Centre-state relations and finance

India is a federation: the Constitution divides power between the Union and the states, and each is supreme in its own field. But it is a federation with a strong Centre. The division covers three things: making laws, running the administration and raising money.

Who makes laws on what: the three lists

Article 246 and the Seventh Schedule divide subjects into three lists.

• If a Union law and a state law on a Concurrent subject conflict, the Union law prevails (Article 254), unless the state law has received the President's assent.
• Subjects not mentioned in any list are residuary subjects. Only Parliament can make laws on them (Article 248).
• Education and forests were moved from the State List to the Concurrent List by the 42nd Amendment in 1976.

When Parliament can legislate on state subjects

• when the Rajya Sabha declares, by a two-thirds majority, that it is necessary in the national interest (Article 249);
• during a national emergency (Article 250);
• when two or more states ask for it (Article 252);
• to carry out an international treaty or agreement (Article 253);
• during President's rule in a state.

Administrative relations

States must use their executive power so as to comply with Union laws, and the Union can give directions to a state for this purpose (Articles 256 and 257). The All India Services, such as the IAS and IPS, are recruited by the Union but serve in the states. Parliament can provide for the settlement of disputes over the waters of inter-state rivers (Article 262). The President can set up an Inter-State Council (Article 263) to discuss matters of common interest.

Financial relations

Article 265 lays down a basic rule: no tax can be levied or collected except by the authority of law.

• The Union and each state have a Consolidated Fund, into which all revenue is paid and from which money can be taken only with the approval of the legislature (Article 266). A Contingency Fund (Article 267) meets unforeseen expenses.
• The Union collects the main taxes, such as income tax and corporation tax. A share of the central taxes is passed on to the states.
• The Finance Commission (Article 280), appointed by the President every five years, recommends how the taxes should be shared between the Union and the states and among the states.
• The Union also gives grants to states that need help (Article 275).

GST

The 101st Amendment (2016) brought in the Goods and Services Tax, which replaced many indirect taxes of the Union and the states from 1 July 2017. Both levels now tax the same supply of goods and services. Decisions on rates and rules are taken by the GST Council (Article 279A), chaired by the Union Finance Minister, with the finance ministers of the states as members.

Property and trade

Article 300A says that no person shall be deprived of property except by the authority of law. Property is therefore a legal right, though no longer a Fundamental Right. Article 301, in Part XIII, declares that trade, commerce and intercourse throughout the territory of India shall be free, subject to restrictions allowed by the Constitution.

Is India truly federal?

Features such as a written constitution, the division of powers and an independent Supreme Court are federal. Features such as a stronger Centre, single citizenship, Governors appointed by the Centre, All India Services and emergency powers are unitary. This is why India has been called "quasi-federal" and why co-operation between the Centre and the states matters so much.