Centre-State administrative and financial relations

1. Administrative relations: the basic rule

Executive power follows legislative power. Under Article 73 the Union's executive power extends to matters on which Parliament can legislate; under Article 162 the State's extends to matters on which the State legislature can legislate. On Concurrent List subjects, executive power stays with the States unless the Constitution or a law of Parliament gives it to the Union.

2. Union control over the States

• Article 256 — every State must exercise its executive power so as to ensure compliance with laws made by Parliament, and the Union may give such directions to a State as appear necessary for that purpose.
• Article 257 — the State's executive power must not impede or prejudice the Union's. The Union may direct States on construction and maintenance of means of communication of national or military importance and on protecting railways.
• Article 365 — if a State fails to comply with Union directions, the President may hold that a situation has arisen in which the State's government cannot be carried on in accordance with the Constitution. This is the sanction behind Articles 256 and 257, and the route to Article 356.
• Article 258 — the President may, with the State's consent, entrust Union functions to the State; Parliament may do so by law even without consent. Article 258A allows the reverse.
• Article 355 — the Union's duty to protect every State against external aggression and internal disturbance.
• All-India Services (Article 312), Governors appointed by the President, and the Union's power to deploy armed forces also give the Centre administrative reach into the States.

In State of Karnataka v. Union of India, 1977 INSC 214, (1977) 4 SCC 608, the Court upheld the Union's power to appoint a Commission of Inquiry under the Commissions of Inquiry Act, 1952 into allegations against the Chief Minister and ministers of a State. The States are not sovereign, and the Union could inquire into the conduct of State ministers.

3. Co-ordination bodies

• Article 261 — full faith and credit to public acts, records and judicial proceedings of the Union and every State throughout India.
• Article 262 — Parliament may provide for adjudication of inter-State river water disputes and exclude the jurisdiction of all courts, including the Supreme Court. The Inter-State River Water Disputes Act, 1956 does this through tribunals.
• Article 263 — the President may establish an Inter-State Council to inquire into disputes between States and advise on subjects of common interest. It was set up only in 1990, on the Sarkaria Commission's recommendation, with the Prime Minister as chairman and Chief Ministers as members.
• Zonal Councils under the States Reorganisation Act, 1956 are statutory, not constitutional.

4. Financial relations: distribution of taxes

Article 265 states the basic rule: no tax shall be levied or collected except by authority of law. Taxing entries are separate from general entries in the lists. The scheme of Part XII:

• Article 268 — duties levied by the Union but collected and kept by the States, such as stamp duties on bills of exchange.
• Article 269 — taxes on inter-State sale and consignment of goods, levied and collected by the Union but assigned to the States.
• Article 269A — GST on inter-State supplies (IGST), levied and collected by the Union and apportioned between the Union and the States.
• Article 270 — all other Union taxes form a divisible pool shared between the Union and the States on the Finance Commission's recommendation. Since the Eightieth Amendment (2000) the whole pool is shareable.
• Article 271 — surcharges for Union purposes, kept wholly by the Union and outside the divisible pool.
• Articles 275 and 282 — statutory grants-in-aid to States in need, and discretionary grants for any public purpose.
• Articles 285 and 289 — Union property is exempt from State taxes, and State property and income are exempt from Union taxes (subject to exceptions for trading).
• Article 286 — States may not tax supplies outside the State or in the course of import and export.
• Articles 292 and 293 — borrowing. A State that owes money to the Union needs the Union's consent to borrow further, which gives the Centre a strong financial check on the State.

5. The Finance Commission: Article 280

The President constitutes a Finance Commission every five years, a chairman and four members. It recommends the distribution of the net proceeds of shareable taxes between the Union and the States (vertical sharing) and among the States (horizontal sharing), the principles governing grants-in-aid, and measures to supplement the resources of panchayats and municipalities. Its report is laid before Parliament under Article 281. The recommendations are advisory, but in practice are accepted. The Fifteenth Finance Commission recommended 41 per cent of the divisible pool for the States for 2021–26; the Sixteenth, chaired by Arvind Panagariya, covers 2026–31.

6. The GST Council: Article 279A

The Hundred and First Amendment (2016) introduced GST. Article 279A creates the GST Council: the Union Finance Minister as chairperson, the Union Minister of State for Finance, and the Finance Minister of every State. Decisions need three-fourths of the weighted votes of members present and voting. The Union's vote carries one-third weight and the States together two-thirds, so neither side can carry a decision alone.

In Union of India v. Mohit Minerals Pvt. Ltd., 2022 INSC 596, the Court held that the GST Council's recommendations are not binding on Parliament or the State legislatures. Article 246A gives both simultaneous power to legislate on GST, and the recommendations have persuasive value only. The Court described Indian federalism as a dialogue in which co-operation and contestation both have a place, and held that the Council works by consensus, not by subordinating one level to the other.

7. Co-operative federalism and the Commissions

Sarkaria Commission (appointed 1983, reported 1988). It favoured a strong Centre but recommended that Article 356 be used only as a last resort; that the Governor be an eminent person from outside the State, not active in politics, appointed after consulting the Chief Minister; that a permanent Inter-State Council be set up under Article 263; and that the States be consulted before Parliament legislates on Concurrent List subjects. The Supreme Court relied on its report in S.R. Bommai v. Union of India, 1994 INSC 111, (1994) 3 SCC 1.

Punchhi Commission (appointed 2007, reported 2010). It recommended a fixed five-year tenure for Governors, removable only by a resolution of the State legislature; provision for localised emergency in a district or part of a State instead of the whole State under Article 356; and stronger Inter-State Council machinery.

Earlier, the State of Rajasthan v. Union of India, 1977 INSC 143, (1977) 3 SCC 592, had refused to interfere with the Union's advice to nine States to dissolve their Assemblies after the 1977 elections. Bommai later narrowed that approach and made Proclamations under Article 356 reviewable.

8. Problem

The Union directs a State to implement a central law on food safety. The State refuses. What can the Union do?

Article 256 obliges the State to ensure compliance with laws made by Parliament and allows the Union to issue directions. On continued refusal, Article 365 permits the President to treat the failure as a breakdown of constitutional machinery and act under Article 356. After Bommai, any such Proclamation is subject to judicial review and must rest on relevant material; Article 356 is a last resort, as Sarkaria recommended.

How this is examined

As an essay on administrative relations, or on financial relations, or on Centre–State relations generally with a line on co-operative federalism. Short notes: Finance Commission, GST Council, Inter-State Council, Sarkaria Commission. Learn Articles 256, 257 and 365 together, and the GST Council's voting weights, because those are the points examiners look for.