Laxmikanth Test: Inter-State Relations

10 Questions MCQ Test Indian Polity for UPSC CSE | Laxmikanth Test: Inter-State Relations

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The States in India can borrow from the market

Solution: 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.


A bill which imposes or varies any tax or duty in which states are interested can be introduced

Solution: To protect the interest of states in the financial matters, the Constitution lays down that the following bills can be introduced in the Parliament only on the recommendation of the President

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.


Consider the following statements.

Assertion (A): A state legislature cannot impose any taxes on the sale or purchase of goods independently.

Reason (R): A state legislature needs the approval of the President for imposing any tax.

In the context of the above, which of these is correct?

  • 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.


Which of the following constitutional mechanisms/provisions restrict the financial autonomy of the states?

1. Finance Commission

2. The office of CAG

3. Financial emergency

Choose the correct answer using the following codes:

  • 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.


Grants-in-aid given to States are meant

  • 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.


The Constitution provides for a division of taxation powers between Centre and States. Among the several taxes, service lax is

  • 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.


Grants from the Centre to the States under the recommendations of the Finance Commission are known as

  • 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.


Which of the following are extra-constitutional devices to promote cooperation and coordination between the Centre and the states?

1. Zonal Councils

2. Inter-State Councils

3. North Eastern Council

4. Central Council of Indian Medicine

Select the correct answer using the codes below.

Solution: Subject-specific Inter-State Councils set up under Article 263 of the Constitution of India
  • Central Council of Health

  • Central Council for Local Government and Urban Development

  • Regional Councils for Sales Tax and Stale Excise Duties Inter-State Coordination Mechanism set up outside the framework of Article 263 of the Constitution of India

  • Planning Commission of India (Now abolished) - NITI aayog

  • National Development Council

  • National Integration Council

  • Central Advisory Board of Education

  • Central Council for Research in Ayurveda & Siddha

  • Central Council for Research in Homoeopathy

  • Central Council for Research in Yoga & Naturopathy.

  • Labour Conference


Article 262 of the Constitution provides for the adjudication of inter-state water disputes by a separate tribunal. The need for extrajudicial machinery to settle inter-state water disputes is because

  • 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.


The Constitution deals with which of the following?

1. Adjudication of inter-state water disputes

2. Coordination between Centre and State through inter-state councils

3. Freedom of inter-state trade, commerce and intercourse

Select the correct answer using the codes below,

  • 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.

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