Centre-State Relations: Legislative, Administrative and Financial

Every turf war between New Delhi and a state capital is, at bottom, a question the Constitution already answered: who may legislate, who must obey, and who gets the money. Articles 245 to 263 and 268 to 293 lay down that division in unusual detail, and the Seventh Schedule turns it into three working lists.

Three lists, one tie-breaker: the Seventh Schedule

Article 246 gives the Seventh Schedule its constitutional force and divides legislative subjects into three lists. The Union List carries subjects of national importance such as defence, foreign affairs, railways and banking; it began with 97 entries and now holds about 100. The State List covers regional subjects such as police, public health, agriculture and land; it began with 66 entries and now holds about 61. The Concurrent List holds 52 shared subjects such as education, forests and criminal procedure, where both Parliament and state legislatures may legislate.

Two design choices tilt the scheme towards the Centre. First, residuary powers under Article 248 belong exclusively to Parliament, a deliberate reversal of the American model where unlisted subjects rest with the states. Second, the tie-breaker in Article 246 itself: on Concurrent List subjects Parliament's law prevails in case of conflict, and entries are read so that the Union List overrides the others where they overlap.

The 101st Amendment of 2016, which introduced the Goods and Services Tax, was the biggest surgery the Seventh Schedule has undergone. It inserted Article 246A, giving both Parliament and state legislatures concurrent power to levy GST, and hollowed out the old indirect-tax entries on excise, service tax, sales tax and octroi. GST is the great exception to the list logic: a subject both levels tax at once, coordinated through the GST Council under Article 279A.

When Parliament enters the State List: Articles 247 to 253

The Constitution does not leave the State List sealed. Article 247 lets Parliament provide additional courts for better administration of Union laws, and Article 248 hands Parliament everything unlisted. The more dramatic entries are Articles 249 to 253, each a doorway through which Parliament may legislate on subjects reserved for the states.

Article 249 works through the Rajya Sabha: if the Council of States declares by a resolution supported by two-thirds of the members present and voting that a State List subject has assumed national importance, Parliament may legislate on it. The resolution lasts one year and can be renewed. Article 250 operates during a national emergency under Article 352: Parliament may make laws on any State List matter, and those laws stop operating six months after the emergency ends.

Article 252 is the cooperative doorway: if the legislatures of two or more states pass resolutions requesting Parliament to legislate on a State List subject, Parliament may do so, and only Parliament may then amend or repeal that law. Article 253 is the international doorway: Parliament may make any law to implement a treaty or international agreement, even on a State List subject. Article 251 gives the parliamentary law precedence where Articles 249 and 250 overlap with state laws, and Article 255 provides that a mere procedural lapse in obtaining a required recommendation does not invalidate the resulting Act.

The administrative wiring: Articles 256 to 263

Articles 256 to 263 build the administrative bridge. Article 256 obliges every state to exercise its executive power so as to ensure compliance with the laws made by Parliament, and it authorises the Union executive to give directions to a state for that purpose. Article 257 adds that a state must not impede the Union's executive power, and it empowers the Union to direct states on communications of national or military importance and on the protection of railways.

Article 258 allows the President, with the Governor's consent, to entrust Union executive functions to a state government, and it also lets a parliamentary law directly confer powers on state authorities. Article 258A is the mirror image: the Governor may entrust state executive functions to the Union with the Centre's consent. Article 261 adds the full faith and credit clause: public acts, records and judicial proceedings of the Union and every state must be recognised throughout India.

The teeth of this arrangement sit in Article 365. If a state fails to comply with Union directions, the President may lawfully hold that its constitutional machinery has failed, the trigger for President's Rule under Article 356.

The money map: Articles 268 to 280

Article 268 covers duties levied by the Union but collected and appropriated by the states, such as stamp duties. Article 269 assigned to the states taxes levied and collected by the Union, principally on inter-state sale of goods in the pre-GST era. Article 269A, added by the 101st Amendment, governs the integrated GST on inter-state supply, collected by the Union and apportioned with the states on the destination principle.

The heart of the system is Article 270: all taxes in the Union List, except those under Articles 268, 269 and 269A, surcharges under Article 271, and any cess levied for a specific purpose, form a divisible pool distributed as the Finance Commission recommends. The exceptions matter enormously. Article 271 lets Parliament levy a surcharge for Union purposes that bypasses the pool entirely, and specific-purpose cesses are likewise non-shareable. The Centre's non-shareable revenue grew from about 12.8 per cent of gross tax revenue in 2015-20 to about 18.5 per cent in 2020-24, shrinking the states' effective share even when the Commission's headline percentage looked generous.

Article 273 provides grants in lieu of export duty on jute, Article 274 requires the President's prior recommendation for bills varying taxes in which states are interested, Article 275 authorises grants-in-aid including special grants for Scheduled and Sixth Schedule areas, and Article 279 leaves the computation of net proceeds to the Comptroller and Auditor-General. Article 280 creates the Finance Commission itself, constituted by the President every five years or earlier, and Article 281 requires its report and the action-taken memorandum to be laid before Parliament.

Emergencies reshape the money map too. During a national emergency, the President may alter the distribution of revenues between the Union and the states, and the altered arrangement continues till the end of the financial year in which the emergency ceases. A financial emergency under Article 360, never proclaimed so far, goes further: the President can direct the states to observe canons of financial propriety, require money bills to be reserved for his consideration, and order reductions in the salaries and allowances of any class of persons serving the Union or the states, including judges.

Sarkaria and Punchhi: the diagnosis that never got a cure

The Sarkaria Commission, set up in June 1983 under Justice R.S. Sarkaria and reporting in 1988, made 247 recommendations centred on restraint: Article 356 only as a last resort after warnings and alternatives; Governors appointed in consultation with the Chief Minister, eminent persons from outside the state, not recent active politicians; the President to decide Governor-reserved bills under Article 201 within six months; residuary taxation kept with Parliament while other residuary powers moved to the Concurrent List; a strengthened All-India Services cadre as the federation's steel frame; and the Inter-State Council under Article 263 activated as a permanent forum. The Commission's context was a decade of state-side autonomy demands, from the Rajamannar Committee appointed by Tamil Nadu (1969) to the Anandpur Sahib Resolution of the Punjab Akali Dal (1973) and the West Bengal Memorandum on Centre-State relations (1977).

The Punchhi Commission, constituted in April 2007 under former Chief Justice M.M. Punchhi and reporting in 2010 across seven volumes, went further: a fixed five-year term for Governors with removal akin to impeachment, Governors kept out of university chancellorships, the S.R. Bommai guidelines written into Article 356 itself, and a localised emergency provision for intervening in a troubled pocket without dismissing the whole state government. The National Commission to Review the Working of the Constitution (2002) had similarly urged thrice-yearly Inter-State Council meetings. Governments cherry-picked these reports: the Council exists and Bommai absorbed the judicial agenda, but the structural recommendations on Governors, consultation and residuary powers remain largely on paper. On the Concurrent List, Punchhi advised broad Union-State consensus before the Union legislated, with the Centre stepping in only where essential national interest demanded.

Article 355: the Union's duty to the states

Article 355 is the Union's twin duty: to protect every state against external aggression and internal disturbance, and to ensure that the government of every state is carried on in accordance with the Constitution. It is the Bommai-era companion to Article 356: the second half of 355 is the constitutional basis on which President's Rule is justified, and the first half is what the Union invokes when central forces are deployed in a disturbed state.

Three faces of Indian federalism

UPSC 2020 asked aspirants to account for the nature and growth of cooperative, competitive and confrontational federalism in India. The three are phases of the same relationship, not rival models. Cooperative federalism is the textbook ideal: Union and states jointly addressing problems of common concern, visible in the NITI Aayog's consultative machinery and the GST Council where the Union and all states vote together on indirect-tax policy.

Competitive federalism turns the states into rivals for capital and credit: the ease of doing business rankings, investment summits and credit-rating comparisons push states to out-perform one another. Confrontational federalism is the breakdown mode, where the same shared powers produce political conflict: the farm laws of 2020 passed while agriculture sat on the State List, the states' resistance to the Citizenship (Amendment) Act on citizenship questions, and the running battles between Governors and state governments over assent, information and appointments. All three faces share the same constitutional plumbing; what changes is the political temperature.

The fiscal squeeze: Finance Commissions, GST and the compensation sunset

The Finance Commission is the fiscal constitution's referee. The 14th Finance Commission raised the states' share of the divisible pool from 32% to 42% (effective 2015-20), the largest single jump, and the 15th Finance Commission held it at 41% (2021-26) after Jammu and Kashmir's exclusion, with census 2011 weighted at 15% of the devolution formula. The 16th Finance Commission reported in late 2025 and its recommendations govern 2026-31.

But the headline share is not the lived experience. The GST regime pooled indirect taxes and gave the GST Council the rate-setting power, while the Union kept collecting the cesses and surcharges that sit outside the divisible pool, steadily shrinking the pool the percentage applies to. The compensation guarantee to states ended in June 2022, removing the fiscal cushion exactly when states were absorbing the revenue volatility of the new regime. This is the modern form of the old centralising tendency: not Article 356, but the purse.

Centralising tendencies: the quiet federalism debate

The Constitution's unitary bias shows up most clearly when the Centre legislates in grey zones. The Epidemic Diseases Act, 1897 and the Disaster Management Act, 2005 gave the Union sweeping powers during the COVID-19 pandemic, a textbook public health emergency response run from the Centre. The farm laws of 2020 went further: Parliament legislated on agriculture, a State List subject, triggering the confrontational federalism of the previous section. Whether such moves are cooperative problem-solving or constitutional overreach is the living federalism question the mains paper keeps returning to.

The commissions' consensus: what the reform reports actually agreed on

Four great review exercises span five decades, and their prescriptions converge more than they diverge: give states more room, consult them before legislating on their subjects, and make intergovernmental bodies actually work.

The Sarkaria Commission remains the reference point: its report argued that the Constitution's federal provisions are broadly sound and that the failure lies in non-implementation, a verdict later commissions kept echoing with variations.

Prelims hooks

• Residuary legislative powers vest in Parliament under Article 248, read with Entry 97 of the Union List.
• Article 249 needs a Rajya Sabha resolution by two-thirds of members present and voting; the resulting parliamentary law operates for the resolution's life plus six months.
• Parliament's laws on State List subjects during a national emergency (Article 250) cease six months after the emergency ends.
• Article 252 requires resolutions by two or more state legislatures; thereafter only Parliament can amend or repeal the law.
• Article 256 empowers the Union to give directions to states to ensure compliance with parliamentary laws; Article 365 links defiance to President's Rule.
• Surcharge under Article 271 and specific-purpose cesses are excluded from the divisible pool under Article 270.
• The Finance Commission is constituted under Article 280 every five years; its report is laid before Parliament under Article 281.
• Sarkaria Commission: set up 1983, report 1988, 247 recommendations; Punchhi Commission: set up 2007, report 2010.
• Sarkaria on residuary powers: taxation stays with Parliament, the rest to the Concurrent List; strengthen the All-India Services.
• Punchhi on the Concurrent List: broad Union-State consensus before Union legislation; Centre steps in only in essential national interest.
• Financial emergency (Art 360): never proclaimed; the President can cut salaries, reserve money bills and demand financial propriety.

Key Terms

• the Goods and Services Tax: The Goods and Services Tax is India's comprehensive destination-based indirect tax, subsuming excise duty, service tax, VAT, and other levies into one system. Introduced by the 101st Constitutional Amendment in 2016 through Articles 246A, 269A, and 279A, it applies CGST plus SGST on intra-state supply and IGST on inter-state supply, with rates set by the GST Council. Example: the GST Council's decisions on tax slabs illustrate cooperative federalism in action. The GST Council's periodic decisions fixing tax slabs and rates for goods and services across states.
• Anandpur Sahib Resolution: The Anandpur Sahib Resolution is the 1973 charter of the Akali Dal, adopted at Anandpur Sahib in Punjab, demanding greater autonomy for the state and a redefinition of Centre-state relations. It asked that the Centre keep only defence, foreign affairs, communications, and currency, leaving the rest to the states. For UPSC, it is the classic document linking Sikh politics to the federalism debate. The resolution was revived during the Dharam Yudh Morcha of 1982 and partly addressed by the Rajiv-Longowal Accord of 1985.
• The Sarkaria Commission: The Sarkaria Commission (1983), the first Commission on Centre-State Relations under R.S. Sarkaria, submitted its report in 1988 with 247 recommendations. It favoured a strong Centre working in cooperative federalism, urging restraint in using Article 356, prior consultation before deploying central forces in states, and an active Inter-State Council. its warnings on the misuse of Article 356 were vindicated by the Supreme Court in S.R. Bommai (1994)
• Council of States: The Council of States is the official name of the Rajya Sabha, the Upper House of Parliament under Article 80, representing the states and union territories. It has a maximum strength of 250, with 238 elected members and 12 nominated by the President, and it is a permanent body not subject to dissolution. It matters for UPSC because its special powers, such as Article 249 resolutions, embody Indian federalism. a two-thirds Rajya Sabha resolution under Article 249 empowering Parliament to legislate on a State List subject
• Union of States: Union of States is the description of India in Article 1 of the Constitution: India, that is Bharat, shall be a Union of States. B. R. Ambedkar explained that the Indian federation is a Union because it was not created by an agreement among states and no state has a right to secede. For UPSC, the phrase is the classic mains distinction between the Indian Union and the American federation. Article 1
• Article 355 is: Article 355 is the provision in Part XVIII (emergency provisions) imposing a duty on the Union to protect every State against external aggression and internal disturbance, and to ensure that the government of every State is carried on in accordance with the Constitution. It is the constitutional basis for Union intervention when a State's governance breaks down. For UPSC, it is frequently linked with debates on President's Rule and federalism. It has been invoked to justify the deployment of central forces during internal disturbances, as in counter-insurgency operations in Jammu and Kashmir and the Northeast.
• internal disturbance: Internal disturbance is the former ground on which a national emergency could be proclaimed under Article 352, and it was the stated basis of the 1975-77 Emergency. Its vagueness let governments invoke emergency powers for ordinary unrest, so the 44th Amendment of 1978 replaced it with the stricter 'armed rebellion'. It is a landmark GS-2 polity concept. The Emergency proclaimed on 25 June 1975 on internal disturbance grounds
• Rajamannar Committee: The Rajamannar Committee was set up by the Tamil Nadu government in 1969 under P.V. Rajamannar to examine Centre-State relations and suggest ways to strengthen state autonomy. It recommended abolishing the Planning Commission's discretionary control, restricting Article 356, and giving states greater fiscal and legislative space. It matters for UPSC as the first major state-level challenge to centralised federalism, preceding the Sarkaria Commission. Mains answers citing its demand for residuary powers to be transferred to the states.
• Inter-State Council: The Inter-State Council is the constitutional body under Article 263 that advises on Centre-state relations, set up in 1990 on the Sarkaria Commission's recommendation. Chaired by the Prime Minister, it includes all chief ministers, Union territory administrators and six Union ministers, and discusses subjects of common interest like internal security and economic planning. It matters for UPSC federalism answers as the premier forum for cooperative federalism. The Council's 11th meeting in July 2016, which took up the Punchhi Commission's recommendations on Centre-state relations
• Finance Commission: The Finance Commission is a quasi-judicial body constituted by the President every five years under Article 280 to recommend tax devolution between the Union and states, grants-in-aid, and measures to augment state funds for panchayats and municipalities. Its recommendations shape India's fiscal federalism. For UPSC, each Commission's devolution formula and criteria are standard economy-polity material. The 16th Finance Commission, chaired by Arvind Panagariya, is framing recommendations for 2026-31.
• Punchhi Commission: The Punchhi Commission was the Commission on Centre-State Relations appointed in 2007 under Justice M.M. Punchhi, reporting in 2010. It reviewed Union-state relations, recommending restraint in imposing President's Rule, clearer norms for Governors, and greater state say in Concurrent List legislation. It is the standard reference for contemporary federalism questions. Its advice that Article 356 be used only as a last resort echoes the Bommai judgment.
• Seventh Schedule: The Seventh Schedule of the Constitution divides legislative subjects between the Union and the states through three lists: the Union List for Parliament alone (defence, foreign affairs, railways), the State List for state legislatures (police, public health, agriculture), and the Concurrent List where both can legislate, with Parliament prevailing in conflict. It is the operational core of Indian federalism. Education sits on the Concurrent List after the 42nd Amendment moved it there in 1976.

Practice questions

Asymmetric federalism: Articles 371 to 371J

Part XXI carries special provisions for twelve states in Articles 371 to 371J, all added by later amendments. The reasons are threefold: meeting the aspirations of backward regions, protecting the cultural and economic interests of tribal people, and dealing with disturbed law and order. This is asymmetric federalism: the Constitution deliberately does not treat all states identically.