Centre-State Relations in India

Centre-State Relations in India:

Introduction

The Constitution of India, being federal in structure, divides all powers—legislative, executive, and financial—between the Centre and the states. However, there is no division of judicial power as the Constitution has established an integrated judicial system to enforce both Central laws as well as state laws.​

Though the Centre and states are supreme in their respective fields, maximum harmony and coordination between them is essential for the effective operation of the federal system. The Constitution contains elaborate provisions to regulate the various dimensions of relations between the Centre and states, which can be studied under three heads: Legislative Relations, Administrative Relations, and Financial Relations.​

Legislative Relations (Articles 245-255)

Articles 245 to 255 in Part XI of the Constitution deal with legislative relations between the Centre and states. The Constitution divides legislative powers between the Centre and states with respect to both territory and subjects of legislation.​

1. Territorial Extent of Central and State Legislation

Parliamentary Powers:

• Parliament can make laws for the whole or any part of India’s territory, including states, union territories, and any other area included in India’s territory​

• Parliament alone can make extra-territorial legislation, applicable to Indian citizens and their property worldwide​

State Legislature Powers:

• State legislatures can make laws for the whole or any part of the state​

• Laws made by state legislatures are not applicable outside the state, except when there is sufficient nexus between the state and the object​

Restrictions on Parliamentary Jurisdiction:

• President can make regulations for Andaman and Nicobar Islands, Lakshadweep, Dadra and Nagar Haveli, and Daman and Diu​

• Governor can direct that Parliament acts don’t apply to scheduled areas or apply with modifications​

• Governor of Assam and President (for Meghalaya, Tripura, Mizoram) can direct non-application in tribal areas​

2. Distribution of Legislative Subjects

The Constitution provides a three-fold distribution through the Seventh Schedule:​

Union List (List-I):

• Parliament has exclusive powers

• Currently has 100 subjects (originally 97) including defence, banking, foreign affairs, currency, atomic energy, insurance, communication, inter-state trade and commerce​

State List (List-II):

• State legislature has exclusive powers in normal circumstances

• Currently has 61 subjects (originally 66) including public order, police, public health and sanitation, agriculture, prisons, local government, fisheries, markets​

Concurrent List (List-III):

• Both Parliament and state legislatures can legislate

• Currently has 52 subjects (originally 47) including criminal law and procedure, civil procedure, marriage and divorce, population control, electricity, labour welfare, economic and social planning, drugs, newspapers​

• The 42nd Amendment Act of 1976 transferred five subjects to Concurrent List from State List: education, forests, weights and measures, protection of wild animals and birds, and administration of justice​

Residuary Powers:

• Vested in Parliament, including power to levy residuary taxes​

Hierarchy in Case of Conflicts:

• Union List prevails over both State List and Concurrent List​

• Concurrent List prevails over State List​

• In Concurrent List conflicts, Central law prevails over state law unless the state law has received Presidential assent (then Parliament can still override subsequently)​

3. Parliamentary Legislation in the State Field

Parliament can make laws on State List subjects under five extraordinary circumstances:​

a) When Rajya Sabha Passes a Resolution (Article 249):

• If Rajya Sabha declares it necessary in national interest with two-thirds majority

• Resolution remains valid for one year, renewable

• Laws cease after six months of resolution expiry​

b) During National Emergency (Article 250):

• Parliament can legislate on State List matters during national emergency

• Laws become inoperative six months after emergency ends​

c) When States Make a Request (Article 252):

• When two or more state legislatures pass resolutions requesting Parliament to legislate

• Law applies only to requesting states (others can adopt later)

• Only Parliament can amend or repeal such laws​

• Examples: Prize Competition Act 1955, Wildlife Protection Act 1972, Water Pollution Act 1974, Urban Land Ceiling Act 1976, Transplantation of Human Organs Act 1994​

d) To Implement International Agreements (Article 253):

• Parliament can legislate on State List to implement international treaties, agreements, or conventions

• Examples: United Nations Privileges and Immunities Act 1947, Geneva Convention Act 1960, Anti-Hijacking Act 1982, TRIPS legislation​

e) During President’s Rule (Article 356):

• Parliament can legislate on State List for that state

• Such laws continue even after President’s Rule ends but can be repealed by state legislature​

4. Centre’s Control Over State Legislation

• Governor can reserve state bills for Presidential consideration (absolute veto)​

• Bills on certain State List matters require prior Presidential sanction​

• During financial emergency, President can direct reservation of money bills and financial bills​

Administrative Relations (Articles 256-263)

Articles 256 to 263 deal with administrative relations between Centre and states, along with other provisions.​

1. Distribution of Executive Powers

Executive power is divided on lines similar to legislative powers:​

• Centre’s executive power extends to: Union List subjects and exercise of rights from treaties/agreements

• State’s executive power extends to: State List subjects within its territory

• For Concurrent List: Executive power rests with states unless Constitution or Parliamentary law confers it on Centre​

2. Obligations of States and Centre’s Directions

Two Constitutional Restrictions on States (Article 256-257):

• States must ensure compliance with Parliamentary laws and existing applicable laws​

• States must not impede or prejudice Centre’s executive power​

• Non-compliance allows President to invoke Article 356 (President’s Rule)​

Centre Can Give Directions to States For:

• Construction and maintenance of nationally/militarily important communication means​

• Measures for railway protection​

• Adequate mother-tongue instruction facilities for linguistic minorities at primary stage​

• Drawing up and executing schemes for Scheduled Tribes welfare​

3. Mutual Delegation of Functions

With State’s Consent:

• President may entrust Centre’s executive functions to state government​

• Governor may entrust state’s executive functions to Central government​

• Can be conditional or unconditional​

Without State’s Consent:

• Parliament can confer powers and impose duties on states through Union List legislation​

• States cannot do the same to Centre​

4. Cooperation Between Centre and States

Constitutional provisions for cooperation:​

• Parliament can adjudicate inter-state river water disputes

• President can establish Inter-State Council (established in 1990 under Article 263)​

• Full faith and credit to public acts, records, and judicial proceedings throughout India

• Parliament can appoint authority for interstate freedom of trade and commerce

5. All-India Services

Three All-India Services exist:​

• Indian Administrative Service (IAS) – replaced Indian Civil Service in 1947

• Indian Police Service (IPS) – replaced Indian Police in 1947

• Indian Forest Service (IFS) – created in 1966

Key Features:

• Members serve both Centre and states by turns​

• Recruited and trained by Centre

• Jointly controlled by Centre and states (ultimate control with Centre, immediate control with states)​

• Article 312 authorizes Parliament to create new All-India Services based on Rajya Sabha resolution​

Justification: Despite violating federalism principles, All-India Services help maintain high administrative standards, ensure uniformity, and facilitate Centre-state cooperation.​

6. Public Service Commissions

Centre-State Relations in PSCs:

• State PSC Chairman and members appointed by Governor but removed only by President​

• Parliament can establish Joint State Public Service Commission (JSPSC) for two or more states​

• UPSC can serve states on request with Presidential approval​

• UPSC assists states in framing joint recruitment schemes​

7. Integrated Judicial System

Despite dual polity, India has single integrated judicial system:​

• Supreme Court at top, state high courts below

• System enforces both Central and state laws

• High court judges appointed by President in consultation with CJI and Governor​

• President can transfer and remove high court judges

• Parliament can establish common high court for multiple states (e.g., Maharashtra-Goa, Punjab-Haryana)​

8. Relations During Emergencies

During National Emergency (Article 352):

• Centre can give executive directions to states on any matter

• State governments remain but under complete Central control​

During President’s Rule (Article 356):

• President assumes state government functions and Governor’s powers

• Authority over police, law and order, bureaucratic transfers transferred to Centre​​

During Financial Emergency (Article 360):

• Centre can direct states on financial propriety canons

• President can reduce salaries of state servants and high court judges​

9. Extra-Constitutional Devices

Advisory Bodies:

• Planning Commission (now replaced by NITI Aayog)​​

• National Development Council

• National Integration Council

• Zonal Councils​

• North-Eastern Council

• Central councils for various sectors (Health, Local Government, Medicine, etc.)​

Important Conferences:

• Governors’ conference (presided by President)

• Chief Ministers’ conference (presided by Prime Minister)

• Chief Secretaries’ conference (presided by Cabinet Secretary)

• Inspector-General of Police conference

• Chief Justices’ conference

• Vice-Chancellors’ conference

• Home Ministers’ conference

• Law Ministers’ conference​

Financial Relations (Articles 268-293)

Articles 268 to 293 in Part XII deal with Centre-state financial relations.​

1. Allocation of Taxing Powers

Distribution of Taxation Powers:

• Parliament: Exclusive power on 15 subjects in Union List​

• State Legislature: Exclusive power on 20 subjects in State List​

• Both: Can levy taxes on 3 subjects in Concurrent List​

• Residuary taxation power: Vested in Parliament​

Restrictions on State Taxing Powers:

• Professional tax limit: Maximum Rs. 2,500 per annum (raised from Rs. 250 by 60th Amendment 1988)​

• Sales tax: Cannot be imposed on inter-state trade, imports/exports, or outside state​

• Electricity tax: Cannot tax electricity consumed/sold to Centre or for railway purposes​

• Water/electricity from inter-state projects: Requires Presidential assent after reservation​

2. Distribution of Tax Revenues

Recent Changes (80th and 88th Amendments):

The 80th Amendment (2000) and 88th Amendment (2003) significantly altered tax revenue distribution:​

A. Taxes Levied by Centre but Collected and Appropriated by States (Article 268):

• Stamp duties on bills of exchange, cheques, promissory notes, insurance policies, share transfers​

• Excise duties on medicinal and toilet preparations with alcohol/narcotics

• Proceeds don’t form part of Consolidated Fund of India​

B. Service Tax (Article 268-A):

• Levied by Centre but collected and appropriated by both Centre and states

• Principles formulated by Parliament​

C. Taxes Levied and Collected by Centre but Assigned to States (Article 269):

• Taxes on inter-state sale/purchase of goods (except newspapers)

• Taxes on inter-state consignment of goods

• Net proceeds assigned to concerned states per Parliamentary principles​

D. Taxes Levied and Collected by Centre but Distributed (Article 270):

• All taxes except those in Articles 268, 268-A, 269, surcharges under Article 271, and specific purpose cesses

• Distributed per Finance Commission recommendations​

E. Surcharge for Centre (Article 271):

• Parliament can levy surcharges on taxes in Articles 269 and 270

• Proceeds go exclusively to Centre, states get no share​

F. Taxes Levied, Collected, and Retained by States:

• 20 categories including land revenue, agricultural income tax, succession and estate duties on agricultural land, various other taxes

• States’ exclusive revenue​

3. Distribution of Non-Tax Revenues

Centre’s Sources:

• Posts and telegraphs, railways, banking, broadcasting, coinage and currency, central public sector enterprises, escheat and lapse​

States’ Sources:

• Irrigation, forests, fisheries, state public sector enterprises, escheat and lapse​

4. Grants-in-Aid to States

Statutory Grants (Article 275):

• Made to states needing financial assistance (not all states)​

• Different sums for different states

• Charged on Consolidated Fund of India

• Includes general grants and specific grants for Scheduled Tribes/Areas welfare​

• Given on Finance Commission recommendations​

Discretionary Grants (Article 282):

• Both Centre and states can make grants for any public purpose

• Centre makes grants on Planning Commission recommendations (now NITI Aayog)​

• Two-fold purpose: help states meet plan targets and give Centre leverage to coordinate state action​

• Form larger part of Central grants compared to statutory grants​

Other Grants:

• Previously provided for grants in lieu of export duties on jute products to Assam, Bihar, Orissa, West Bengal (for 10 years from Constitution commencement)​

5. Finance Commission

Constituted every fifth year or earlier under Article 280:​

Mandate:

• Recommend distribution of net tax proceeds between Centre and states

• Recommend principles for grants-in-aid from Consolidated Fund of India

• Recommend measures to augment Consolidated Fund of states for panchayats and municipalities (added by 73rd and 74th Amendments)​

• Any other matter referred by President

Recent Developments:

15th Finance Commission (2021-26):​

• Recommended 41% vertical devolution of central taxes to states (down from 42% to adjust for J&K and Ladakh UTs creation)​

• Fiscal roadmap: Centre to reduce fiscal deficit to 4% of GDP by 2025-26​

• States’ fiscal deficit limits: 4% of GSDP in 2021-22, 3.5% in 2022-23, 3% during 2023-26​

• Recommended grants of ₹4.36 lakh crore to local bodies​

• Performance-based incentives: ₹45,000 crore for agricultural reforms, ₹4,800 crore for education outcomes​

• Recommended independent Fiscal Council, review of FRBM Act​

• Recommended establishment of All India Medical and Health Service​

16th Finance Commission (2026-31):​

• Constituted on December 31, 2023, chaired by Dr. Arvind Panagariya​

• Initially due October 31, 2025, extended to November 30, 2025​

• Submitted report to President on November 16, 2025​

• Will be tabled in Parliament by Finance Minister​

• Covers five-year period from April 1, 2026 to March 31, 2031​

6. Protection of States’ Interests

Following bills require Presidential recommendation:​

• Bills imposing or varying taxes in which states are interested

• Bills varying “agricultural income” definition for income tax

• Bills affecting money distribution principles to states

• Bills imposing surcharge on specified taxes/duties for Centre

“Tax or duty in which states are interested” means:

• Tax/duty whose net proceeds (wholly or partly) assigned to states

• Tax/duty whose net proceeds determine sums payable to states from Consolidated Fund of India​

Net proceeds: Tax/duty proceeds minus collection cost, certified by CAG (final)​

7. Borrowing Powers

Central Government:

• Can borrow within India or abroad on Consolidated Fund security

• Can give guarantees within Parliamentary limits​

State Government:

• Can borrow only within India on Consolidated Fund of State security

• Can give guarantees within state legislature limits

• Cannot raise loans without Centre’s consent if Central loans/guarantees are outstanding​

Central Loans to States:

• Centre can make loans to states or give guarantees

• Sums charged on Consolidated Fund of India​

8. Inter-Governmental Tax Immunities

Centre’s Property Exemption:

• Central property exempt from all state/local authority taxes

• Parliament can remove this ban

• Includes all property types (movable/immovable, tangible/intangible) for sovereign or commercial purposes

• Note: Central corporations/companies are not exempt (separate legal entities)​

State’s Property/Income Exemption:

• State property and income exempt from Central taxation (sovereign or commercial functions)

• Centre can tax state’s commercial operations if Parliament provides

• Parliament can declare particular trade/business incidental to ordinary government functions (then not taxable)

• Note: Local authority property/income and state-owned corporations/companies not exempt​

Important Exception:

• Supreme Court (1963 advisory opinion): State immunity doesn’t extend to customs or excise duties​

9. Effects of Emergencies

During National Emergency (Article 352):

• President can modify constitutional revenue distribution

• Can reduce or cancel transfers (tax sharing and grants) from Centre to states

• Modifications continue till end of financial year in which emergency ceases​

During Financial Emergency (Article 360):

• Centre can direct states to: observe specified financial propriety canons, reduce salaries/allowances of all state servants including high court judges, reserve all money and financial bills for Presidential consideration​

Trends and Issues in Centre-State Relations

Evolution of Centre-State Relations

1947-1967: Smooth relations due to one-party (Congress) rule at Centre and most states​

1967 onwards: Changed political scenario with Congress defeats in nine states led to:​

• Opposition to increasing centralization

• Demands for state autonomy

• Increased powers and financial resources for states

• Tensions and conflicts between Centre and states

Tension Areas

The following issues created tensions between Centre and states:​

1. Mode of appointment and dismissal of Governors

2. Discriminatory and partisan role of Governors

3. Imposition of President’s Rule for partisan interests

4. Deployment of Central forces in states for law and order

5. Reservation of state bills for Presidential consideration

6. Discrimination in financial allocations

7. Role of Planning Commission in approving state projects

8. Management of All-India Services (IAS, IPS, IFS)

9. Use of electronic media for political purposes

10. Appointment of enquiry commissions against Chief Ministers

11. Sharing of finances between Centre and states

12. Encroachment by Centre on State List

Various Commissions and Recommendations

1. Administrative Reforms Commission (1966-69)​

Under Morarji Desai, later K Hanumanthayya. Important recommendations:

• Establish Inter-State Council under Article 263

• Appoint experienced, non-partisan persons as Governors

• Delegate maximum powers to states

• Transfer more financial resources to states

• Deploy Central armed forces on states’ request or otherwise

No action was taken on ARC recommendations​

2. Rajamannar Committee (1969-71)​

Tamil Nadu Government committee under Dr. P V Rajamannar. Key recommendations:

• Set up Inter-State Council immediately

• Make Finance Commission permanent

• Disband Planning Commission, replace with statutory body

• Omit Articles 356, 357, 365 (President’s Rule)

• Remove provision that state ministry holds office during Governor’s pleasure

• Transfer certain Union and Concurrent List subjects to State List

• Allocate residuary powers to states

• Abolish All-India Services

Central government completely ignored recommendations​

3. Anandpur Sahib Resolution (1973)​

Akali Dal resolution demanded:

• Centre’s jurisdiction restricted to defence, foreign affairs, communications, currency

• Entire residuary powers vested in states

• Real federal Constitution with equal authority and representation to all states

4. West Bengal Memorandum (1977)​

Communist-led West Bengal Government suggested:

• Replace “union” with “federal” in Constitution

• Centre’s jurisdiction confined to defence, foreign affairs, currency, communications, economic coordination

• All other subjects including residuary vested in states

• Repeal Articles 356, 357, 360

• Make states’ consent obligatory for state reorganization

• Allocate 75% of total Central revenue to states

• Give Rajya Sabha equal powers with Lok Sabha

• Abolish All-India Services, have only Central and State services

Central government did not accept demands​

5. Sarkaria Commission (1983-87)​

Under R S Sarkaria (retired Supreme Court judge). 247 recommendations, important ones:

On Constitutional Arrangements:

• Set up permanent Inter-Governmental Council under Article 263

• Use Article 356 very sparingly, as last resort

• Strengthen All-India Services, create more such services

• Continue residuary taxation powers with Parliament; place other residuary powers in Concurrent List

• Communicate reasons when President withholds assent to state bills

• Rename NDC as National Economic and Development Council (NEDC)

• Reactivate Zonal Councils

On Governor and Administration:

• Prescribe Chief Minister consultation in Governor appointment in Constitution itself

• Governor’s five-year term should not be disturbed except for compelling reasons

• Governor cannot dismiss Council of Ministers if it commands majority

• No enquiry commission against state minister unless Parliament demands

• Centre can deploy armed forces even without states’ consent (desirable to consult)

On Legislative Relations:

• Consult states before making Concurrent List laws

• Continue present Finance Commission-Planning Commission function division

• Net proceeds of corporation tax may be made shareable with states

• Centre should not levy income tax surcharge except for specific purpose and limited period

On Federal Character:

• Implement three-language formula uniformly in true spirit

• No autonomy for radio/television but decentralize operations

• No change in Rajya Sabha role and Centre’s power to reorganize states

• Activate Commissioner for Linguistic Minorities

Implementation: Till December 2011, 180 out of 247 recommendations implemented. Most important: establishment of Inter-State Council in 1990.​

6. Punchhi Commission (2007-10)​

Second Centre-State Relations Commission under Madan Mohan Punchhi (former CJI). Over 310 recommendations:

On Legislative Relations:

• Broad Centre-state agreement before introducing Concurrent List legislation in Parliament

• Centre should be extremely restrained in asserting Parliamentary supremacy on State List matters

• Centre should occupy only absolutely necessary subjects in concurrent/overlapping jurisdiction for uniformity

• Continuing auditing role for Inter-State Council in concurrent/overlapping jurisdiction management

• Six-month period for state legislature under Article 201 should apply to President also

• Parliament should make law on treaty-making and implementation (Entry 14, List I)

• Financial obligations from treaties should be permanent Finance Commission reference term

On Governor’s Role:

• Adopt strict Sarkaria Commission guidelines for Governor selection

• Give Governors fixed five-year tenure, removal not at Centre’s will

• Apply President’s impeachment procedure (mutatis mutandis) to Governors

• Article 163 doesn’t give Governor general discretionary power against Council of Ministers advice

• Governor should decide on bills within six months (assent or Presidential reservation)

• Clear guidelines for Chief Minister appointment in hung assembly situations

• Governor should insist on floor test with time limit before dismissing Chief Minister

• Governor can sanction prosecution of state minister against Cabinet advice if decision appears biased

• End convention of Governors as University Chancellors

On Article 356:

• Exhaust all alternatives before invoking Article 356

• Amend Constitution to incorporate S.R. Bommai judgment guidelines

• Provide Constitutional/legal framework for “localized emergency” under Article 355

On Institutional Mechanisms:

• Amend Article 263 to make Inter-State Council credible, powerful, fair

• Zonal Councils should meet twice yearly

• Institutionalize Empowered Committee model in other sectors

• Forum of Chief Ministers chaired by CM by rotation for sectors like energy, food, education

• Create new All-India Services in health, education, engineering, judiciary

On Rajya Sabha:

• Remove factors inhibiting Rajya Sabha as representative forum of states

• Give equality of representation to all states in Rajya Sabha irrespective of population

On Financial Relations:

• Define scope of local body power devolution constitutionally

• All future Central legislations involving states should provide cost-sharing

• Revise royalty rates on major minerals every three years

• Remove ceiling on profession tax completely

• Review scope for raising revenue from Article 268 taxes

• Better Centre-state coordination in Finance Commission ToR finalization

• Review existing cesses and surcharges to reduce their share

• Appoint expert committee on plan/non-plan expenditure distinction

• Synchronize Finance Commission and Five-Year Plan periods

• Convert Finance Commission division to full-fledged department

• Planning Commission role should be coordination, not micro-managing

On Other Matters:

• Set up Inter-State Trade and Commerce Commission under Article 307

• Provide adequate compensation to states for delay in royalty revision beyond three years

• Annual assessment of fiscal legislation by independent body

Recent Developments and Changes (2019-2025)

A. Constitutional and Legal Changes

1. Abrogation of Article 370 (August 5, 2019)​

Background:

• Article 370 granted special status to Jammu and Kashmir with power to have separate constitution, state flag, and autonomy of internal administration​

• Only three subjects initially under Centre: defence, foreign affairs, and communications​

Changes Made:

• Presidential Order C.O. 272 (August 5, 2019) applied all Constitutional provisions to J&K​

• Article 370 rendered inoperative, separate J&K Constitution abrogated​

• Jammu and Kashmir Reorganisation Act, 2019 passed​

New Structure:

• Union Territory of Jammu & Kashmir: With legislature​

• Union Territory of Ladakh: Without legislature (directly administered by President)​

• Both came into existence on October 31, 2019 (National Unity Day)​

• Lt. Governors appointed for both UTs by President​

Supreme Court Verdict (2023):

• Upheld abrogation of Article 370 and C.O. 272, 273​

• Held J&K had no internal sovereignty but was feature of asymmetric federalism​

• Left statehood restoration issue unanswered, noting Centre’s assurance to restore statehood soon​

Current Status:

• Extensive powers granted to Lt. Governor under J&K Reorganisation Act​

• Home Minister of India effectively controls Police and bureaucracy in both UTs​

• Strong political push for statehood restoration continues​

2. Implementation of GST (Goods and Services Tax)​

Constitutional Amendment (101st Amendment, 2016):

• Introduced to change tax structure and introduce GST​

• Empowered Centre and states to levy and collect GST​

• Inserted Article 246A, 269A in Constitution​

• Added Entry 92-C (taxes on services) in Union List​​

Fundamental Shift in Financial Relations:

• Dual GST system: Both Centre and states levy GST simultaneously​

• CGST (Central GST): On intra-state transactions

• SGST (State GST): On intra-state transactions

• IGST (Integrated GST): On inter-state transactions​

GST Council:

• Joint Constitutional forum for Centre and states​

• Comprises Union Finance Minister, Minister of State for Finance, and Finance Ministers of all states​

• 2/3rd majority required for decisions​

• Decides tax rates, exemptions, administration​

Features of Cooperative Federalism:​

• Harmonization of GST laws across country despite separate Centre and state Acts

• Single interface for taxpayers with one tax authority (either Centre or State)

• Cross-authorization of officers under both CGST and SGST Acts

• Joint Implementation Committees with Centre-state representation

• Three-tier structure: Revenue Secretary Office, GST Implementation Committee, Standing Committees

• Sectoral Groups representing various economy sectors

Challenges and Impact:​

• States’ financial autonomy affected

• Some states faced revenue shortfalls during transition

• Compensation mechanism developed but created state dependency on Centre

• GST compensation cess issues during COVID-19 period

• Uncertainty in revenue sharing arrangements

• Changed state revenue generation capabilities

3. Changes in Union Territory Administration

Jammu & Kashmir and Ladakh (2019):

• Converted from state to two UTs​

• J&K UT has legislature; Ladakh UT without legislature​

• Both administered by Lt. Governors representing President under Article 239​

Dadra and Nagar Haveli and Daman and Diu:

• Merged into single UT (effective January 26, 2020)

B. Institutional Reforms

1. Inter-State Council​

Constitutional Basis: Article 263 (non-permanent, constituted by President)​

Establishment: First set up in 1990 through Presidential Order based on Sarkaria Commission recommendations​

Current Status (as of 2025):

• 11th meeting held in 2016 after decade-long gap​

• Only 11 meetings in 26 years (highly infrequent)​

• Last major meeting in 2016; renewed focus needed​

Composition:​

• Chairperson: Prime Minister of India

• Members: Chief Ministers of all states, CMs of UTs with legislatures, Administrators of UTs without legislatures, Six Union Cabinet Ministers nominated by PM

• Permanent Invitees: Five Ministers of Cabinet rank/Ministers of State (independent charge)

• Secretariat: Led by Secretary from Government of India; also serves as Zonal Councils secretariat​

Functions:​

• Investigate and discuss subjects of common interest to Centre-states or inter-states

• Make recommendations for better policy and action coordination

• Deliberate on matters referred by Chairman

• Inquire into and advise on inter-state disputes

Vision & Mission (Current):​

• Develop ISC Secretariat as vibrant organization

• Create strong institutional framework for cooperative federalism

• Activate ISC and Zonal Councils through regular meetings

• Monitor implementation of recommendations

Challenges:​

• Irregular meetings undermine its effectiveness

• Need for stronger enforcement mechanisms

• Limited follow-through on recommendations

2. NITI Aayog (National Institution for Transforming India)​

Establishment: January 1, 2015 (replaced Planning Commission)

Key Features:​

• Platform for cooperative federalism bringing Centre-states as equal partners

• “Team India” spirit embodied in structure and functioning​

Role in Centre-State Relations:​

• Enhanced Cooperative Federalism: Acts as bridge between central and state governments, aligning regional priorities with national goals​

• Competitive Federalism: Promotes state competition through measurable performance indicators​

• Policy Coordination: Rather than micro-managing sectoral plans, focuses on coordination​

Governing Council Meetings:​

• PM chairs meetings

• Attended by Chief Ministers, Lt. Governors, Union Ministers

• 10th Meeting (July 2025): PM emphasized cooperative federalism as foundation of India’s progress, need for Centre-states-UTs to work as Team India for Viksit Bharat @2047​

Key Initiatives:​

• State Institutions of Transformation (SITs) for better governance

• NITI Forum for North East

• SATH-E programme

• Poshan Abhiyan

• State Health Index

• Education reforms

• Aspirational Districts Program​

• Fiscal Health Index (2025): Launched January 24, 2025, assessing 18 major states’ fiscal health for FY 2022-23​

• Various performance indices: SDG India Index 2023-24, India Innovation Index 2024​

Challenges:​

• Only meets once a year (limited federal dialogue)​

• Centre using financial leverage to enforce compliance (e.g., withholding Tamil Nadu’s Samagra Shiksha funds for opposing NEP 2020)​

• Undermining federalism through conditional funding​

Recommendations for Strengthening:​

• Regularize NITI Aayog and GST Council meetings

• Ensure ongoing dialogue and timely dispute resolution

• Long-term strategic planning aligned with Viksit Bharat @2047

• Periodic reviews with measurable targets

3. Zonal Councils​​

Structure: Five Zonal Councils for regional cooperation

• Northern Zonal Council (includes Haryana, Himachal Pradesh, Punjab, Rajasthan, Delhi, J&K, Ladakh, Chandigarh)​

• Central Zonal Council

• Eastern Zonal Council

• Western Zonal Council

• Southern Zonal Council

Chairman: Union Home Minister Amit Shah​

Recent Activity:

• 32nd Northern Zonal Council Meeting: November 17, 2025, at Faridabad, Haryana​

• 25th Central Zonal Council Meeting: June 24, 2025, at Varanasi​

• 24th Central Zonal Council: October 7, 2023, at Narendra Nagar​

Sarkaria Commission Recommendation: Should meet at least twice yearly for better coordination​

Punchhi Commission Recommendation: ISC Secretariat can function as Zonal Councils secretariat​

Secretariat: Managed by Inter-State Council Secretariat, Ministry of Home Affairs​

C. Financial Relations Updates

1. 15th Finance Commission (2021-26) Implemented Changes​

Vertical Devolution:

• 41% share of central taxes to states (reduced from 42% to adjust for J&K and Ladakh UTs)​

• This was lower than 14th FC’s 42% recommendation

Fiscal Roadmap:​

• Centre: Reduce fiscal deficit from 6.8% (FY22) to 4% of GDP by 2025-26

• States: Fiscal deficit limits of 4% GSDP (2021-22), 3.5% (2022-23), 3% (2023-26)

• Additional borrowing: 0.5% GSDP for states implementing power sector reforms​

Key Recommendations:​

• High-level inter-governmental group to review FRBM Act

• Strengthen income and asset-based taxation

• Address GST inverted duty structure

• Establish independent Fiscal Council

• States to harmonize fiscal responsibility laws with Centre

• Off-budget financing should not be used

• Performance-based transfers

Grants Allocation:

• ₹4.36 lakh crore to local bodies​

• ₹45,000 crore performance-based incentive for agricultural reforms​

• ₹4,800 crore (2022-26) for enhancing educational outcomes​

New Recommendations:

• Establishment of All India Medical and Health Service​

• Non-lapsable fund for defence and internal security modernization​

• Minimum funding threshold for Centrally Sponsored Schemes​

2. 16th Finance Commission (2026-31) Process​

Constitution: December 31, 2023​

Chairman: Dr. Arvind Panagariya (economist)​

Members:​

• Ajay Narayan Jha

• Annie George Mathew

• Manoj Panda

• Soumya Kanti Ghosh (part-time)

• Secretary: Ritvik Ranjan Pandey

Tenure: Initially until October 31, 2025; extended to November 30, 2025​

Report Submission: Submitted to President Droupadi Murmu on November 16, 2025​

Coverage Period: Five years from April 1, 2026 to March 31, 2031​

Next Steps:​

• Finance Ministry examining recommendations

• Will be tabled in Parliament by Union Finance Minister under Article 281​

• Report to be available in public domain after Parliamentary tabling

Key Focus Areas:​

• Equitable resource distribution

• Grants-in-aid principles

• Strengthening local governance

• Disaster management financing

• Urbanization challenges

3. Centrally Sponsored Schemes (CSS) Changes​

Background:

• Following 14th FC and abolition of Plan-Non Plan distinction (2017), CSS and Central Sector schemes became primary mode of specific purpose transfers​

Current Status (2024-25):​

• 75 CSSs in 3 categories​

• Constitute around 10.4% of Centre’s budget expenditure​

• 28 CSS in operation covering rural development, education, health, skill development​

• All transfers to states routed through Consolidated Fund of State​

Restructuring (2016-17 onwards):​

• Number reduced from 147 to 66 schemes

• Classified as: Core of Core schemes, Core schemes, Optional schemes

• Core schemes: 60:40 Centre-State funding pattern (general states)​

• Special Category States: 90:10 (8 NE states + 3 Himalayan states – Uttarakhand, Himachal Pradesh, J&K)​

• UTs without Legislature: 100% Centre funding​

Impact of Changes:​

• State share increased from average 7-25% (2012-15) to 36-40% (2016 onwards)

• Centre’s share for CSS reduced from 93% (2012-13) to 64% (2019-20)​

• Additional financial burden on states

• Example: In 2023-24 budget, Rs. 1,339.76 crore state share for 10 selected schemes​

Central Sector Schemes Growth:​

• Fully funded by Central Government

• Share increased at expense of CSS (more centralization)

• States have no say in Central Sector Schemes

• Budget allocation: ₹6.67 lakh crore​

15th FC Recommendations on CSS:​

• Funding pattern should be fixed upfront transparently and kept stable

• Threshold amount below which CSS funding may be stopped

• Third-party evaluation of all CSS within stipulated timeframe

• Financing based on bilaterally agreed ‘compacts’ related to specific objectives

Challenges:​

• Increasing state financial burden

• Growing centralization of social sector policies

• States’ reduced flexibility in utilizing funds

• Need for restoration of flexi fund (25% of CSS could be spent per state priorities in 12th Plan)

4. GST Compensation Mechanism​

Background: States guaranteed compensation for revenue loss for five years (2017-22)

Challenges:​

• COVID-19 pandemic severely impacted GST collections

• Compensation cess shortfall created Centre-state tensions

• Revenue uncertainty for states

Current Issues:​

• GST compensation mechanism ended in June 2022

• States continue to demand fair revenue sharing

• Need for regular GST Council meetings to address issues​

D. Judicial Pronouncements (Recent)

1. Supreme Court Verdict on Governor’s Powers (Tamil Nadu Case, 2025)​

Issue: Tamil Nadu Governor withheld assent to state bills and referred re-enacted bills to President

SC Ruling (April 2025):​

• Governors must act on state bills in time-bound manner

• Must follow aid and advice of Council of Ministers per Article 200

• No “absolute veto” or “pocket veto” under Article 200

• Governors cannot indefinitely delay action on bills

• Governors bound to follow Council of Ministers’ advice

Clear Timelines Prescribed:​

• Governor must decide within specific timeframe whether to grant assent or reserve for President

• When bill presented after re-enactment, Governor must give assent

Implications:​

• Curbs misuse of gubernatorial discretion to stall state legislatures

• Reaffirms Governors are constitutional heads, not political actors

• Emphasizes primacy of legislative process, limits executive overreach

• Sets precedent for similar cases in Kerala, West Bengal, Telangana, Punjab

2. S.R. Bommai vs Union of India (1994) – Continued Relevance​

Historical Landmark: Supreme Court restricted arbitrary impositions of President’s Rule

Key Propositions:​

• President’s satisfaction for Article 356 proclamation subject to judicial review

• Article 356 to be used as measure of last resort when all alternatives fail

• Invoked only for political crisis, internal subversion, physical breakdown, non-compliance with Central directives

• Warning should be issued to state in specific terms before invoking

• Material facts and grounds should be integral part of proclamation for effective Parliamentary control

• Governor’s report must be ‘speaking document’ with wide publicity

• Explanation from state before taking action under Article 356

• Legislative Assembly should not be dissolved initially​

Recent Application:

• President’s Rule in Manipur imposed February 2025, extended August 2025 for six months​

• Manipur has had President’s Rule 11 times (most frequent)​

• Only Chhattisgarh and Telangana never had President’s Rule​

Punchhi Commission Recommendation: Amend Constitution to incorporate S.R. Bommai guidelines to strengthen Centre-state relations​

3. Supreme Court Judgments on Federalism (2024)​

Mineral Royalty Case (2024):​

• 8:1 majority held Parliament’s power on mines and minerals cannot usurp states’ legislative powers

• States have power to tax mines and minerals

• Clear division of legislative powers critical for federal structure

Industrial Alcohol Case (Lalta Prasad Vaish, 2024):​

• Similar 8:1 majority

• Union’s List I powers cannot take away states’ List II powers

• State governments have power to regulate industrial alcohol

Sub-classification within SC/ST (November 5, 2024):​

• Nine-judge bench unanimously held Article 31C continues to exist

• States have power to create sub-classifications within SC/ST categories

West Bengal vs CBI (July 10, 2024):​

• Division Bench upheld maintainability of West Bengal’s Original Suit against Union

• Reinforced state autonomy in law enforcement under Article 131

Bilkis Bano Case (January 2024):​

• Supreme Court quashed Gujarat government’s remission order for 11 convicts

• Criticized Gujarat government’s complicity, acting “in tandem” with convicts

• Held remission violated rule of law

• Courts have authority to quash remission orders though decision rests in administrative domain

Delhi Government vs Lieutenant Governor:​

• Supreme Court 2023 judgment clarified Delhi government’s control over civil servants

• Significant for UT governance and Centre-UT relations

4. Article 370 Abrogation Case (2023)​

Supreme Court Verdict:

• Upheld C.O. 272 (applying all Constitution provisions to J&K)

• Upheld Presidential power to abrogate Article 370 without Constituent Assembly recommendation

• Held J&K had no internal sovereignty but was feature of asymmetric federalism

• Small win for petitioners: Para 2 of C.O. 272 unconstitutional (using Article 367 interpretation clause to amend Article 370)

• Left J&K reorganization constitutionality unanswered citing Centre’s statehood restoration assurance

E. Challenges to Cooperative Federalism

1. Political Polarization​

Key Issues:

• Deep divisions between political parties hinder Centre-state cooperation​

• Different parties governing Centre and states lead to policy paralysis​

• Breakdown in communication affects governance and collaboration​

• Disagreements stall joint decision-making, weaken trust​

Examples:

• Non-Congress governments since 1967 opposing centralization​

• Recent tensions over farm laws, GST compensation​

• States’ opposition to certain Central policies (e.g., NEP 2020)​

2. Fiscal Centralization​

Main Concerns:

• States’ heavy reliance on Central funds limits autonomy​

• Reduced flexibility in planning and executing own projects​

• Conditional transfers undermine state priorities

• Increasing CSS cost-sharing burden on states​

• Declining state shares in grants alongside higher devolution

Recent Issues:

• Tamil Nadu: Demanded 50% share in central taxes (vs current 33%)​

• Punjab: Demanded fair Yamuna water rights and financial aid for border security​

• Financial leverage used to enforce compliance (Samagra Shiksha funds withheld from Tamil Nadu)​

3. Administrative Bottlenecks​

Challenges:

• Inadequate staffing and training​

• Poor communication and coordination​

• Bureaucratic red tape slows policy implementation​

• All-India Services management tensions​

4. Over-Centralization​

Manifestations:

• Centre enjoys more power; most important subjects in Union List​

• Frequent conflicts as Centre imposes rules states find discriminatory​

• Article 356 (President’s Rule) misuse​

• Centre’s encroachment on State List subjects​

Examples:

• President’s Rule imposed 125+ times since 1950 (often arbitrarily)​

• Indira Gandhi government imposed President’s Rule 27 times citing political instability​

• Deployment of Central forces without state consent​

5. Lack of Federal Dialogue​

Key Problems:

• Limited NITI Aayog meetings (once a year)​

• Delayed GST Council sessions​

• Irregular Inter-State Council meetings (11 times in 26 years)​

• Shift from collective solutions to individual grievances​

• Policy paralysis in GST reforms and compensation disputes​

6. Uniform Approach Ignoring Diversity​

Challenge: Centre’s one-size-fits-all approach doesn’t work in diverse India​

Examples:

• NEP 2020 implementation without adequate state flexibility​

• Centrally Sponsored Schemes without considering state heterogeneity

7. Governor’s Partisan Role​​

Ongoing Issues:

• Discriminatory and partisan role of Governors​

• Politically motivated appointments and dismissals

• Delay in giving assent to state bills (Tamil Nadu, Kerala, West Bengal, Telangana, Punjab)​

• Functioning as Centre’s agents rather than constitutional heads

8. Treaty-Making Power​

Issue: Centre’s power to make international treaties without state consultation

Impact: Financial obligations on states from treaties without their input

Punchhi Commission Recommendation: Financial obligations from treaties should be permanent Finance Commission reference​

F. Measures to Strengthen Centre-State Relations

1. Institutional Mechanisms​

Recommendations:

• Revitalize Inter-State Council: Regular meetings, follow-up mechanisms, stronger enforcement​

• Strengthen NITI Aayog: Regularize meetings, ensure meaningful dialogue​

• Activate Zonal Councils: Meet twice yearly per Sarkaria Commission recommendation​​

• GST Council: Regular meetings to address compensation and reform issues​

• Establish Inter-State Trade and Commerce Commission under Article 307​

2. Financial Empowerment​

Key Measures:

• Timely release of states’ share in central taxes​

• Expand states’ borrowing capacity with reasonable conditions​

• Ensure adequate financial resources for essential services delivery

• Review and reduce cesses and surcharges​

• Fair GST revenue sharing with regular review​

• Remove profession tax ceiling​

3. Gubernatorial Reforms​​

Sarkaria and Punchhi Commission Recommendations:

• Fixed five-year tenure for Governors​

• Appoint eminent, non-partisan persons from outside state​

• Prescribe Chief Minister consultation in appointment​

• Removal not at Centre’s sweet will​

• Apply impeachment procedure similar to President​

• Timely action on state bills (six months maximum)​​

• End role as University Chancellors​

4. Article 356 Reforms​​

Recommendations:

• Use only as last resort after exhausting alternatives​​

• Incorporate S.R. Bommai guidelines in Constitution​

• Provide framework for “localized emergency” under Article 355​

• Warning to state before imposition​

• Governor’s report must be speaking document​

• Don’t dissolve Assembly initially​

5. Legislative Coordination​​

Measures:

• Consult states before Concurrent List legislation​​

• Centre’s restraint in asserting supremacy on State List matters​

• Involve states in treaty-making affecting their finances​

• Six-month timeline for Presidential action on state bills​

6. All-India Services Enhancement​

Recommendations:

• Create new All-India Services (health, education, engineering, judiciary)​

• Reforms with state consultation

• Better management and deputation policies

7. Rajya Sabha Reforms​

Punchhi Commission Recommendations:

• Equality of representation for all states irrespective of population​

• Remove factors inhibiting role as representative forum of states​

8. Planning and CSS Reforms​​

Measures:

• NITI Aayog focus on coordination, not micro-managing​

• Allow states flexibility within national frameworks​

• Avoid financial conditionalities undermining autonomy​

• Cost-sharing provisions in Central legislations involving states​

• Restore flexi fund for CSS (25% state discretion)​

9. Cooperative and Competitive Federalism Balance​

Approaches:

• Promote cooperative federalism through dialogue platforms

• Encourage competitive federalism through performance-based incentives

• Team India approach for Viksit Bharat @2047​

• Long-term strategic planning with measurable targets​

10. Transparency and Accountability​

Measures:

• Annual assessment of fiscal legislation by independent body​

• No off-budget financing​

• Standardized framework for contingent liabilities reporting​

• Improve accuracy of macroeconomic and fiscal forecasting​

Summary Tables

Table 1: Articles Related to Centre-State Legislative Relations​

Table 2: Articles Related to Centre-State Administrative Relations​

Table 3: Articles Related to Centre-State Financial Relations​

Table 4: Distribution of Legislative Subjects – Current Numbers​

Table 5: Finance Commission Comparison

Table 6: GST Structure​

Table 7: Centrally Sponsored Schemes Funding Pattern​

Table 8: Major Commissions on Centre-State Relations – Summary​

Table 9: Recent Supreme Court Judgments Impacting Centre-State Relations

Indian Polity