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Union-State Relations

     The Constitution in its very first article describes India as a Union of States. When the British power was established in India it was highly centralized and unitary. To hold India under its imperial authority, the British had to control it from the Centre and ensure that power remained centralized in their hands. A strong central authority was for the British both an imperial and an administrative necessity. The country continued to be ruled under the 1919 Act by a central authority until 1947. And, since under the 1919 Act, there was a central government, a central legislature, a system of central laws etc., the use of these terms continued under the colonial hangover.
       In the Constituent Assembly, the Drafting Committee decided in favour of describing India as a Union, although its Constitution might be federal in structure. Moving the Draft Constitution for the consideration of the Constituent Assembly on 4 November 1948, Ambedkar explained the significance of the use of the expression "Union" instead of the expression "Federation".

     He said "…what is important is that the use of the word 'Union' is deliberate… though the country and the people may be divided into different States for convenience of administration, the country is one integral whole, its people a single people living under a single imperium derived from a single source." Finally, when the Constitution was adopted on 26 November 1949, it provided for India being a Union of States and its States and territories being as specified in the First Schedule.
     During the last half-a-century, many structural changes have been made and the map of the Union of States reshaped. Categorisation of States has disappeared, names of several territorial units called States have vanished, many new States have been formed on linguistic and other criteria, boundaries, areas, names etc. of some States have been altered and many relationships have been transformed. As at present, the Union consists of 29 States and seven Union Territories. Some unique solutions of regional councils, development boards, etc., have been attempted with varying degrees of success. The newest State is Telangana.

     It is a tribute to the farsightedness of the makers of the Constitution that all these changes could be brought about largely peacefully and entirely within the four-walls of the Constitution. The predominant concern of the founding fathers as also of the various Commissions and Committees appointed since Independence to consider reorganisation of States or Union-State Relations - the JVP Committee, the Dhar Commission, the States Reorganisation Commission (SRC), the Rajamannar Committee, the Sarkaria Commission, etc. - has been that of the unity and integrity of India. We are still engaged in the stupendous task of national integration which is also an admission of the hard reality of our nation and Union being still in the making. The SRC report concluded:
 It is the Union of India which is the basis of our nationality… States are but limbs of the Union, and while we recognize that the limbs must be healthy and strong… it is the strength and stability of the Union and its capacity to develop and evolve that should be governing consideration of all changes in the country.

(i) Legislative Relations
    The Constitution, based on the principle of federalism with a strong and indestructible Union, has a scheme of distribution of legislative powers designed to blend the imperatives of diversity with the drive of a common national endeavour. In this respect our constitutional theory as well as practice have kept pace with contemporary developments. The current trends emphasise cooperation and coordination, rather than demarcation of powers, between different levels of government. The basic theme is inter-dependence in orchestrating the balance between autonomy of the States and the inner logic of the Union.
    The Constitution adopts a three-fold distribution of legislative powers by placing them in any one of the three lists, namely I (Union List), II (State List) and III (Concurrent List). Articles 245 and 246 demarcate the legislative domain, subject to the controlling principle of the supremacy of the Union which is the basis of the entire system.
    The Concurrent List gives power to two legislatures, Union as well as State, to legislate on the same subject. In case of conflict or inconsistency, the rule of repugnancy, as contained in Article 254, comes into play to uphold the principle of Union power.

    The Concurrent List expresses and illustrates vividly the underlying process of nation building in the setting of our heterogeneity and diversity. The framers of the Constitution recognised that there was a category of subjects of common interest which could not be allocated exclusively either to the States or the Union. Nonetheless, a broad uniformity of approach in legislative policy was essential to combine specific requirements of different States with the articulation of a common national policy objective. Conceived thus, harmonious operation of the Concurrent List could well be considered to be creative federalism at its best.
    Globalization as a phenomenon has created a great deal of mobility of goods, services, capital, technology; integrating the world trade far more than ever before. There are also related concerns arising out of a need for a better and sustained use of resources of the earth as a planet that call for a much greater coordination in identification and formulation of responses among the nations. This process of cohesive and concurrent action needs to generate, first-of-all within the national context. The geographical climate, environmental, technological diversities amongst States have to be harmonized in order that these may link with global processes for viable sustained, development and growth.

A major field of undertaking new initiatives in these spheres would lie in the legislative domain where a certain concurrences and coherence between the States and their different needs have to be harmonized to evolve national policies. This is also reflected in issues that pertain to technology, trade, financial services etc. in the global context.
    The Commission believes that on the whole the framework of legislative relations between the Union and the States, contained in Articles 245 to 254, has stood the test of time. In particular, the Concurrent List, List III in the Seventh Schedule under Article 246 (2), has to be regarded as a valuable instrument for consolidating and furthering the principle of cooperative and creative federalism that has made a major contribution to nation building. The Commission is convinced that it is essential to institutionalise the process of consultation between the Union and the States on legislation under the Concurrent List.


(ii) Financial Relations
     Division of financial powers and functions among different levels of the federal polity are asymmetrical, with a pronounced bias for revenue taxing powers at the Union level while the States carry the responsibility for subjects that affect the day to day life of the people entailing larger expenditure than can be met from their own resources.

On an average, the revenue of States from their own resources suffices only for about 50 to 60 percent of States’ current expenditure. Since the insufficiency of the States’ fiscal resources had been foreseen at the time of framing the Constitution, a mechanism in the shape of Finance Commission was provided under Article 280 for financial transfers from the Union. Its function is to ensure orderly and judicious devolution that is deemed necessary from the point of view of avoiding vertical or horizontal imbalances.
    The Finance Commission is only one stream of transfer of resources from the Union to the States. The Planning Commission advises the Union Government regarding the desirable transfer of resources to the States over and above those recommended by the Finance Commission. Bulk of the transfer of revenue and capital resources from the Union to the States is determined largely on the advice of these two Commissions. By and large, such transfers are formula-based. Then there are some discretionary transfers as well to meet the exigencies of specific situations in individual States.
    These institutional arrangements served the country well in the first three decades after independence. Testifying to the strength of these institutions neither the Union nor the States suffered from any large imbalance in their budgets, although the size of the public sector in terms of proportion of government expenditure to Gross Domestic Product had nearly doubled during this period.

    Imbalances have become endemic during the last two decades and have assumed alarming proportions recently. For this state of affairs, the constitutional provisions can hardly be blamed. Broadly, the causes have to be sought in the working of the political institutions. There are shortcomings in the transfer system. For example, the ‘gap-filling’ approach adopted by the Finance Commission and the soft budget constraints have provided perverse incentives. The point, however, is that these deficiencies are capable of being corrected without any change in the Constitution.

(i) Share of States in taxes, cesses and surcharges
    The Constitution was amended to provide a prescribed percentage of the revenue receipts to be transferred to States (Article 270(2)). However, surcharges and cesses do not form part of the divisible pool. Cesses are intended for specific purposes and the States can have no complaint if the money is spent on predetermined purposes. Surcharges can be regarded as a not so thinly veiled device to deny the States their share in receipts from such surcharges. Keeping in view the complexity of the present national and international situation which has placed additional burden on the Union, the Commission would not recommend any constitutional amendment to make surcharges shareable but would expect public policy to move decisively in the direction of doing away with the surcharges as part of the Union’s fiscal armoury.

    In recent years, services have emerged as the dominant component in the Gross Domestic product (GDP). Yet there is no mention in the Constitution in any of the three lists (Union List, State List, Concurrent List) enabling any level of government to tax services. The Union has used the residuary power in the last entry of the Union List (entry 97) to levy taxes on selected services. The efforts have not succeeded in tapping the full potential of the service sector of a vast range of services which are primarily local in nature. It is necessary to enhance the revenue potential of the States in view of their major responsibilities for social and physical infrastructure. It might be worthwhile to provide explicitly for taxing power for the States in respect of certain specified services. For the Union also an explicit entry would be helpful, rather than leaving it to the residuary power of entry 97. However, it may be better to first let a consensus list of services to be taxed by the States come into force to be treated as the exclusive domain of the States, even if the formal taxing power is exercised by the Union. In other words, the golden rule here would be to hasten slowly. A de facto enumeration of services that can be taxed exclusively by the States should get priority from policy makers with a view to augmenting the resource pool of the States.

Status of Central Bank:
    A question has been raised whether any constitutional or legislative safeguards are needed to uphold the autonomy of the Reserve Bank of India in conducting monetary policy. An advisory group set up by the Reserve Bank of India (RBI) has recommended that legislative changes should be made to facilitate the emergence of an independent and effective monetary policy. However, the Commission sees no need for a change in the Constitution to specifically provide for independent conduct of monetary policy. The existing legislation has broadly succeeded in maintaining a suitable environment of security and continuity for the key personnel and of the autonomy of decision making by the top management. The Commission agrees that appropriate legislative changes would suffice for the proper and timely development of money, securities and exchange markets.


Inter-State Trade and Commerce
     Free flow of trade without geographical barriers is sine-qua-non for economic prosperity nationally as well as internationally. Therefore, progressive removal of such barriers has been a general phenomenon in social evolution in the modern world.

Today we are vigorously pursuing the goal of free flow of trade among the nations of the world under the banner of globalisation through, for example, the WTO among the nations of the world. Regionally, member states of the European Community, for example, have already achieved that goal almost fully.
     As economy is the most important source of power and identity in the world of today, the nations or regions that constitute the federation do not want to lose their hold on economic power. Nor do the economically strong States want the economically weak States to become parasites on them. Therefore, an arrangement must be devised which will ensure free flow of trade, encourage fair competition and simultaneously remain capable of discouraging and regulating unfair trade practices.
     One common arrangement found in all federations in this regard, is the division between the interstate and intrastate trade and commerce. While the regulation of the former is assigned to the federal authority, the States retain the regulation of the latter. Some federations have gone further and made interstate trade free from regulation both by the federal authority as well as the authority of the States. Australia is the foremost example of that. India goes one step further than Australia in so far as it makes flow of interstate as well as intrastate trade free from regulation by the Union as well as the States. However, unlike Australia, after making such a general declaration, the Constitution of India gives adequate powers to the Union and the States, particularly to the former, to regulate trade and commerce.

Posted Date : 05-02-2021


గమనిక : ప్రతిభ.ఈనాడు.నెట్‌లో కనిపించే వ్యాపార ప్రకటనలు వివిధ దేశాల్లోని వ్యాపారులు, సంస్థల నుంచి వస్తాయి. మరి కొన్ని ప్రకటనలు పాఠకుల అభిరుచి మేరకు కృత్రిమ మేధస్సు సాంకేతికత సాయంతో ప్రదర్శితమవుతుంటాయి. ఆ ప్రకటనల్లోని ఉత్పత్తులను లేదా సేవలను పాఠకులు స్వయంగా విచారించుకొని, జాగ్రత్తగా పరిశీలించి కొనుక్కోవాలి లేదా వినియోగించుకోవాలి. వాటి నాణ్యత లేదా లోపాలతో ఈనాడు యాజమాన్యానికి ఎలాంటి సంబంధం లేదు. ఈ విషయంలో ఉత్తర ప్రత్యుత్తరాలకు, ఈ-మెయిల్స్ కి, ఇంకా ఇతర రూపాల్లో సమాచార మార్పిడికి తావు లేదు. ఫిర్యాదులు స్వీకరించడం కుదరదు. పాఠకులు గమనించి, సహకరించాలని మనవి.


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