Sharing of resources and inter-State disputes

1. Why resource disputes are a federal problem

Rivers, taxes and minerals do not respect State boundaries. A federation therefore needs (a) a rule for dividing what is shared, (b) a forum to decide disputes, and (c) a body to enforce the decision. The Indian Constitution gives the Union a large role at each stage: it legislates on inter-State rivers (Entry 56 List I), constitutes tribunals, collects most of the buoyant taxes, and regulates mines and minerals (Entry 54 List I). States, for their part, hold water (Entry 17 List II, subject to Entry 56 List I), land and the taxing power over mineral rights (Entry 50 List II).

2. Inter-State river water disputes

Article 262 lets Parliament provide for the adjudication of disputes about the use, distribution or control of the waters of inter-State rivers, and to exclude the jurisdiction of the Supreme Court and other courts over such disputes. Parliament did both in the Inter-State River Water Disputes Act, 1956. On a State’s complaint the Union must constitute a tribunal; the 2002 amendment fixed a time frame for the award and gave the published award the same force as an order of the Supreme Court; section 6A lets the Union frame a scheme to implement it; and section 11 bars the courts’ jurisdiction over a dispute referred to a tribunal. The River Boards Act, 1956 and the Inter-State Council under Article 263 are the cooperative alternatives, little used.

The leading decision is State of Karnataka v. State of Tamil Nadu, 2018 INSC 153 (the Cauvery case), decided on appeals against the Cauvery Water Disputes Tribunal’s 2007 award.

• Section 11 and Article 262 do not oust the Supreme Court’s jurisdiction under Article 136 to hear an appeal against the final award; they bar fresh original adjudication of the dispute.
• An inter-State river is a national asset. No riparian State can claim exclusive ownership of its waters or assert a prescriptive right to deny others.
• The governing principle is equitable apportionment, drawing on the Helsinki Rules (International Law Association, 1966) and American decisions.
• Drinking water has the highest priority. On that footing the Court increased Karnataka’s share (with an allowance for Bengaluru) and correspondingly reduced the quantity Karnataka must release to Tamil Nadu, taking account of groundwater available in Tamil Nadu.
• The Union was directed to frame a scheme under section 6A, which led to the Cauvery Water Management Authority.

3. Comparative and international water law

The United States Supreme Court decides inter-State water suits under its original jurisdiction and developed equitable apportionment in Kansas v. Colorado (1907) and New Jersey v. New York (1931), where Holmes J said that a river is more than an amenity, it is a treasure, and must be rationed among those who have power over it. Internationally, the UN Watercourses Convention, 1997 rests on equitable and reasonable utilisation and the duty not to cause significant harm. The Indus Waters Treaty, 1960 with Pakistan, placed in abeyance by India in April 2025, shows the same tension between upstream control and downstream need at the international level.

4. Revenue: fiscal federalism

The Union collects income tax, corporation tax, customs and the central GST; States carry most of the spending on health, education, police and agriculture. This vertical imbalance is corrected by:

• Article 270: taxes in List I (other than surcharges and cesses) are shared between the Union and States in the proportion recommended by the Finance Commission (Article 280), constituted every five years.
• Article 275: statutory grants-in-aid to States in need of assistance, also on Finance Commission advice.
• Article 282: discretionary grants for any public purpose, the route through which centrally sponsored schemes flow and the source of the charge that the Union attaches conditions to State spending.
• Article 293: a State indebted to the Union cannot borrow without Union consent. Kerala’s suit under Article 131 challenging Union limits on its borrowing was referred to a Constitution Bench in 2024; the question of how far Article 293 lets the Union control State borrowing is open.

The chief complaint of the States is that surcharges and cesses, which are not part of the divisible pool, have grown, so that the share recommended by the Finance Commission covers a smaller fraction of what the Union collects. GST compensation to States ended in 2022, and with it the guarantee that made the GST bargain acceptable to producing States.

5. Minerals: the 2024 royalty decision

In Mineral Area Development Authority v. Steel Authority of India, 2024 INSC 554, a nine-judge Bench by 8:1 held that:

• royalty is not a tax; it is a contractual consideration paid to the owner of the mineral for the right to extract it. The contrary view in India Cement Ltd. v. State of Tamil Nadu (1989) was overruled;
• States have legislative competence under Entry 49 List II (taxes on lands and buildings) to tax mineral-bearing land, and under Entry 50 List II to tax mineral rights;
• the Mines and Minerals (Development and Regulation) Act, 1957 does not contain a limitation on that State power, so Entry 54 List I does not take it away.

Nagarathna J dissented, warning that unco-ordinated State taxes on minerals would raise costs for industry and set mineral-rich States against the rest. A later order of the same Bench allowed States to recover arrears for the period from 1 April 2005, spread over instalments and without interest or penalty. The decision is the strongest recent statement of State fiscal autonomy and pairs naturally with Mohit Minerals.

6. The Union’s role: arbiter or party?

On water, the Union is meant to be a neutral convener and enforcer; on revenue it is the collector and distributor; on minerals it is the regulator. In each case it also has its own interests and is governed by a party with stakes in particular States. Three safeguards keep it honest:

1. independent bodies (tribunals, the Finance Commission) whose recommendations carry political if not legal weight;
2. Article 131, the Supreme Court’s exclusive original jurisdiction over disputes between the Union and States, now used regularly by States;
3. Article 263 and the Inter-State Council (set up in 1990 on the Sarkaria Commission’s advice), a forum for negotiation that meets rarely.

How this is examined

The April 2024 paper asked for a short note on “inter-State disputes on resources”; the January 2024 internal asked about the Central Government’s role in sharing resources and inter-State disputes “with reference to federal features”. For the long answer open with the federal principle (previous note), take water, revenue and minerals in turn, and close on the arbiter-or-party point. For the short note, Article 262, the 1956 Act, Cauvery 2018 and one comparative reference are enough.