Centre-State financial Relations: Historical Perspectives and Issues∗
| Author | Rakesh Gupta,Nand Dhameja |
| Published date | 01 October 2014 |
| Date | 01 October 2014 |
| DOI | http://doi.org/10.1177/0019556120140412 |
CENTRE-STATE FINANCIAL RELATIONS:
HISTORICAL
PERSPECTIVES
AND ISSUES*
NAND
DHAMEJA
AND
RAKESH
GUPTA
This article discusses the Centre-states financial
re/ati~ns
and
is
divided into four parts. Division
of
financial powers
between the Centre and states relating to levying
of
taxes
and principles
of
such powers
are
presented
in
Part l Part
II
deals with the finances
of
the Centre and the sources
of
revenues for the states. Provisions for the selling
up
of
the
Finance Commission for the devolution
of
funds from the
Centre to the states
and
the allocation among the states
are the subject matter
of
Part
Ill
This
section also presents
the recommendations
of
the Finance Commissions relating
to devolution
of
funds from the Centre
to
the states. Issues
relating to such distribution
of
sources between the Centre
and the states
are
addressed
in
the last section.
INDIA, is a federation with a Parliamentary system governed under the
Constitution
oflndia,
which envisages parliamentary form
of
government
is federal in structure with unitary features and provides for the Centre (the
Union) and the states. It defines the structure, organisation and powers
of
the Central (Union) as well as state governments; and there is a clear
division
of
powers between the Union and the states through three
Lists-
Union List
I,
State List
II
and Concurrent List III. The Constitution has a
provis'ion for independence ofjudiciary, Comptroller and Auditor General,
Public Service Commission and Chief Election Commission.
as: The Centre-States relations can be studied under the following heads
(a) Legislative Relations-Powers between the Union and the states,
to reiterate, are given
in
three
lists-the
Union List, the State
List and the Concurrent List.
• The Union List consists
of
99 items and the Parliament
*Updated version
of
the article presented at the Annual Conference on Centre-State
Relations organised by Haryana Institute
of
Public Administration, Gurgaon and Haryana
Regional Branch
ofII
PA
on September
16,
2014.
CENTRE-STATE FINANCIAL RELATIONS I
901
NAND
DHAME.JA
AND RAKE.SH
GUPTA
has
exclusive
authority
to
frame
laws
on
subjects
enur1erated
in
the List. These include foreign affairs,
defence,
armed
forces,
communications,
posts
and
telegraph, foreign trade, etc.
•
Thi;)
State List consists
of
61
subjects on which ordinarily
the states alone can make laws. These include public order,
pel.ice, 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 Par! iament 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.
(b) Administrative
Relations-As
a priilciple the executive power
is co-extensive with legislative power, and the Centre acquires
control over states through
All
India Services, grants-in-aid, etc.
(c) Financial Relations-Both the Union government and the states
have been provided with independent sources
of
revenue by the
Constitution.
I. FINANCIAL POWERS OF THE CENTRE AND THE STATES
There
is
a
clear
division
of
fiscal powers on the principle that taxes
which have an inter-state base are levied by the Union, while those with a
local base are levied by the states; the residual powers belong to the Union.
Jn
general, the Union Parliament has the power to levy taxes on items
mentioned
in
the Union List
I,
Seventh Schedule, while the state legislatures
ca1i
levy taxes on items mentioned
in
the State List
II
of
the Seventh
Schedule.
The
subjects on which the Union government has the exclusive powers
to levy taxes include
• customs duty,
• corporation tax,
• capital gains,
• surcharge on income tax,
• railway fares, etc.
State's exclusive power to levy taxes includes:
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