bills, after they are passed by the Legislature of the State.

Financial Relations

The Constitution provides a federal system of government in the country even though it describes India as ‘a Union of States’. The term implies that firstly, the Indian federation is not the result of an agreement between independent units, and secondly, the units of Indian federation cannot leave the federation. The Indian Constitution contains federal and non- federal features.

Since independence and mainly after the development of state parties the many issues have arisen. Thus to handle the issues with cooperation and coordination many committees have been formed.

Two important committees have been discussed below:


A three member Commission on Centre-state relations under the chairmanship of R. S. Sarkaria to review examine and review the working of existing arrangements between the Centre and states in all spheres and recommend appropriate changes and measures. It emphasized on the need for changes in the function or operational aspects and did not favour structural changes.

It stated strong Centre is essential to safeguard the national unity and integrity which is being threatened by the fissiparious tendencies in the body politic. However, it did not equate strong Centre with centralisation of powers. It observed that over-centralisation leads to blood pressure at the centre and anemia at the pheriphery.

The important recommendations are mentioned below:

1. Appointment of Governor: The procedure of consulting the chief minister in the appointment of the state governor should be prescribed in the Constitution itself. The governor’s term of five years in a state should not be disturbed except for some extremely compelling reasons.

2. President Rule: Article 356 (President’s Rule) should be used very sparingly, in extreme Cases as a last resort, when all the available alternatives fail.

3. Inter State Council: A permanent Inter-State Council called the Inter-Governmental Council should be set up under Article 263.

4. All India Services: The institution of All-India Services should be further strengthened-and some more such services should be created.

5. Bill Assent: When the president withholds his assent to the state bills, the reasons should be communicated the state government.

6. Zonal Council: The zonal councils should be constituted afresh and reactivated to promote the spirit of federalism.

7. Armed Forces Deployment: The 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.

8. Legislative matters: The Centre should consult the states before making a law on a subject of the Concurrent List.

9. Financial:
i) The net proceeds of the corporation tax may be made permissibly shareable with the states.
ii) The surcharge on income fax should not be levied by the Centre except for a specific purpose and for a strictly limited period.

10. Language:
i) Steps should be taken to uniformly implement the three language formula in its true spirit.
ii) The commissioner for linguistic minorities should be activated.


The Second commission on Centre-State Relations was set-up by the Government of India in April 2007 under the Chairmanship of Madan Mohan Punchhi, former Chief Justice of India.

The important recommendations are mentioned below:

1. Appointment of Governor: While selecting Governors, the Central Government should adopt the following strict guidelines as recommended in the Sarkaria Commission report and follow its mandate in letter and spirit:
(i) He should be eminent in some walk of life.
(ii) He should be a person from outside the state.
(iii) He should be a detached figure and not too intimately connected with the local politics of the states.
(iv) He should be a person who has not taken, too great a part in politics generally and particularly in the recent past.

Governors should be given a fixed tenure of five years and their removal should not be at the sweet will of the Government at the Centre.

The Procedure laid down for impeachment of President, mutatis mutandis can be made applicable for impeachment of Governors as well.

2. Role of Governor:
a) The convention of Governors acting as Chancellors of Universities and holding other statutory positions should be done away with. His role should be confined to the Constitutional provisions only.
b) On the question of dismissal of a Chief Minister, the Governor should invariably insist on the Chief Minister proving his majority on the floor of the House for which he should prescribe a time limit.
c) The Governor should have the right to sanction for prosecution of a-state minister against the advice of the Council of Ministers, if the motivated by bias in the face of overwhelming material.
d) Article 163 does not give the Governor a general discretionary power to act against or without the advice of his Council of Ministers. In fact, the area for the exercise of discretion is limited and even in this limited area, his choice of action should not be arbitrary or fanciful It must be a choice dictated by reason, activated by good faith and tempered by caution.

3. In case of Hung Assembly: On the question of Governor’s role in appointment of Chief Minister in the case of an hung assembly, it is necessary to lay down certain clear guidelines to be followed as Constitutional conventions. These -guidelines may be as follows:
(i) The party or combination of-Parties which command the widest support in the Legislative Assembly should be called upon to form the Government.
(ii) If there is a pre-poll alliance or coalition, it should be treated as one political party and if such coalition obtains a majority, the leader of such coalition shall be called by the Governor to form the Government.
(iii) In case no party or pre-poll coalition has a clear majority, the Governor should select the Chief Minister in the order of preference indicated here.

(a) The group of parties which had Prepoll alliance commanding the largest number
(b) The largest single party staking a claim to form the government with the support of others
(c) A post-electoral coalition with all partners joining the government
(d) A post-electoral alliance with sonic parties joining the government and the remaining including independents supporting the government from outside

4. Legislative:
a) To facilitate effective implementation of the laws on List III subjects, it is necessary that some broad agreement is reached between the Union and states before introducing legislation in Parliament on matters in the Concurrent List.
b) The Union should occupy only that many of subjects in concurrent-or overlapping jurisdiction which are absolutely necessary to achieve uniformity of policy in national interest.
c) The period of six months prescribed in Article 201 for State Legislature to act when the bill is returned by the President can be made applicable for the president also to decide on assenting or withholding assent to a state bill reserved for consideration of the President.
d) Parliament should make a law on the subject of Entry 14 of List I (treaty making and implementing it through Parliamentary legislation) to streamline the procedures involved. The exercise of the power obviously cannot be absolute or unchartered in view of the federal structure of legislative and executive powers.
e) In respect of bills passed by the Legislative Assembly of a state, the Governor should take the decision within six months whether to grant assent or to reserve it for consideration of the President.

5. Failure of the Constitutional machinery:
a) When an external aggression or internal disturbance paralyses the state administration creating, a situation of a potential break down of the Constitutional machinery of the state, all alternative courses available to the Union for discharging its paramount responsibility under Article 355 should be exhausted to contain the situation and the exercise of the power under Article 356 should be limited strictly to rectifying, a “failure of the Constitutional machinery in the state”.
b) On the question of invoking Article 356 in case of failure of Constitutional machinery in states, suitable amendments are required to incorporate the guidelines set forth in the land-mark judgement of the Supreme Court in S.R. Bommai V Union of India (1994). This would remove possible misgivings in this regard on the part of states and help in smoothening Centre-state relations.

6. Emergency Provisions: Given the strict parameters now set for invoking the emergency provisions under Articles 352 and 356 to be used only as a measure of “last resort”, and the duty of the Union to protect states under Article 355, it is necessary to provide a Constitutional or legal framework to deal with situations which require Central intervention but do not warrant invoking the extreme steps under Articles 352 and 356. Providing the framework for ‘localised emergency” would ensure that the state government can continue to function and the Assembly would not have to be dissolved while providing a mechanism to let the Central Government , respond to the issue specifically and locally. The imposition of local emergency is fully justified under the mandate of Article 355 read with Entry 2A of List I and Entry I of List II of the Seventh Schedule.

7. Inter State Council:
a) Suitable amendments to Article 263 are required to make the Inter-State -Council a credible, powerful and fair mechanism for management of inter-state and Centre-state differences.
b) There should be a continuing auditing role for the inter-state Council in the management of matters in concurrent or overlapping jurisdiction.

8. Zonal Council: The Zonal Councils should meet at least twice a year with an agenda proposed by states concerned to maximise co-ordination and promote harmonisation of policies and action having inter-state ramification. The Secretariat of a strengthened Inter-State Council can function as the Secretariat of the Zonal Councils as well.

9. Fiscal matters:
a) The Empowered Committee of Finance Ministers of States proved to be a Successful experiment in inter-state co-ordination on fiscal matters. There is need to institutionalise similar models in other sectors as well. A forum of Chief Ministers, Chaired by one of the Chief Minister by rotation can be similarly thought about particularly to co-ordinate policies of sectors like energy, food, education, environment and health.
b) All future Central legislations involving states involvement should provide for cost sharing as in the case of the RTE Act. Existing Central legislations where the states are entrusted with the responsibility of implementation should be suitably amended providing for sharing of costs by the Central Government.
c) To bring greater accountability, all fiscal legislations should provide for an annual assessment by an independent body and the reports of these bodies should be laid in both Houses of Parliament/state legislature.

10. All India Services: New all-India services in sectors like health, education, engineering and judiciary should be created.

11. Rajya Sabha: A balance of power between states inter se is desirable and this is possible by equality of representation in the Rajya Sabha. This requires amendment of the relevant provisions to give equality of seats to states in the Rajya Sabha, irrespective of their population size.

12. Local Bodies: The scope of devolution of powers to local bodies to act as institutions of self government should be constitutionally defined through appropriate amendments.

13. Royalty Issue: The royalty rates on major minerals should be revised at least every three years without any delay. States should be properly compensated for any delay in the revision of royalty beyond three years.

14. Tax Issues: The scope for raising more revenue from the taxes mentioned in article 268 should be examined afresh. This issue may be either referred to the next Finance Commission or an expert committee be appointed to look into the matter.

15. Finance Commission: The Finance Commission division in the Ministry of Finance should be converted into a full-fledged department, serving as the permanent secretariat for the Finance Commissions.

16. Inter-State Trade and Commerce Commission: Steps should be taken for the setting up of an Inter-State Trade and Commerce Commission under Article 307 read with Entry 42 of List-1. This Commission should be vested with both advisory and executive roles with decision making powers.

Commission came to the conclusion that ‘cooperative federalism’ will be the key for sustaining India’s unity, integrity and social and economic development in future. The principles, of cooperative federalism thus may have to act as a practical guide for Indian polity and governance.