NCERT Summary: Center-State Relation- 3 | Indian Polity for UPSC CSE PDF Download

The Commission has been set up to look into the new issues of Centre-State relations keeping in view the sea changes that have been taken place in the polity and economy of India since the Sarkaria Commission had last looked at the issue of Centre-State relations over two decades ago.
(i) Composition of Committee
Chairman: Shri Justice Madan Mohan Punchhi (Retd.) Former Chief Justice of India
Members

• Shri Dhirendra Singh, Former Secretary to the Government of India
• Shri Vinod Kumar Duggal Former Secretary to the Government of India
• Dr. N.R. Madhava Menon Former Director, National Judicial Academy, Bhopal, and
• National Law School of India, Bangalore
• Shri Vijay Shanker, IPS (Retd.) Former Director, Central Bureau of Investigation, Govt of India

The terms of reference of the Commission:

• The Commission will examine and review the working of the existing arrangements between the Union and States as per the Constitution of India, the healthy precedents being followed, various pronouncements of the Courts in regard to powers, functions and responsibilities in all spheres including legislative relations, administrative relations, role of governors, emergency provisions, financial relations, economic and social planning, Panchayati Raj institutions, sharing of resources; including inter-state river water and recommend such changes or other measures as may be appropriate keeping in view the practical difficulties.
• In examining and reviewing the working of the existing arrangements between the Union and States and making recommendations as to the changes and measures needed, the Commission will keep in view the social and economic developments that have taken place over the years particularly over the last two decades and have due regard to the scheme and framework of the Constitution.Such recommendations would also need to address the growing challenges of ensuring good governance for promoting the welfare of the people whilst strengthening the unity and integrity of the country, and of availing emerging opportunities for sustained and rapid economic growth for alleviating poverty and illiteracy in the early decades of the new millennium.
• While examining and making its recommendations on the above, the Commission shall have particular regard, but not limit its mandate to the following:
  (1) The role, responsibility and jurisdiction of the Centre vis-a-vis States during major and prolonged outbreaks of communal violence, caste violence or any other social conflict leading to prolonged and escalated violence.
  (2) The role, responsibility and jurisdiction of the Centre vis-a-vis States in the planning and implementation of the mega projects like the inter- linking of rivers, that would normally take 15-20 years for completion and hinge vitally on the support of the States.
  (3) The role, responsibility and jurisdiction of the Centre vis-a-vis States in promoting effective devolution of powers and autonomy to Panchayati Raj Institutions and Local Bodies including the Autonomous Bodies under the 6th Schedule of the Constitution with in a specified period of time.
  (4) The role, responsibility and jurisdiction of the Center vis-a-vis States in promoting the concept and practice of independent planning and budgeting at the District level.
  (5) The role, responsibility and jurisdiction of the Centre vis-a-vis States in linking Central assistance of various kinds with the performance of the States.
  (6) The role, responsibility and jurisdiction of the Centre in adopting approaches and policies based on positive discrimination in favour of backward States.
  (7) The impact of the recommendations made by the 8th to 12th Finance Commissions on the fiscal relations between the Centre and the States, especially the greater dependence of the States on devolution of funds from the Centre.
  (8) The need and relevance of separate taxes on the production and on the sales of goods and services subsequent to the introduction of Value Added Tax regime.
  (9) The need for freeing inter-State trade in order to establish a unified and integrated domestic market as also in the context of the reluctance of State Governments to adopt the relevant Sarkaria Commission’s recommendation in chapter XVIII of its report.
  (10) The need for setting up a Central Law Enforcement Agency empowered to take up suo moto investigation of crimes having inter State and/orinter national ramifications with serious implications on national security.
  (11) The feasibility of a supporting legislation under Article 355 for the purpose of suo moto deployment of Central forces in the States if and when the situation so demands.
  (12) Union Government has extended the term of a Commission, which was set up to analyze the centre state relations in the backdrop of the changes in the polity and the economy.
  (13) The Commission headed by Justice M M Punchhi was set up in 2007 to look into the new issues of centrestate relations in view of the sea changes that have been taken place in the polity and economy since the Sarkaria Commission had last looked into these issues.
  (14) The Commission was to examine and review, among other things, the working of the existing arrangements between the Centre and the States as pert he Constitution, the healthy precedents being followed, various pronouncements of the courts with regard to powers, functions and responsibilities in all spheres.

Indian Constitution has made an effort to allocate every possible source of revenue either to the Union or the states. For the purpose of allocation of certain sources of revenue, between the Union and the state Governments, the Constitution provides for the establishment of a Finance Commission.
On the other hand, the Planning Commission is n either a constitutional body nor even statutory. Moreover, Planning Commission does not have representation of States. Mutual overlapping of these two bodies is often a source of tensions in Centre - State relations.
(i) Finance Commission
The Constitution of India contains the following provisions regarding the Finance Commission:

• The President shall, within two years from the commencement of this Constitution and thereafter at the expiration of every fifth year or at such earlier time as the President considers necessary, by order constitute a Finance Commission which shall consist of a Chairman and four other members to be appointed by the President.
• Parliament may by law determine the qualifications which shall be requisite for appointment as members of the Commission and the manner in which they shall be selected.
• It shall be the duty of the Commission to make recommendations to the President as to
  (1) The distribution between the Union and the States of the net proceeds of taxes which are to be, or may be, divided between them under this Chapter and the allocation between the States of the respective shares of such proceeds;
  The principles which should govern the grants-in-aid of the revenues of the States out of the Consolidated Fund of India;
  (2) The measures needed to augment the Consolidated Fund of a State to supplement the resources of the Panchayats in the State on the basis of the recommendations made by the Finance Commission of the State;
  (3) The measures needed to augment the Consolidated Fund of a State to supplement the resources of the Municipalities in the State on the basis of the recommendations made by the Finance Commission of the State;
  (4) Any other matter referred to the Commission by the President in the interests of sound finance.
• The Commission shall determine their procedure and shall have such powers in the performance of their functions as Parliament may by law confer on them.
  (1) Ever since the inauguration of the Constitution, Finance Commissions have been appointed at regular intervals regarding sharing of revenues between the Centre and the States. So far, thirteen (13) such Commissions have been set up.
  (2) One notable feature of the Finance Commission has been that the terms of reference have been made wider and wider with each Finance Commission.
  (3) Even issues like debt burden of the state, financing of relief expenditure and returns of public sector undertakings have been placed under the purview of Finance Commissions. Further, the Union Government has mostly accepted the recommendations of the Finance Commissions.
  (4) Despite this liberal attitude of the Union Government in financial matters, certain states have disapproved of the existing arrangement for distribution of resources and emphasizes that the distribution of resources should be more progressive favoring the relatively poorer states.

(ii) Planning Commission

• The Planning Commission also plays a vital role in the financial relations between the Centre and the States. Though the Planning Commission is an extra-constitutional body it plays a leading role in deciding the outlays of the plans of the States as well as the Centre. It also decides how much money should be allotted to the various states for expenditure on various items.
• As the Planning Commission is headed by the Prime Minister (who acts as its chairman) and some of the important ministers of the Union Cabinet are also associated with it, has virtually become a handmade of the Central Government.
• The National Development Council, which was created in 1952 as an adjunct to the Planning Commission, to review the plans also works more or less as an agency of the Centre, even though the Chief Ministers of the State are also its members. It has been alleged that the Planning Commission plays more important role in the allocation of funds and grants to the state than the Finance Commission.

(iii) Controversy

• It has been alleged by critics that the role assigned to the Finance Commission has been greatly undermined to the creation of the Planning Commission which has tended to play increasing role in determining the transfer of funds to the states. According to a study, more funds were transferred to the states through the Planning Commission and the Finance Ministry than the Finance Commission.
• The Finance Commission is only required to plug the non-development budgetary gaps in the finances of the states only, while the plan outlays are determined by the Planning Commission. Similarly the discretionary grants are also regulated by the Finance Ministry and the Planning Commission and the Finance Commission hardly play any role in this respect.
• It is clear from the above discussion that the states in India do not possess adequate finances and have to look to the Union Government for assistance. The increasing dependence on the Union Government inevitably results in the curtailment of their autonomy, which poses a serious threat to the existence of a federal structure. In view of the weak position of the state, in the financial sphere, there has been a growing demand for allocation of more financial resources to the states so that they may be able to enjoy greater autonomy.