Critically examine centre state financial relationship

Essay on the centre-state financial relations with the recommendations of the sarkaria commission

union-state financial relations in education, which we. 2 briefly seek to examine in this chapter assume importance. Finance constitutes an essential-even a Chapter Centre-State relations in educational planning will be critically examined . Let us make an in-depth study of the relation between the Centre and the State. The Constitution of India, adopted in , made a clear distinction between the . Subject-Matter of the Financial Relations between Centre and State: In financial field too the centre is more powerful than the states. In fact, for their development .

The constitution provides for a co-operative federation of states with the bias in favor of centre. ArticleUnion Parliament shall make laws over the subjects not included in the above given lists. Custom and Export Duty 2. Estate Duty Excluding Agriculture 5. Excise Duty on Tobacco and other intoxicants 6.

critically examine centre state financial relationship

Succession Duty Excluding Agriculture 7. Inter — State Trade Tax, etc. This harmonious functioning was, perhaps, possible because this period was characterized by, by and large, a single party that is the Congress Party, domination of the Governments both at the Centre and in most of the States.

  • Central State Relation - Legislative, Administrative and Financial
  • Financial Relations between Centre and State (Art. 268 to 293)
  • Problems: Financial Relations between the Centre and State

As such, the Centre-State relations were not really put to any severe test during this period. Whatever differences or occasional conflicts arose, were endeavored for mitigation and resolution, not as between two different Governments but more between two entities of the same system. In a way this process was facilitated by the fact that the first Prime Minister, Pandit Jawaharlal Nehru was an iconic figure in the Indian polity and through his persona was able to wield considerable equation and personal authority with the State Governments.

Thus political process and not the Constitutional machinery played a major part in Centre-State relationship during this period.

Essay on the centre-state financial relations with the recommendations of the sarkaria commission

Nehru, however, had absolutely no doubt whatsoever on the future of the Indian federal system and how the same had been envisioned in the Constitution. The yearhowever, proved to be a watershed in the history of independent India when, perhaps, for the first time the Centre-State relations were put to a test.

Simultaneously, it was also the beginning of a period when coalition politics started at State level. This was the time when certain issues of importance pertaining to Centre-State relations came into the fore both in the form of criticism of the functioning of existing mechanisms and processes as also because the regional political parties wanted to create their own niche in their respective regions. There were wide spread demands for providing greater autonomy for the States in their functioning particularly from non-Congress and other regional party led Governments.

With the Congress Party having lost its political control in several parts of the country, the devices used earlier in maintaining harmonious Centre-State relationship could no longer be put to work. The subject acquired such a dimension as to be considered of sufficient importance to find a place in the Address of the then President, Dr. Radhakrishnan, to the Parliament on March 18, The President, while addressing the Joint Session of Parliament, observed: In a federal democratic polity, this is to be expected.

Our Constitution has provisions defining and regulating the relationship between the Union and the States and their mutual obligations.

Further, over the years we have developed certain institutions for promoting cooperation, understanding and harmonious relations between the Union and the States, between one State and another.

The National developmental Council, the Zonal Councils and the periodic Conferences of the Governors and Chief Ministers are conspicuous examples of this nature.

The Union Government will respect the constitutional provisions in letter and spirit without any discrimination and endeavour to strengthen the arrangements for a co-operative approach to national problems. We are sure that all the States will extend their cooperation in serving these institutions and making their deliberations increasingly fruitful and beneficial both to the Union and to themselves. Co-existence through healthy relationship between the Centre and the States became a matter of the primary importance during this period, with the then Prime Minister, Smt.

Gandhi inhowever, underwent a change after the Parliamentary Elections in The huge success of the Congress Party in General Elections of was followed by even bigger success in the Assembly Elections that took place in These observations although brought in critical reactions, but at the same time set the tone for greater centralization of powers. The 42nd Amendment was passed during this period in the year which substantially altered the original character of the Constitution, leading it towards greater centralization of powers with Government of India.

Many political historians, including R. The Janata Party that came into power at the Centre in the post-emergency period inhowever, was a coalition essentially of the parties that were opposed to the Congress Party led by Smt. Indira Gandhi and the imposition of emergency, though not carrying the same and in many cases totally different political ideologies.

At the same time with a host of non-Congress Governments in the States, there was obvious clamour and demand for greater autonomy for the States. Besides, several issues germane to 42nd Amendment were the subject matter of expression of opinion by a number of jurists, parliamentarians, editors and professional bodies.

One of the significant suggestions uniformly made at that time was to provide for measures against the misuse of the Emergency provisions and to put the right to life and liberty on a secure footing.

This and various other imbalances caused by some of the provisions of 42nd Amendment in the Constitution were corrected through the 44th Amendment, which was passed in the year However, with a weak coalition at the Centre and with its constituents coming from totally different political backgrounds, the Janata Party regime proved a short lived one and the people once again voted the Congress Party to power in at the Centre with a very large majority.

Nevertheless, non-Congress coalitions continued in a large number of States till Assembly Elections, including in the North-East, giving strength to the forces of regionalism, resulting in the growth of a large number of regional parties. Non-Congress Governments in the States also started putting up a united front, demanding more administrative and fiscal autonomy.

Around the same time, there were fissiparous forces at play in different parts of the country, seeking establishment of their own autonomous entities. Earlier inthe Administrative Reforms Commission, constituted by the Government of India, had submitted its report, substantial parts of which had focused on the steps to be taken for maintaining harmonious Centre-State relations.

Financial Relations between Centre and State (Art. to ) – Civilsdaily

The Rajamannar Committee, appointed by the Government of Tamil Nadu, likewise had given its report inrecommending greater autonomy for the States basically in legislative and fiscal matters. This situation prompted the then Prime Minister, Smt. Sarkaria, a retired Judge of the Supreme Court of India. Article says the governor is appointed by the president.

According to article he holds office during the pleasure of president. In practice the governor has been reduced to virtually the same position as that of the president agent in the native state in the days of British raj, several governors have abused their high office to fulfill the partisan objectives of the political parties at the centre. Rajamannar committee has made the following recommendation.

It is necessary to make him the Governor of the State in its full and proper sense and to enable him to live up to his oath truthfully. His loyalty must be to the Constitution and to none else and his commitment to the well-being of the people of his State.

He must command respect by his conduct 2. The president may direct the governor to return the bill to the state legislature with the massage requesting reconsideration of the bill and if it is again passed by the state legislature with or without amendment ,it is presented once again more to the president for his consideration ,but in no way president is bound to give the assent.

The governor is expected by the constitution to reserve only such bills for the president ,s assent as are patently unconstitutional or palpably against the national interest.

In practice ,governors have been known to surrender their judgment and act as the deferential subordinates of the central government in exercising their extraordinary power. The Raja manner committee recommended repeal of that provision which permits the governor to reserve any bill for consideration of the president; however this power may be usefully retained, if its indiscriminate use can be checked by some machinery.

Taxes on income are levied and collected by the government of India and distributed between the union and states. Corporation tax means tax on income which is payable by the companies and for which no credit is given to the shareholders who receive dividends from the companies. As a result of changes made by the Finance Actall income tax paid by the limited companies must now be treated as corporation tax and consequently the states are not entitled to any share of it.

The chairman of the 4 th finance commission referred to the possibility of making a constitutional amendment placing excise duties on the same footing as income tax ,that is making excise duties also divisible between the union and states.

Even when a tax or duties is compulsorily divisible between the centre and states, the union has the right to levy a surcharge, on income tax exclusively for the purpose of the union. States must be given a legal right to larger share in the tax revenues collected by the centre instead of having a rely upon the discretionary largess of the union under article The scheme of allocation of centre —state taxing power though designed with many considerations in view —convenience ,simplicityeconomy, and uniformity ,yet fails to create an equilibrium between responsibilities and resources at the state level.

Most of the lucrative sources of taxation lie with the centre. Moreover ,the centre has whole country to tap and can tax the taxing capacity existing anywhere in India. On the other hand ,while the fiscal needs of states are huge ,because of their responsibility to provide for development ,welfare and social service activity like education housing, health, agriculture etc. Doctor subba rao was of the opinion that the planning commission function in the violation of the provision of the constitution.

The centre through planning commission controlled not only the state sector of the plan but also their implementation. It will be thus seen that the process of planning and the activities of the planning commission have a very deleterious effect on the autonomy of the states.

Today there are 2 types of grant made by the centre the states. Discretionary grant by the central government Which are usually made in accordance with the recommendations of planning commission. To remove this distortion of the constitutional scheme. The only satisfactory and lasting solution of the vexed problem is to be found not in the statute book but in conscience of men in power.

The long suffering states can be redress not by change of law by chance of heart. We must get away from fallacy of legal solubility of all problem. In constitution equilibrium can be mandated only by obedience to the inforceable.

We must get away from fallacy of legal solubility of all problems. In our constitution what is left unsaid is important as what is said. Recommendations of Sarkaria Commission The first Commission in all made recommendations on different areas of Centre-State Relations which were given due and detailed consideration by the Government.

Appointment of High Dignitaries: The members of these services are recruited and appointment 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. 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. Centre State Relations During Emergencies 1. 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 the 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. 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.

Financial Relation between the Centre and the State

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. Centre State Financial Relations: 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 to 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.

Distribution of the tax-revenue 1. Stamp duties on bills of Exchange, etc. 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.

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 ArticleA and ; surcharge on taxes and duties mentioned in Article or any Cess levied for specific purposes.

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: 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. 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. 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. Union can give directions to the States: To observe such canons of financial propriety as specified in the direction. To reduce the salaries and allowances of all people serving in connection with the affairs of the State, including High Courts judges.

critically examine centre state financial relationship

To reserve for the consideration of the President all money and financial Bills, after they are passed by the Legislature of the State. Finance Commission Although the Constitution has made an effort to allocate every possible source of revenue either to the Union or the States, but this allocation is quite broad based.

Failure to Reduce Regional Imbalance The mechanism of central resource transfer has failed to correct horizontal imbalance among states. The major part of the central transfer of resources, owing to irrational criteria of devolution, went to richer states.

Irrespective of concrete efforts by central government, the regional economic disparity among states could not be removed and inequality of income as between individuals could not be reduced to a significant extend.

Another important factor affecting the decentralized provision of resource transfer is the unsatisfactory status of fiscal tiers below the state level. Constitutionally local bodies Panchayet Raj Institutions and Municipal Bodies set up recently under and the 73rd and 74th amendment of the constitutions are not autonomous.

Suggestions for Balanced Fiscal Federalism: To effect purposive and effective transfer of resources a proper co-ordination between the various agencies making transfers i.

The number of divisible taxes should be increased to enlarge the resource base of the state government. Adequate steps should be undertaken to narrow down the interstate disparities by adopting a deliberate pro-stand in favour of backward states. In the provision of financial assistance due weightage should be given for social and economic backwardness. The state should be given more autonomy in financial matters.