Finance Commission

• Article 280 provides for this quasi-judicial body
• It is constituted by the President every five years or even earlier
• It is required to make recommendations to the President on the following matters:
  • Distribution of net proceeds of taxes shared between the centre and the states, and the allocation between the states, the respective shares of such proceeds
  • Principles which should decide the grants-in-aid as per article 275
  • Measures needed to augment the Consolidated Fund of the state to supplement the resources of panchayats and municipalities in the state based on the recommendation of the state finance commission
  • Any other matter referred to it by the President
• Some bills can be introduced in the Parliament only on the recommendation of the President so as to protect the financial interests of the states:
  • A bill which imposes or varies any tax or duty in which states are interested
  • A bill which varies the meaning of the term ‘agricultural income’ as defined for the purposes of the enactments relating to the income tax
  • A bill which affects the principles on which moneys are or may be distributable to states; and
  • A which imposes any surcharge on any specified tax or duty for the purpose of the centre
• Borrowing by 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 can give guarantees, but both within the limits fixed by the parliament. As of now, no such law has been enacted by the Parliament
  • A state government can borrow within India and not abroad upon the security of the consolidated fund of the state or can give guarantees but both within the limits fixed by the legislature of that state
  • The central government can make loans to any state or give guarantees in respect of loans raised by any state. Any sums required for the purpose of making such loans are to be charged on the consolidated fund of India
  • A state cannot raise any loan without the consent of the centre, if there is still outstanding any part of loan made to the state by the centre or in respect of which a guarantee has been given by the centre
• Inter-governmental tax immunities
  • The property of centre is exempted from all taxes imposed by a state or any authority within a state like municipalities, district boards, and panchayats and so on. However, Parliament can remove this ban. This exemption is not applicable to companies or corporations created by the central government.
  • The property and income of a state is exempted from central taxation. However, the centre can tax commercial operations of a state if Parliament provides for it. The property and income of local authorities situated within a state are not exempted from central taxation.

• During emergencies: financial relations between centre and the states
  • National emergency:
    • President can modify revenue distribution between the centre and the states.
    • Such modification continues till the end of the financial year in which the emergency ceases to operate
• Financial emergency
  • • Centre can give directions to the states- to observe the specified cannons of financial propriety, reduce the salaries and allowances of all class of persons serving in the state and to reserve all money bills and other financial bills for the consideration of the President

Tensions in the centre-state relations

• • Mode of appointment and dismissal of governor
  • Discriminatory and partisan role of governors
  • Imposition of President’s rule for partisan interests
  • Deployment of central forces in the states to maintain law and order
  • Reservation of state bills for the consideration of the President
  • Discrimination in financial allocations to the states
  • Management of All-India services
  • Use of electronic media for political purposes
  • Encroachment by the centre on the state list

Some of the important recommendations made by some committees

• Administrative reforms commission
  • Establishment of an Inter-state council under Article 263 of the constitution
  • Appointment of persons having long-experiences in public life and non-partisan attitudes as governors
  • Delegated maximum powers to the states
  • Transferring of more financial resources to the states to reduce their dependency upon the centre
• Deployment of central armed forces in the states either on their request or otherwise
• Rajamannar committee appointed by Tamil Nadu government made various recommendation to address the asymmetry between powers of centre and the state
• Punjab through Anandpur Sahib resolution and West Bengal through a memorandum made similar recommendations to address these asymmetry
• Government appointed Sarkaria Commission in 1983 and Punnchi Commission in 2007 to examine the status of centre-state relations
• Sarkaria commission recommendation:
• Setting up a permanent inter-state council
  • Article 356 should be used sparingly
  • Institution of all-India service should be strengthened
  • Residuary power should remain with the parliament
  • Reasons should be communicated to the state when state bills are vetoed by the President
  • Centre should have powers to deploy its armed forces, even without the consent of states. However, it is desirable that the states should be consulted
  • Procedure of consulting the chief minister in the appointment of the state governor should be prescribed in the constitution itself
  • Governors should be allowed to complete their term of five years
  • Commissioner for linguistic minorities should be activated
• Punchhi commission
  • Giving a fixed term of five years to the governors and their removal by the process of impeachment
  • Union should be extremely restrained in asserting Parliamentary supremacy in matters assigned to the states
  • It prescribed certain conditions that one should keep in mind while appointing governors:
    • He should be eminent in some walk of life
    • He should be a person from outside the state
    • He should be a detached figure and not connected with the local politics
    • He should not be connected with politics in recent past
  • Government should be given a fixed tenure of five years
  • Procedure given for the impeachment of the President could be made applicable to governor as well
  • Governor should insist on Chief Minister proving his majority on the floor of the house for which he should prescribe a time-limit
  • Bommai case guidelines should be kept in mind while deciding cases related to President’s rule
  • Inter-state council should be made more use of to further centre-state relations