Centre-State Relations UPSC Notes PDF | Legislative, Administrative & Financial Relations

Centre State Relations 

The Indian Constitution regulates the relationship between the Central Government (National Government) and the State Governments (Regional Governments).

Constitutional Provisions

Relation	Part	Articles
Legislative Relations	Part XI	245–255
Administrative Relations	Part XI	256–263
Financial Relations	Part XII	268–293

Legislative Relations

Legislative relations deal with the division of law-making powers between the Centre and States.

Four Aspects of Legislative Relations

Aspect	Description
1. Territorial Extent	Area where laws apply
2. Distribution of Subjects	Union, State & Concurrent Lists
3. Parliamentary Legislation in State Field	Exceptional situations when Parliament can legislate on State subjects
4. Centre's Control over State Legislation	Various controls exercised by Centre

Territorial Extent of Central and State Legislation

Parliament's Legislative Power (Article 245)

Parliament can make laws for: Whole of India & Any part of India

Territory of India Includes

• States
• Union Territories
• Acquired Territories

Extra-Territorial Legislation

Parliament can make laws concerning:

• Indian citizens abroad
• Property of Indians outside India

State Legislature's Legislative Power

State Legislature can make laws for: Whole state & Any part of the state

Doctrine of Territorial Nexus

A State law can apply outside its territory if there is a sufficient connection (nexus) between: The State, and The person/property/transaction concerned. Example - A state may levy tax on a company located outside the state if its business activities have a real connection with that state.

Areas Where Parliament's Laws May Not Directly Apply

President's Regulation-Making Power

The President can make regulations for peace, progress and good government of:

Union Territory
Andaman & Nicobar Islands
Lakshadweep
Dadra & Nagar Haveli and Daman & Diu
Ladakh
Chandigarh

Puducherry

When: Assembly is dissolved, or Assembly is suspended

The President can make regulations having the same force as an Act of Parliament.

Governor's Special Powers

The Governor may direct that an Act of Parliament: Shall not apply to Scheduled Areas, or Shall apply with modifications

• Assam - Governor can exercise similar powers in Tribal Areas (Autonomous Districts).
• Meghalaya, Tripura and Mizoram - President enjoys similar powers in Autonomous Districts.

Distribution of Legislative Subjects

Seventh Schedule - Legislative subjects are divided into three lists.

1. Union List (List I)

Parliament has exclusive power.

Details
Present Subjects: 98
Originally: 97

Examples - Defence, Foreign Affairs, Banking, Currency, Insurance, Atomic Energy, Communication, Census, Inter-State Trade

2. State List (List II)

State Legislature has exclusive power (normally).

Details
Present Subjects: 59
Originally: 66

Examples - Police, Public Order, Agriculture, Public Health, Prisons, Fisheries, Local Government, Markets, Gambling.

3. Concurrent List (List III)

Both Parliament and State Legislatures can make laws.

Details
Present Subjects: 52
Originally: 47

Examples - Criminal Law, Civil Procedure, Marriage & Divorce, Labour Welfare, Electricity, Drugs, Population Control, Economic Planning.

42nd Constitutional Amendment Act, 1976 - Transferred 5 subjects from State List to Concurrent List:

Subject
Education
Forests
Weights & Measures
Protection of Wild Animals and Birds
Administration of Justice

GST and 101st Constitutional Amendment Act, 2016

• Article 246A - Special provision regarding GST.

GST Powers

Authority	Power
Parliament & States	GST laws
Parliament only	Inter-State GST (IGST)

Residuary Powers (Article 248)

• Residuary subjects = Subjects not mentioned in any of the three lists.

Power Lies With Parliament It Includes: New subjects & Residuary taxes

Logic Behind Three Lists

List	Reason
Union List	National importance and uniformity needed
State List	Regional and local importance
Concurrent List	Uniformity desirable but flexibility allowed

Comparison with Other Countries

Country	Residuary Powers
USA	States
Australia	States
Canada	Centre
India	Centre

India follows the Canadian model regarding residuary powers.

Parliamentary Legislation in State Field

Normally, Parliament cannot legislate on State List subjects. However, it can do so in 5 Extraordinary Situations.

Rajya Sabha Resolution (Article 249)

Conditions

• National Interest
• Resolution passed by Rajya Sabha
• Two-thirds members present and voting

Duration

• Valid for 1 year
• Can be renewed repeatedly

Effect - Law remains operative for 6 months after resolution expires.

National Emergency (Article 250)

• During a National Emergency: Parliament can legislate on State List subjects.
• Effect - Law ceases after 6 months from end of Emergency.

Request by Two or More States (Article 252)

• Conditions - Two or more State Legislatures pass resolutions requesting Parliament to legislate.

Important Points

• Applies only to consenting states.
• Other states may adopt later.
• Only Parliament can amend or repeal such law.

Examples

Law	Year
Prize Competition Act	1955
Wildlife Protection Act	1972
Water Pollution Act	1974
Urban Land Ceiling Act	1976
Transplantation of Human Organs Act	1994

International Agreements (Article 253)

Parliament can make laws to implement: Treaties, Conventions & International Agreements

Examples

Law
Geneva Convention Act, 1960
Anti-Hijacking Act, 1982
Environmental Laws
TRIPS Related Laws

President's Rule (Article 356)

• When President's Rule is imposed: Parliament can legislate on State subjects.
• Law continues even after President's Rule ends. However, State Legislature can later:

Centre's Control over State Legislation

Reservation of Bills - Articles 200 & 201

• Governor may reserve certain bills for President's consideration.
• President's Power - Absolute Veto - The President may:Approve, Reject & Keep pending

Prior Presidential Sanction - Article 304

• Certain Bills can be introduced only after President's prior approval. 
• Example - Bills imposing restrictions on: Freedom of Trade, Commerce & Intercourse

Financial Emergency (Article 360)

• During Financial Emergency: Centre can direct States to reserve: Money Bills & Financial Bills for President's consideration.

Governor's Ordinance Power - Article 213

• In certain cases, Governor cannot promulgate an ordinance without instructions from the President.

UPSC Revision Table

Article	Topic
245	Territorial Extent of Laws
246	Distribution of Legislative Powers
246A	GST
247	Additional Courts
248	Residuary Powers
249	Rajya Sabha Resolution
250	National Emergency
251	Inconsistency under Art. 249 & 250
252	State Request to Parliament
253	International Agreements
254	Repugnancy between Central & State Laws
255	Procedural Requirements

One-Line UPSC Facts

• Legislative Relations → Articles 245–255
• Residuary Powers → Parliament (Article 248)
• Three Lists → 7th Schedule
• GST → Article 246A
• Rajya Sabha Special Power → Article 249
• International Agreements → Article 253
• State Request Law → Article 252
• Financial Emergency → Article 360
• India follows Canadian Model for residuary powers.
• Central Law generally prevails over State Law (Article 254). However, a State law receiving Presidential Assent can prevail within that State (subject to Parliament's overriding power later).

Administrative Relations 

Sarkaria Commission (1983–1988)

• The Commission emphasized the Principle of Federal Supremacy.

Principle of Federal Supremacy

• It means the Union Government is superior to State Governments in certain legislative and executive matters.

Why is it Important?

• Prevents conflicts between Centre and States.
• Maintains national unity.
• Ensures harmonious functioning of the federal system.
• Avoids constitutional deadlock and administrative confusion.

Administrative Relations deal with the distribution and exercise of executive powers between the Centre and States.

Constitutional Provisions

Relation	Part	Articles
Legislative Relations	Part XI	245–255
Administrative Relations	Part XI	256–263
Financial Relations	Part XII	268–293

Articles Related to Administrative Relations

Article	Subject Matter
256	Obligation of States and the Union
257	Control of Union over States
257A	Deployment of Armed Forces (Repealed)
258	Union conferring powers on States
258A	States conferring powers on Union
259	Armed Forces in Part-B States (Repealed)
260	Jurisdiction outside India
261	Public Acts, Records and Judicial Proceedings
262	Inter-State River Water Disputes
263	Inter-State Council

Distribution of Executive Powers

General Rule

List	Executive Authority
Union List	Centre
State List	States
Concurrent List	States (Normally)

Exceptions in Concurrent List

The Centre may exercise executive power when:

• Constitution specifically provides so.
• Parliament confers such power.
• International treaties or agreements require implementation.

Obligation of States and the Union (Article 256)

The executive power of every State must be exercised in a manner that ensures compliance with parliamentary laws.

General Obligation

• States must: Follow Parliamentary laws & existing laws applicable in the State.

Specific Obligation

• States should not: Obstruct the executive power of the Centre.

Consequence of Non-Compliance

Under Article 365: Failure to comply with Central directions may lead to: President's Rule (Article 356)

Centre's Directions to States (Article 257)

The Centre can issue directions regarding: 

• National Importance - Means of communication, National highways & Military roads.
• Security - Protection of Railways
• Education - Mother tongue education for linguistic minorities
• Tribal Welfare - Welfare schemes for Scheduled Tribes
• Non-Compliance - Article 365 may be invoked.

Mutual Delegation of Functions

• Delegation means transferring powers, duties or responsibilities to another authority.

Constitutional Provision

• The Constitution allows Centre and States to delegate executive functions to each other.

Delegation Table

Authority	Can Entrust Power To	Consent Required
President	State Government	Yes
Governor	Central Government	Yes
Parliament	State Government	No

Cooperation Between Centre and States

Full Faith and Credit (Article 261)

All public acts, records and judicial proceedings of: Centre & States must be recognized throughout India.

Inter-State River Water Disputes (Article 262)

• Parliament can: Create mechanisms & Adjudicate disputes regarding interstate rivers. Examples - Cauvery Water Dispute & Krishna Water Dispute

Inter-State Council (Article 263)

• Established By President of India
• Purpose - Coordination, Discussion, Investigation of disputes & Better Centre-State relations

Inter-State Trade Authority

• Under Article 301, Parliament can appoint an authority for: Trade, Commerce & Intercourse.

No such authority has been appointed yet.

All India Services (AIS)

India has three categories of services:

Category
Central Services
State Services
All India Services

Major All India Services

• IAS (Indian Administrative Service)
• IPS (Indian Police Service)
• IFoS (Indian Forest Service)

Control of AIS

Type of Control	Authority
Immediate Control	State Government
Ultimate Control	Central Government

Article 312 - Parliament can create new All India Services if: Rajya Sabha passes a resolution by a special majority

Why AIS Are Important?

Although they appear to reduce federal autonomy, they help in:

• Maintaining high administrative standards.
• Uniform administration throughout India.
• Better Centre-State coordination.
• National integration.

Public Service Commissions

State Public Service Commission (SPSC)

• Appointment - Governor appoints Chairman and Members.
• Removal - Only President can remove them.

Joint State Public Service Commission (JSPSC)

• Formation - Parliament may establish JSPSC when: Two or more States request it.
• Appointment - Chairman and Members appointed by President.

UPSC Assistance to States

• UPSC can assist States: On Governor's request with President's approval.
• UPSC may also help multiple States in: Joint recruitment schemes & Recruitment requiring special qualifications.

Integrated Judicial System

• India follows: Dual Polity & Dual Judiciary
• Unlike the USA, India has a single integrated judicial system.

High Court Judges

• Appointment - President appoints after consultation with: Chief Justice of India (CJI) & Governor
• Removal & Transfer - Done by the President.

Common High Court

• Parliament can establish one High Court for multiple States.

Examples

Common High Court
Punjab & Haryana High Court
Bombay High Court (Maharashtra & Goa)

Centre–State Relations During Emergencies

National Emergency (Article 352)

• Effect - Centre can issue directions to States on any matter.

Position of States

• State Governments continue to function.
• But they remain under complete Central control.

President's Rule (Article 356)

President may:

• Assume functions of State Government.
• Assume powers of Governor.
• Exercise executive authority of the State.

Financial Emergency (Article 360)

Centre can:

• Issue financial directions.
• Reduce salaries of State employees.
• Direct reservation of financial bills.

Other Important Constitutional Provisions

• Article 355 - Duty of Union: To Protect States Against External aggression & Internal disturbance
• To Ensure State Governments function according to the Constitution.

Governor

• Appointed by President.
• Acts as a link between Centre and State.
• Often called the "Agent of the Centre".

State Election Commissioner

• Appointment - Governor
• Removal - Similar protection as High Court Judge (cannot be removed by President at will).

A State Election Commissioner is not removed by the President.

Extra-Constitutional Devices for Centre-State Cooperation

These bodies strengthen coordination though not directly mentioned in the Constitution.

Institution
NITI Aayog
National Integration Council
Zonal Councils
North Eastern Council
Central Council of Health & Family Welfare
Central Council of Local Government
Transport Development Council
University Grants Commission (UGC)
Central Council of Indian Medicine
Central Council of Homoeopathy

UPSC Quick Revision Table

Topic	Article
Obligation of States	256
Union Control over States	257
Delegation by Union	258
Delegation by States	258A
Public Acts & Records	261
River Water Disputes	262
Inter-State Council	263
Protection of States	355
President's Rule	356
Financial Emergency	360
Creation of AIS	312
Failure to Comply with Union Directions	365

One-Line UPSC Facts

• Administrative Relations → Articles 256–263
• Inter-State Council → Article 263
• River Water Disputes → Article 262
• Creation of AIS → Article 312
• Protection of States → Article 355
• Failure to follow Central directions → Article 365
• India has Single Integrated Judiciary
• IAS, IPS and IFoS are All India Services
• Immediate control of AIS = State Government
• Ultimate control of AIS = Central Government
• NITI Aayog is an important extra-constitutional body for Centre-State cooperation.

Financial Relations 

Financial Relations deal with the distribution of:

• Taxation powers
• Tax revenues
• Grants-in-aid
• Borrowing powers
• Financial control between Centre and States

Constitutional Provisions

Part	Articles
Financial Relations	Part XII

Important Articles (268–293)

Article	Subject
268	Duties levied by Union, collected by States
269	Taxes levied & collected by Union but assigned to States
269A	GST on Inter-State Trade
270	Taxes shared between Centre & States
271	Surcharge for Union purposes
275	Grants-in-aid
276	Taxes on professions
279A	GST Council
280	Finance Commission
281	Recommendations of Finance Commission
282	Discretionary Grants
283	Consolidated & Contingency Funds
285	Exemption of Union Property from State Tax
289	Exemption of State Property from Union Tax
292	Borrowing by Union
293	Borrowing by States

Allocation of Taxation Powers

General Rule

List	Taxing Authority
Union List	Parliament
State List	State Legislature
Concurrent List	No tax entries (except GST)

GST Exception (101st Constitutional Amendment, 2016)

• Article 246A - Provides concurrent taxation power on GST.

Authority	GST Power
Parliament	GST
State Legislature	GST
Parliament Alone	Inter-State GST (IGST)

Residuary Taxation Powers

• Article 248 - Residuary taxation powers belong to: Parliament
• Examples - Gift Tax, Wealth Tax & Expenditure Tax

Restrictions on State Taxation Powers

• States cannot tax: Goods & Services
• When supply occurs: Outside the State, During Import & During Export

Electricity Tax Restrictions

States cannot tax electricity consumed by: Central Government & Railways in certain specified situations.

Distribution of Tax Revenues

80th Constitutional Amendment Act, 2000

• Implemented recommendations of the 10th Finance Commission.

Alternative Scheme of Devolution

• States receive a share of Central taxes.
• Brought many Central taxes into the divisible pool.
• Examples: Corporation Tax & Customs Duties

101st Constitutional Amendment Act, 2016 introduced: Goods and Services Tax (GST)

Present Distribution of Tax Revenues

Article	Levy By	Collected By	Appropriation / Distribution	Examples / Notes
Art. 268	Centre	States	States	Stamp Duties, Duties on Cheques, Promissory Notes, Insurance Policies
Art. 269	Centre	Centre	States	Taxes on Inter-State Trade & Commerce. Revenue does not form part of Consolidated Fund of India
Art. 269A	Centre	Centre	Shared between Centre & States	IGST (Inter-State GST) distributed on GST Council recommendations
Art. 270	Centre	Centre	Centre + States	Income Tax, Corporation Tax, Customs Duties and other divisible pool taxes
Art. 271	Centre	Centre	Centre Only	Surcharge on certain taxes and duties. Not shared with States

Taxes Belonging Exclusively to States

• These are mentioned in the State List.

Examples

• Land Revenue
• Agricultural Income Tax
• Tax on Land and Buildings
• Mineral Rights Tax
• Estate Duty on Agricultural Land
• Succession Duty on Agricultural Land

Non-Tax Revenues

Major Sources of Revenue for Centre

Source
Railways
Posts & Telegraphs
Banking
Broadcasting
Currency & Coinage
Central PSUs
Escheat & Lapse

Major Sources of Revenue for States

Source
Irrigation
Forests
Fisheries
State PSUs
Escheat & Lapse

Funds Under Constitution

Consolidated Fund of India - Article 266

• All revenues received by Government are credited here. No money can be withdrawn without Parliamentary approval.

Consolidated Fund of State

• Every State has its own Consolidated Fund.

Contingency Fund - Article 267

• Used for: Emergencies % Unforeseen expenditure
• Established through: Contingency Fund of India Act, 1950
• Managed by: Finance Secretary, Department of Economic Affairs

Grants-in-Aid

Statutory Grants (Article 275)

• Provided to States needing financial assistance.

Features

• Charged on Consolidated Fund of India.
• Based on Finance Commission recommendations.

Special Grants

• For: Scheduled Tribes Welfare & Scheduled Areas Administration

Discretionary Grants (Article 282)

Features

Centre and States may make grants for: Any public purpose even if outside their legislative jurisdiction.

Purpose

• Help States financially.
• Support development plans.
• Promote national priorities.

Special Jute Grants

• Temporary constitutional provision.
• States benefited: Assam, Bihar, Odisha & West Bengal
• Compensation for export duties on: Jute & Jute Products

GST Council - Article 279A

• Established through: 101st Constitutional Amendment Act, 2016
• Joint forum of: Centre  &  States

Composition

Member
Union Finance Minister (Chairperson)
Union Minister of State (Finance)
State Finance Ministers

Functions

• Recommend GST rates.
• Recommend exemptions.
• Resolve GST-related issues.
• Promote uniform taxation.

Finance Commission - Article 280

• A quasi-judicial body constituted by: President of India
• Frequency - Every: 5 Years (or earlier)

Functions  

• Vertical Devolution - Distribution between: Centre and States
• Horizontal Devolution - Distribution among: States

Grants-in-Aid - Recommend principles governing: Grants to States

Local Bodies - Recommend measures to supplemen

Known as: "Balancing Wheel of Fiscal Federalism"

Protection of States' Financial Interests

The following bills can be introduced in Parliament only on the recommendation of the President:

Bills Related To

• Taxes in which States are interested.
• Agricultural Income.
• Distribution of taxes among States.
• Surcharges imposed for Union purposes.

Borrowing Powers

Borrowing by Union (Article 292)

Union Government can:

• Borrow within India.
• Borrow outside India.
• Give guarantees.
• Give loans to States.

Charged on: Consolidated Fund of India

Borrowing by States (Article 293)

• States can: Borrow only within India & Give guarantees.
• Charged on: Consolidated Fund of State

Restriction

State needs Centre's consent when:

• Previous Central loan is outstanding, or
• Centre has guaranteed the loan.

Inter-Governmental Tax Immunities - Article 285

Union Property Exempt from State Tax

• State Governments cannot tax: Property of Union Government
• Examples of Property - Land, Buildings, Shares & Debts
• Exception - Parliament may remove this immunity.

Government companies and corporations are not automatically exempt from State taxation.

Article 289 - State Property Exempt from Union Tax

• The property and income of a State are generally exempt from Central taxation. However Parliament may tax: Commercial activities of States.

Effect of Emergencies on Financial Relations

National Emergency (Article 352)

President may:

• Modify distribution of revenues.
• Suspend grants.
• Suspend tax-sharing arrangements.

Duration - Till end of financial year in which emergency ends.

President's Rule (Article 356)

• Parliament: Passes the State Budget

Financial Emergency (Article 360)

Centre may direct States:

• To follow financial discipline.
• To reduce salaries and allowances.
• To reserve Money Bills for President's consideration.

Trends in Centre State Relations

Before 1967

• One-party dominance.
• Smooth Centre-State relations.

After 1967

• Emergence of opposition governments in States.
• Demand for greater State autonomy.
• Demand for more financial resources.

Major Areas of Conflict

Issue
Appointment of Governors
President's Rule
Financial Allocations
All India Services
State Bills Reserved for President
Sharing of Taxes
Centrally Sponsored Schemes
Role of CBI, ED etc.
Encroachment into State List
Use of Central Forces

Committees & Commissions on Centre State Relations

Administrative Reforms Commission (1966)

• Chairman - Morarji Desai

Major Recommendations

• Inter-State Council under Article 263.
• Experienced and non-partisan Governors.
• Greater financial resources for States.
• Maximum delegation of powers.

Rajamannar Committee (1969)

• Chairman - P. V. Rajamannar

Key Recommendations

Recommendation
Permanent Finance Commission
Abolish Planning Commission
Remove Articles 356, 357 & 365
Transfer more subjects to States
Residuary powers to States
Abolish All India Services

Anandpur Sahib Resolution (1973)

• Demand - Centre should be limited to: Defence, Foreign Affairs, Communications & Currency
• All residuary powers should go to States.

West Bengal Memorandum (1977)

Major Demands

• Replace "Union" with "Federal".
• Repeal Articles 356 & 360.
• Give 75% of Central revenue to States.
• Abolish All India Services.
• Residuary powers to States.

Sarkaria Commission (1983)

• Chairman - R. S. Sarkaria

Recommendations

Inter-State Institutions

• Permanent Inter-State Council.
• Strengthen Zonal Councils.
• Reconstitute National Development Council.

Governor

• Consult CM before appointment.
• Do not dismiss a majority government.
• Normally complete 5-year tenure.

President's Rule

• Use Article 356 only as a last resort.

Taxation

• Surcharge should be temporary.
• Residuary taxation powers with Parliament.

Other

• Strengthen All India Services.
• Centre may deploy armed forces after consulting States.

Punchhi Commission (2007)

• Chairman - Madan Mohan Punchhi

Major Recommendations

Centre–State Relations

• Greater flexibility to States.
• Limited use of Parliamentary supremacy.

Governor

• Fixed 5-year tenure.
• Decide assent/reservation within 6 months.
• Floor test before dismissing CM.

Emergency Provisions

• Articles 355 & 356 should be used only as a last resort.

Inter-State Council

• Strengthen Article 263.
• Give auditing and monitoring role.

Zonal Councils

• Meet at least twice annually.

Finance Commission

• Better coordination with Planning Commission.

Local Bodies

• Constitutionally define extent of devolution.

UPSC Quick Revision

Topic	Article
Duties Levied by Union, Collected by States	268
Taxes Assigned to States	269
IGST	269A
Divisible Pool Taxes	270
Surcharge	271
Grants-in-Aid	275
GST Council	279A
Finance Commission	280
Union Property Immunity	285
State Property Immunity	289
Borrowing by Union	292
Borrowing by States	293

One-Line Facts

• Finance Commission = Article 280
• GST Council = Article 279A
• Consolidated Fund = Article 266
• Contingency Fund = Article 267
• Union Property Immunity = Article 285
• State Property Immunity = Article 289
• Borrowing by Centre = Article 292
• Borrowing by States = Article 293
• Finance Commission is the Balancing Wheel of Fiscal Federalism.
• Sarkaria Commission gave 247 recommendations to improve Centre–State relations