Laxmikanth Test: Inter-State Relations - UPSC MCQ

The Constitution makes the following provisions concerning the borrowing powers of the Centre and the states:

• The Central government can borrow either within India or outside upon the security of the Consolidated Fund of India or give guarantees, but both within the Parliament's limits. So far, no such law has been enacted by the Parliament.

• Similarly, a state government can borrow within India (and not abroad) upon the security of the Consolidated Fund of the State or give guarantees, but both within limits fixed by the legislature of that state.

• The Central government can make loans to any state or give guarantees regarding loans raised by any state. Any sums required for making such loans are to be charged on the Consolidated Fund of India.

• A state cannot raise any loan without the Centre's consent, if there is still outstanding any part of a loan made to the slate by the Centre or in respect of which the Centre has given a guarantee.

1. A bill which imposes or varies any lux or duty in which states are interested;

2. A bill which affects the principles on which money are or may be distributable to states; and

3. A bill that imposes any surcharge on any specified tax or duty for the Centre's purpose.

• A state legislature can impose taxes on professions, trades, callings and employments, sale or purchase of goods (other than newspapers), etc.

• However, a tax imposed on the sale or purchase of goods declared by Parliament to be of special importance in inter-state trade and commerce is subject to the Parliament's restrictions and conditions. Presidential assent is not generally required for the introduction of taxes by a state.

• Finance commission recommends statutory grants and grants-in-aid to the states. The role of states is limited in getting the desired grants sanctioned.

• The CAG is an integrated audit machinery auditing both centre and states. CAG does not merely audit the accounts for legality but also for the performance of the government expenditure. The states have no power over the election and removal of CAG.

During the financial emergency, the centre becomes all-powerful that constrains the fiscal space of states.

• A grant-in-aid is money coming from the central government for a specific project. This kind of funding is usually used when the government and parliament have decided that the recipient should be publicly funded but operated with reasonable independence from the state.

• A grant-in-aid is funds allocated by one government level to another level of government to be used for specific purposes.

• Service Tax Levied by the Centre but Collected and Appropriated by the Centre and the States (Article 268-A): Taxes on services are levied by the Centre. But, their proceeds are collected as well as appropriated by both the Centre and the states. The Parliament formulates the principles of their collection and appropriation.

• Taxes Levied and Collected by the Centre but Assigned to the States (Article 269): The following taxes fall under this category:

(i) Taxes on the sale or purchase of goods (other than newspapers) in the course of inter-state trade or commerce.

(ii) Taxes on the consignment of goods in the course of inter-state trade or commerce.

• Vertical and horizontal imbalances are common - features of—most federations. The Constitution assigned taxes with a nation-wide base to the Union to make the country one common economic space unhindered by internal barriers to the extent possible.

• States being closer to people and more sensitive to the local needs have been assigned functional responsibilities involving expenditure disproportionate to their assigned revenue sources, resulting in vertical imbalances. The devolution of taxes from the centre helps them fulfil these responsibilities.

1. The National Development Council (NDC) - Extra-constitutional device

The National Development Council is an extra-constitutional body that was set up in 1952 to promote cooperation and coordination between the Centre and the states. It is an advisory body whose primary function is to review and approve the plans formulated by the Planning Commission, ensuring that the plans are in line with the priorities of the states.

2. The Governor's Conference - Extra-constitutional device

The Governor's Conference is a forum where issues related to Centre-state relations are discussed, and recommendations are made for promoting cooperation and coordination between the Centre and the states. It is an extra-constitutional device, as it is not mentioned in the Indian Constitution.

3. Zonal Councils - Extra-constitutional device

Zonal Councils were established under the States Reorganisation Act of 1956 to promote cooperation and coordination between the Centre and the states. Although they were established through an act of Parliament, they are considered extra-constitutional devices, as they are not mentioned in the Indian Constitution.

4. The Inter-State Council - Constitutional device

The Inter-State Council is a constitutional device, as it is mentioned in Article 263 of the Indian Constitution. It was established in 1990 to promote cooperation and coordination between the Centre and the states. The Council investigates and discusses issues concerning inter-state relations, and it makes recommendations on any subject of general interest to the states.

In summary, the National Development Council, the Governor's Conference, and Zonal Councils are all extra-constitutional devices, while the Inter-State Council is a constitutional device.

• The Inter-State Water Disputes Act empowers the Central government to set up an ad hoc tribunal to adjudicate a dispute between two or more states about an inter-state river or river valley's waters. The decision of the tribunal would be final and binding on the parties to the dispute.

• Neither the Supreme Court nor any other court is to have jurisdiction regarding any water dispute that may be referred to such a tribunal under this Act.

• The need for extra judicial machinery to settle inter-state water disputes is as follows: The Supreme Court would indeed have jurisdiction to decide any dispute between slates in connection with water supplies if legal rights or interests are concerned, but the experience of most countries has shown that rules of law based upon the analogy of private proprietary interests in water do not afford a satisfactory basis for settling disputes between the states where the interests of the public at large in the proper use of water supplies are involved.

• Article 262 of the Constitution provides for the adjudication of interstate water disputes. It makes the provision that Parliament may by law provide for the adjudication of any dispute or complaint concerning the use, distribution and control of waters of any inter-state river and river valley.

• Article 263 contemplates establishing an Inter-State Council to affect coordination between the states and between Centre and states.

• Articles 301 to 307 in Part XIII of the Constitution deal with the trade, commerce, and intercourse within India's territory.

• Article 301 declares that trade, commerce and intercourse throughout the territory of India shall be free.