The Second commission on Centre-State Relations was set-up by the Government of India in April 2007 under the Chairmanship of Madan Mohan Punchhi, former Chief Justice of India.28 It was required to look into the issues of Centre-State relations keeping in view the sea-changes that have
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.
The terms of reference of the Commission were as follows:
(i) The Commission was required to 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.
(ii) 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 was required to 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 were also needed 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.
(iii) While examining and making its recommendations on the above, the Commission was required to have particular regard, but not limit its mandate to the following:-
(a) 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.
(b) 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.
(c) 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 sixth Schedule of the Constitution within a specified period of time.
(d) The role, responsibility and jurisdiction of the Centre vis-a-vis States in promoting the concept and practice of independent planning and budgeting at the District level.
(e) 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.
(f) The role, responsibility and jurisdiction of the Centre in adopting approaches and policies based on positive discrimination in favour of backward States.
(g) 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.
(h) 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.
(i) 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.
(j) The need for setting up a Central Law Enforcement Agency empowered to take up suo moto investigation of crimes having interState and/or international ramifications with serious implications on national security.
(k) 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.
The Commission submitted its report to the government in April 2010. In finalising the 1,456 page report, in seven volumes, the Commission took
extensive help from the Sarkaria Commission report, the National Commission to Review the Working of the Constitution (NCRWC) report and the Second Administrative Reforms Commission report. However, in a number of areas, the Commission report differed from the Sarkaria Commission recommendations.
After examining at length the issues raised in its Terms of Reference and the related aspects in all their hues and shades, the Commission came to the conclusion that ‘cooperative federalism’ will be the key for sustaining India’s unity, integrity and social and economic development in future. The principles of cooperative federalism thus may have to act as a practical guide for Indian polity and governance.
In all, the Commission made over 310 recommendations, touching upon several significant areas in the working of Centre-state relations. The important recommendations are mentioned below:
1. To facilitate effective implementation of the laws on List III subjects, it is necessary that some broad agreement is reached between the Union and states before introducing legislation in Parliament on matters in the Concurrent List.
2. The Union should be extremely restrained in asserting Parliamentary supremacy in matters assigned to the states. Greater flexibility to states in relation to subjects in the State List and “transferred items” in the Concurrent List is the key for better Centre-state relations.
3. The Union should occupy only that many of subjects in concurrent or overlapping jurisdiction which are absolutely necessary to achieve uniformity of policy in demonstrable national interest.
4. There should be a continuing auditing role for the Inter-state Council in the management of matters in concurrent or overlapping jurisdiction.
5. The period of six months prescribed in Article 201 for State Legislature to act when the bill is returned by the President can be made applicable for the President also to decide on assenting or withholding assent to a state bill reserved for consideration of the President.
6. Parliament should make a law on the subject of Entry 14 of List I (treaty making and implementing it through Parliamentary legislation) to streamline the procedures involved. The exercise of the power obviously cannot be absolute or unchartered in view of the federal structure of legislative and executive powers.
7. Financial obligations and its implications on state finances arising out of treaties and agreements should be a permanent term of reference to the Finance Commissions constituted from time to time.
8. While selecting Governors, the Central Government should adopt the following strict guidelines as recommended in the Sarkaria Commission report and follow its mandate in letter and spirit :
(i) He should be eminent in some walk of life
(ii) He should be a person from outside the state
(iii) He should be a detached figure and not too intimately connected with the local politics of the states
(iv) He should be a person who has not taken too great a part in politics generally and particularly in the recent past
9. Governors should be given a fixed tenure of five years and their removal should not be at the sweet will of the Government at the Centre.
10. The procedure laid down for impeachment of President, mutatis mutandis can be made applicable for impeachment of Governors as well.
11. Article 163 does not give the Governor a general discretionary power to act against or without the advice of his Council of Ministers. In fact, the area for the exercise of discretion is limited and even in this limited area, his choice of action should not be arbitrary or fanciful. It must be a choice dictated by reason, activated by good faith and tempered by caution.
12. In respect of bills passed by the Legislative Assembly of a state, the Governor should take the decision within six months whether to grant assent or to reserve it for consideration of the President.
13. On the question of Governor’s role in appointment of Chief Minister in the case of an hung assembly, it is necessary to lay down certain clear guidelines to be followed as Constitutional conventions. These guidelines may be as follows:
(i) The party or combination of parties which commands the widest support in the Legislative Assembly should be called upon to form the Government.
(ii) If there is a pre-poll alliance or coalition, it should be treated as one political party and if such coalition obtains a majority, the leader of such coalition shall be called by the Governor to form the Government.
(iii) In case no party or pre-poll coalition has a clear majority, the Governor should select the Chief Minister in the order of preference indicated here.
(a) The group of parties which had pre-poll alliance commanding the largest number
(b) The largest single party staking a claim to form the government with the support of others
(c) A post-electoral coalition with all partners joining the government
(d) A post-electoral alliance with some parties joining the government and the remaining including independents supporting the government from outside
14. On the question of dismissal of a Chief Minister, the Governor should invariably insist on the Chief Minister proving his majority on the floor of the House for which he should prescribe a time limit.
15. The Governor should have the right to sanction for prosecution of a state minister against the advice of the Council of Ministers, if the Cabinet decision appears to the Governor to be motivated by bias in the face of overwhelming material.
16. The convention of Governors acting as Chancellors of Universities and holding other statutory positions should be done away with. His role should be confined to the Constitutional provisions only.
17. When an external aggression or internal disturbance paralyses the state administration creating a situation of a potential break down of the Constitutional machinery of the state, all alternative courses available to the Union for discharging its paramount responsibility under Article 355 should be exhausted to contain the situation and the exercise of the power under Article 356 should be limited strictly to rectifying a “failure of the Constitutional machinery in the state”.
18. On the question of invoking Article 356 in case of failure of Constitutional machinery in states, suitable amendments are required to incorporate the guidelines set forth in the landmark judgement of the Supreme Court in S.R. Bommai V. Union of India (1994). This would remove possible misgivings in this regard on the part of states and help in smoothening Centre-state relations.
19. Given the strict parameters now set for invoking the emergency provisions under Articles 352 and 356 to be used only as a measure of “last resort”, and the duty of the Union to protect states under Article 355, it is necessary to provide a Constitutional or legal framework to deal with situations which require Central intervention but do not warrant invoking the extreme steps under Articles 352 and 356. Providing the framework for “localised emergency” would ensure that the state government can continue to function and the Assembly would not have to be dissolved while providing a mechanism to let the Central Government respond to the issue specifically and locally. The imposition of local emergency is fully justified under the mandate of Article 355 read with Entry 2A of List I and Entry 1 of List II of the Seventh Schedule.
20. Suitable amendments to Article 263 are required to make the Inter-State Council a credible, powerful and fair mechanism for management of interstate and Centre-state differences.
21. The Zonal Councils should meet at least twice a year with an agenda proposed by states concerned to maximise co-ordination and promote harmonisation of policies and action having inter-state ramification. The Secretariat of a strengthened Inter-State Council can function as the Secretariat of the Zonal Councils as well.
22. The Empowered Committee of Finance Ministers of States proved to be a successful experiment in inter-state co-ordination on fiscal matters. There is need to institutionalise similar models in other sectors as well. A forum of Chief Ministers, Chaired by one of the Chief Minister by rotation can be similarly thought about particularly to co-ordinate policies of sectors like energy, food, education, environment and health.
23. New all-India services in sectors like health, education, engineering and judiciary should be created.
24. Factors inhibiting the composition and functioning of the Second Chamber as a representative forum of states should be removed or modified even if it requires amendment of the Constitutional provisions. In fact, Rajya Sabha offers immense potential to negotiate acceptable solutions to the friction points which emerge between Centre and states in fiscal, legislative and administrative relations.
25. A balance of power between states inter se is desirable and this is possible by equality of representation in the Rajya Sabha. This requires amendment of the relevant provisions to give equality of seats to states in the Rajya Sabha, irrespective of their population size.
26. The scope of devolution of powers to local bodies to act as institutions of self-government should be constitutionally defined through appropriate amendments.
27. All future Central legislations involving states’ involvement should provide for cost sharing as in the case of the RTE Act. Existing Central legislations where the states are entrusted with the responsibility of implementation should be suitably amended providing for sharing of costs by the Central Government.
28. The royalty rates on major minerals should be revised at least every three years without any delay. States should be properly compensated for any delay in the revision of royalty beyond three years.
29. The current ceiling on profession tax should be completely done away with by a Constitutional amendment.
30. The scope for raising more revenue from the taxes mentioned in article 268 should be examined afresh. This issue may be either referred to the next Finance Commission or an expert committee be appointed to look into the matter.
31. To bring greater accountability, all fiscal legislations should provide for an annual assessment by an independent body and the reports of these bodies should be laid in both Houses of Parliament/state legislature.
32. Considerations specified in the Terms of Reference (ToR) of the Finance Commission should be even handed as between the Centre and the states. There should be an effective mechanism to involve the states in the finalisation of the ToR of the Finance Commissions.
33. The Central Government should review all the existing cesses and surcharges with a view to bringing down their share in the gross tax revenue.
34. Because of the close linkages between the plan and non-plan expenditure, an expert committee may be appointed to look into the issue of distinction between the plan and non-plan expenditure.
35. There should be much better coordination between the Finance Commission and the Planning Commission. The synchronisation of the periods covered by the Finance Commission and the Five-Year Plan will considerably improve such coordination.
36. The Finance Commission division in the Ministry of Finance should be converted into a full-fledged department, serving as the permanent secretariat for the Finance Commissions.
37. The Planning Commission has a crucial role in the current situation. But its role should be that of coordination rather that of micro managing sectoral plans of the Central ministries and the states.
38. Steps should be taken for the setting up of an Inter-State Trade and Commerce Commission under Article 307 read with Entry 42 of List-I. This Commission should be vested with both advisory and executive roles with decision making powers. As a Constitutional body, the decisions of the Commission should be final and binding on all states as well as the Union of India. Any party aggrieved with the decision of the Commission may prefer an appeal to the Supreme Court.
The Report of the Commission was circulated to all stakeholders including State Governments / UT Administrations and Union Ministries / Departments concerned for their considered views on the recommendations of the Commission. The comments received from the Union Ministries / Departments and the State Governments / UT Administrations are being examined by ISC (Inter-State Council) Secretariat and would be put up to the ISC for its consideration.
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