Centre-State Relations: A Broad Perspective

Summary

Nani A. Palkhivala’s 1983 Forum of Free Enterprise pamphlet diagnoses what he treats as the central political pathology of the Indian Republic in the early 1980s: the steady erosion of the federal scheme of the Constitution by an over-mighty Centre. Framing India since 1950 as ‘the largest experiment ever undertaken in human history in the art of democratic living’, he insists that the Centre is ‘nothing but the States in their federal garb’, and that the injuries done to the States have been largely self-inflicted by their own representatives in Parliament. The Constitution, he argues, was deliberately written with a bias in favour of the Union, but that bias must operate within reasonable limits; the question of the pamphlet is what those limits are.

The essay then surveys the principal mechanisms of over-centralisation. Under ‘Industries and Economic Development’, Palkhivala attacks the progressive enlargement of the Industries (Development and Regulation) Act, 1951, arguing that without any amendment to the Constitution at least 93 per cent of organised industry has been swallowed by the Union — an ‘indefensible violation’ that he ties directly to India’s anaemic post-1950 growth in per capita income. Successive sections on President’s Rule under article 356, the appointment and conduct of Governors, the reservation of State Bills for the President’s assent, and the extra-constitutional ascendancy of the Planning Commission catalogue what Palkhivala presents as a systematic devaluation of constitutional institutions for partisan central ends. He draws repeatedly on the Rajamannar Committee, the Administrative Reforms Commission, and the observations of K. Santhanam and Dr K. Subba Rao to argue that the Planning Commission has created a ‘vertical federation’ displacing the horizontal scheme of the Constitution, and that 70 per cent of Centre-to-State grants now flow through discretionary article 282 channels rather than the Finance Commission.

Under ‘Financial Relations’ Palkhivala makes the fiscal case that the existing tax-sharing regime is structurally unfair to the States: corporation tax is excluded from the divisible pool, surcharges on income-tax accrue exclusively to the Centre, and price rises on petroleum, steel, aluminium and coal have substituted for excise hikes in a way that, by one West Bengal Finance Minister’s reckoning, deprived the States of about Rs 2,600 crores in their proper share. He calls for a legal — not discretionary — right to a larger share of central revenues, and for inter-State problems on electricity, water and rivers to be resolved by an active Inter-State Council under article 263 rather than by central intervention.

The pamphlet closes with what Palkhivala calls ‘The Only Lasting Solution’: constitutional amendment is at best a last resort, and the real guarantee of federal fair dealing must come from constitutional morality, from the conscience of representatives, and from a vigorous and well-informed public opinion. Quoting Thomas Jefferson on the impossibility of an ignorant free nation and invoking the idea of ‘Obedience to the Unenforceable’, he warns that ‘Dharma lives in the hearts of public men; when it dies there, no constitution, no law, no amendment, can save it.‘

Key points

• Frames India’s post-1950 republic as the largest democratic experiment in human history and argues the Constitution deliberately built a bounded pro-Centre bias that has been pushed beyond its reasonable limits.

• Insists the Centre is constituted entirely by representatives the States themselves return to Parliament, making the injuries done to the States in significant part self-inflicted rather than the product of an alien power.

• Attacks the progressive expansion of the Industries (Development and Regulation) Act, 1951 — without any constitutional amendment — as having transferred roughly 93% of organised industry to Union control and as a primary cause of India’s low growth (only 56% real per-capita income gain since 1950).

• Critiques the abuse of President’s Rule under article 356 (imposed more than 70 times, on all States except Sikkim) and reviews the Rajamannar Committee’s recommendation that the article be deleted or hedged with safeguards.

• Argues that the office of Governor has been systematically devalued into something resembling the colonial Resident Agent, and endorses Rajamannar-style proposals — consultation with the State Cabinet on appointment, no second term, removal only for proved misbehaviour after Supreme Court inquiry, and binding Instruments of Instructions.

• Treats the Planning Commission as an extra-constitutional body that, via non-statutory article 282 grants, has built a ‘vertical federation’ displacing the horizontal scheme of the Constitution; 70% of Centre-to-State grants are now discretionary rather than Finance-Commission-mandated.

• Makes a detailed fiscal case that distribution of taxes and revenues is far too favourable to the Centre — corporation tax is excluded from the divisible pool, the Centre’s 12½% income-tax surcharge accrues only to it, and price rises in central-sector goods have allegedly cost the States about Rs 2,600 crores of legitimate excise share.

• Closes by arguing that constitutional amendment is the wrong instrument: the lasting remedy lies in constitutional morality, healthy unwritten conventions, the conscience of elected representatives, and a vigorous public opinion — ‘Obedience to the Unenforceable’ rather than further statute-craft.