Centre-State Relations: Legislative, Administrative, and Financial
July 19, 20268 min read
The Indian Constitution does not use the word 'federation'. Article 1 calls India a 'Union of States'. The distinction is deliberate: the Union is indestructible, states are not. India's federal structure is skewed — the Centre has overriding powers in legislation (Article 246 — Union List of 100 subjects + Residuary Powers), administration (All-India Services, Article 256 — state compliance), and finance (Finance Commission, vertical devolution). Yet the last decade has seen heightened Centre-state tensions — over GST compensation, Governor's powers, police and law and order, and the exclusion of states from key policy decisions. Understanding these tensions and the constitutional framework that governs them is vital for UPSC.
[TOPIC CLASSIFICATION]
Topic type: Polity / Federal Structure
PYQ frequency: Very High. Every year in Prelims and Mains GS 2.
Exam stage relevance: Prelims + Mains
Primary GS Paper: GS 2 (Polity — Federal Structure)
[EXAMINER REASONING]
Trap: Confusing 'federal' with 'unitary' features in India. India is a federal system with unitary bias. Federal features: division of powers, written constitution, independent judiciary, bicameralism. Unitary bias: single constitution, single citizenship, All-India Services, Governor appointment, Article 356 (President's Rule).
Most confused: The three lists under Article 246. Union List (100 subjects — defence, foreign affairs, currency, railways, etc.) → Parliament exclusively. State List (61 subjects — police, public health, agriculture, land) → State Legislatures exclusively. Concurrent List (52 subjects — criminal law, education, forests, labour, social security) → both. Residuary powers (unlisted subjects) → Parliament (Entry 97, Union List). 42nd Amendment (1976) shifted five subjects from State to Concurrent (education, forests, wild animals, weights & measures, population control).
Key anchor: Article 356 (President's Rule) is the most potent centralising power — the President can suspend the state government and impose central rule if the state cannot be governed 'in accordance with the Constitution'. S.R. Bommai (1994) limited this power: President's Rule is subject to judicial review, and state Assembly cannot be dissolved until Parliament approves the proclamation.
Current affairs hook: Governor's powers — pending bills, appointment of VCs, interference in state administration. CAA-NRC (2019) — states like Kerala and West Bengal challenged a central law on a Concurrent List subject. GST Council decisions and state fiscal autonomy. Tamil Nadu's demand for a new Finance Commission formula that rewards performance instead of population.
Mains hinge: "India's federal structure has inherent unitary biases. In recent years, these biases have been used to assert central authority more aggressively — questioning the cooperative federalism envisioned by the Constitution." Critically examine with reference to Governor's powers, GST Council, and Article 356.
Territorial Jurisdiction (Art. 245): Parliament can legislate for whole of India (including extraterritorial laws). State Legislature for the state. But one state's law can have extra-territorial operation if nexus exists.
Subject-wise Distribution (Art. 246): Three lists in Schedule VII. Union, State, Concurrent.
Parliament's Overriding Power: On Concurrent List subjects, if both Parliament and State Legislature pass laws, Parliament's law prevails (Repugnancy — Art. 254). However, if the state law has received Presidential assent, it can prevail in that state.
Residuary Powers: Not in any list → Parliament (Entry 97, Union List). By default, all unenumerated subjects go to the Centre.
President's Assent: Centre can direct states to reserve bills for Presidential consideration (Art. 200, Art. 201). Governor can reserve state bills for President — blocking state legislation indefinitely.
Administrative Relations (Articles 256-263):
Executive Power: State executive power must comply with central laws (Art. 256). Centre can give directives to states (Art. 257 — on national highways, railways, etc.).
All-India Services: IAS, IPS, IFS are a unitary feature — officers recruited and controlled by Centre, serve in states. States cannot discipline or remove them.
Inter-State Councils: Article 263 — the President can establish councils to resolve inter-state disputes, coordinate policy. Inter-State Council established 1990 (Sarkaria Commission recommendation), but meetings infrequent.
Zonal Councils: For coordination between states in five zones (Northern, Western, Central, Southern, Eastern).
Article 356 (President's Rule): Centre takes over state administration. Must be approved by Parliament within 2 months. Max duration: 3 years (with Parliamentary approval every 6 months). S.R. Bommai (1994) restricted misuse.
Financial Relations (Articles 264-291):
Division of Tax Revenue: Centre collects major taxes (corporate tax, income tax, customs, excise, CGST). States collect: SGST, stamp duty, land revenue, state excise, motor vehicles tax.
Finance Commission (Art. 280): Quasi-judicial body appointed every 5 years. Determines vertical devolution (Centre's tax pool share to states) and horizontal distribution (among states based on population, income, area, forest, demographic performance).
15th Finance Commission (2021-26): 41% vertical devolution (same as 14th, adjusted for Jammu & Kashmir). Changed horizontal formula: 15% weight to population (2011 census), 45% to income distance, 10% to forest & ecology, 10% to demographic performance, 15% to tax effort.
Grants-in-Aid: Under Article 275 (statutory grants, mainly to backward states) and Article 282 (discretionary grants for specific central schemes — CSS).
GST Compensation: States compensated for revenue loss from GST implementation (guaranteed 14% growth for 5 years). After 2022, compensation extended through borrowing mechanism.
Centrally Sponsored Schemes (CSS): Central schemes implemented by states with cost sharing (60:40, 75:25, 90:10). Critics argue they reduce state autonomy.
Key Facts
Union List: 100 subjects; State List: 61; Concurrent List: 52 (Schedule VII)
Residuary powers: Parliament (Entry 97, Union List)
Repugnancy (Art. 254): Central law prevails over state law on Concurrent subjects (unless state law reserved for President and assented)
Finance Commission: Art. 280, 5-yearly, determines tax devolution formula
15th FC vertical devolution: 41% of Centre's taxes to states (for 2021-26)
Article 356: President's Rule — max 3 years (subject to Parliament approval every 6 months)
S.R. Bommai (1994): Judicial review of Art. 356; state Assembly cannot be dissolved until Parliament approves
NITI Aayog (2015): replaced Planning Commission — advisory body, no power to allocate funds (unlike Planning Commission)
Previous Year Questions
Year
Stage
What was tested
2024
Prelims
Under which Article can a Governor reserve a bill for Presidential consideration? Art. 200
2023
Mains
"The Finance Commission is the cornerstone of Centre-state financial relations." Discuss. How has the 15th Finance Commission's horizontal formula changed devolution?
2022
Prelims
Which schedule contains the Union, State, and Concurrent lists? Seventh Schedule
2021
Mains
"The role of the Governor as the constitutional head of the state has come under scrutiny in recent years." Discuss with reference to the use of Article 200 and 356.
2020
Prelims
S.R. Bommai case (1994) is related to which constitutional provision? Article 356
2019
Mains
"Cooperative federalism has been replaced by competitive federalism under the present government." Critically examine.
2018
Prelims
How many subjects are in the Concurrent List? 52
2017
Mains
Examine the role of the Inter-State Council in resolving Centre-state disputes.
Statement Elimination Guide
Correct: "Under Article 246 read with Schedule VII, Parliament has exclusive power to legislate on Union List subjects; State Legislatures on State List; and both on Concurrent List — with Parliament's law prevailing in case of repugnancy."
False: "The State Legislature has exclusive power over Concurrent List subjects."
Trap: "The Governor is a constitutional head with discretionary powers — they can act without the aid and advice of the Council of Ministers in certain situations." (Correct. The Governor has discretionary powers: reserving bills for President, reporting under Art. 356, giving assent to bills — but the scope is debated.)
Correct: "The Finance Commission's recommendations are binding on the government — the President is required to lay the recommendations before both Houses of Parliament."
False: "The Finance Commission's recommendations are merely advisory and can be modified by the government."
Trap: "All-India Services are a feature of federalism in India." (All-India Services are actually a UNITARY feature — they ensure central control over state administration. Officers are recruited by Centre and serve in states.)
Current Affairs Hook
Centre-state relations in 2026 are marked by three key flashpoints:
Governor's Powers: Several non-BJP ruled states (Tamil Nadu, Kerala, Telangana, Punjab, West Bengal) have accused Governors of acting as 'Centre's agent' — delaying assent to bills, appointing VCs of state universities without state government consent, and making inflammatory remarks. The Supreme Court has intervened multiple times, ruling that Governors cannot sit on bills indefinitely (Tamil Nadu case, 2023). The central government has resisted codifying the Governor's discretionary powers.
GST Compensation: States continue to demand full compensation for GST revenue losses beyond 2022. The borrowing mechanism (2022-26) has left states with additional debt. Kerala and Tamil Nadu have been most vocal about fiscal autonomy.
NITI Aayog vs Finance Commission: NITI Aayog (which replaced the Planning Commission) publishes 'performance indices' for states (health, education, water, innovation) — but states argue that such rankings indirectly influence central fund allocation, bypassing the Finance Commission's constitutional role. The Tamil Nadu government has been particularly critical, arguing the 'population-based' devolution formula penalises well-performing states.
Anti-defection Law and State Politics: The Supreme Court in 2024-25 has heard several cases on the Speaker's power to decide defection proceedings — a recurring Centre-state tension since Speakers are from the ruling party at the state level.
Interlinkages
Constitutional Law (Polity): The three lists, Art. 356, Governor's powers — core to understanding Indian federalism.
Fiscal Policy (Economy): Finance Commission devolution, GST, Centrally Sponsored Schemes — financial autonomy of states.
Political Science (Polity): Cooperative vs competitive federalism — NITI Aayog's role.
Election Commission (Polity): Model Code of Conduct restricts Centre from announcing schemes during elections — Centre-state implications.
Emergency Provisions (Polity): Art. 352 (National Emergency) converts India into a unitary state — Art. 356 (President's Rule) for individual states.
Common Mistakes
"India is a true federation like the USA": India's federalism is unique — unitary bias (single citizenship, All-India Services, Centre's residuary powers, Art. 356). The UK and Spain are unitary devolved states; India is a federation with strong unitary features.
"The Governor is elected by the state": The Governor is appointed by the President (on the advice of the central government). They serve at the pleasure of the President — no fixed term security.
"NITI Aayog replaced the Planning Commission but has the same powers": The Planning Commission allocated plan funds to states (binding). NITI Aayog is a think-tank/advisory body — it does not allocate funds. The Finance Commission now handles tax devolution.
"Residuary powers belong to the states": In India, residuary powers belong to Parliament (Entry 97, Union List). In the USA, they belong to states (10th Amendment). This is a key difference between Indian and American federalism.
"No Governor can be removed before their term": The Governor serves at the pleasure of the President. A Governor can be removed at any time — no formal impeachment needed. This has been a recurring Centre-state tension.
Revision Snapshot
Legislative: 3 lists (Union 100, State 61, Concurrent 52 — Schedule VII). Residuary → Parliament. Repugnancy (Art. 254): Central law overrides state law on Concurrent subjects unless state law reserved for President. Administrative: All-India Services (IAS/IPS/IFS), Art. 356 (President's Rule — max 3 yrs, S.R. Bommai 1994 limited misuse), Governor's discretionary powers. Financial: Finance Commission (Art. 280, 5-yearly, binding), 15th FC (41% vertical devolution, horizontal formula includes population 2011 census), GST compensation, CSS (cost-sharing schemes). Tensions: Governor's powers (bill assent, VC appointments), NITI Aayog's rankings bypassing FC, GST compensation extension, state autonomy vs central directives.