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Effects of Emergencies

The Centre-state financial relations in normal times (described above) undergo changes during emergencies. These are as follows:

National Emergency

While the proclamation of national emergency (under Article 352) is in operation, the president can modify the constitutional distribution of revenues between the Centre and the states. This means that the president can either reduce or cancel the transfer of finances (both tax sharing and grants-in-aid) from the Centre to the states. Such modification continues till the end of the financial year in which the emergency ceases to operate.

Financial Emergency

While the proclamation of financial emergency (under Article 360) is in operation, the Centre can give directions to the states: (i) to observe the specified canons of financial propriety; (ii) to reduce the salaries and allowances of all class of persons serving in the state; and (iii) to reserve all money bills and other financial bills for the consideration of the President.

Table 14.3 Articles Related to Centre-State Financial Relations at a Glance


Article No.

Subject Matter

Distribution of Revenues between the Union and the States

268. Duties levied by the Union but collected and appropriated by the states

268A.

Service tax levied by Union and collected and appropriated by the Union and the states (Repealed)

269. Taxes levied and collected by the Union but assigned to the states

269A.

Levy and collection of goods and services tax in course of inter-state trade or commerce

270. Taxes levied and distributed between the Union and the states

271. Surcharge on certain duties and taxes for purposes of the Union

272. Taxes which are levied and collected by the Union and may be distributed between the Union and the states (Repealed)

273. Grants in lieu of export duty on jute and jute products

274. Prior recommendation of President required to bills affecting taxation in which states are interested

275. Grants from the Union to certain states

276. Taxes on professions, trades, callings and employments

277. Savings

278. Agreement with states in Part B of the First Schedule with regard to certain financial matters (Repealed)

279. Calculation of "net proceeds”, etc.

279A.

Goods and Services Tax Council

280. Finance Commission


281. Recommendations of the Finance Commission

Miscellaneous Financial Provisions

282.

Expenditure defrayable by the Union or a state out of its revenues

283.

Custody, etc., of Consolidated Funds, Contingency Funds and moneys credited to the public accounts

284.

Custody of suitors’ deposits and other moneys received by public servants and courts

285.

Exemption of property of the Union from state taxation

286.

Restrictions as to imposition of tax on the sale or purchase of goods

287.

Exemption from taxes on electricity

288.

Exemption from taxation by states in respect of water or electricity in certain cases

289.

Exemption of property and income of a state from Union taxation

290.

Adjustment in respect of certain expenses and pensions

290A.

Annual payment to certain Devaswom Funds

291.

Privy purse sums of Rulers (Repealed)

Borrowing

292. Borrowing by the Government of India

293. Borrowing by states



Till 1967, the centre-state relations by and large were smooth due to one-party rule at the Centre and in most of the states. In 1967 elections, the Congress party was defeated in nine states and its position at the Centre became weak. This changed political scenario heralded a new era in the Centre-state relations. The non-Congress Governments in the states opposed the increasing centralisation and intervention of the Central government. They raised the issue of state autonomy and demanded more powers and financial resources to the states. This caused tensions and conflicts in Centre-state relations.