The Indian constitution provides for a federal framework with powers (legislative ,executive and financial) divided between the center and the states. However, there is no division of judicial power as the constitution has established an integrated judicial system to enforce both the central laws as well as state law. The Indian federation is not the result of an agreement between independent units, and the units of Indian federation cannot leave the federation.Thus the constitution contains elaborate provisions to regulate the various dimensions of the relations between the centre and the states.
To understand the topic first we must understand the concept of federalism….
Federalism is a system of government in which the same territory is controlled by two levels of government. Generally, an overarching national government governs issues that affect the entire country, and smaller subdivisions govern issues of local concern. Both the national government and the smaller political subdivisions have the power to make laws and both have a certain level of autonomy from each other.
A federation is traditionally constituted when two or more independent neighboring states forge a Union for defined purposes of common interest by divesting themselves of a measure of sovereignty which is vested with the federal government. “The urge for union comes from the need for collective security against aggression and economic co-ordination for protection and expansion of trade and commerce. The federation is given only enumerated powers, the sovereignty of the states in the Union remains otherwise unimpaired”.
“A Federation in USA is of this type. Alternatively, a federation is formed when a sovereign authority creates autonomous units and combines them in a Union.” Once constituted, the national and state governments possess co-ordinate authority derived from the several constitutions and enjoy supremacy in their respective spheres of authority and jurisdiction. Canadian federation belongs to this category. However, the differences between the two lie in the degree and extent of emphasis on unitary features.
Characteristic Features of Federalism are:-
(i) Supremacy of Constitution:-Supremacy of the Constitution is a doctrine where by the Constitution is the supreme law of the land and all the State organs including Parliament and State Legislatures are bound by it. They must act within the limits laid down by the Constitution. They owe their existence and powers to the Constitution and, therefore, their every action must have its support in the Constitution.
(ii) The distribution among bodies with limited and co-ordinate authority, of different powers of government;
(iii) The authority of the courts as interpreters of the Constitution;
(iv) Double citizenship is another characteristic of some of the Federation.
A unitary system on the other hand has the highest degree of centralization. In a unitary state, the central government holds all the power. Lower-level governments, if they exist at all, do nothing but implement the policies of the national government. In a purely unitary state, the same set of laws applies throughout the nation, without variation. Unitary states create national policy, which is then applied uniformly. This uniformity sometimes serves as an advantage because people and businesses know exactly what to expect from the laws, regardless of geographical location. At the same time, to maintain its uniformity, a unitary government must overlook local differences that might call for different rules or policies.
Now coming back to our main topics Administrative, Legislative and Financial Relationship between centre and state
Administrative relations between the Centre & the States:
The administrative relations between the Centre and the States have been stated from Article 256 to Article 263 of the Constitution. As a rule, the Central Government exercises administrative authority over all the matters on which the Parliament has the power to make laws, whereas the State Governments exercise authority over the matters included in the State List. The executive power of the State is to be exercised in compliance with laws made by the Parliament. Also, the Union Executive is empowered to give directions to a State, when necessary like- construction and maintenance of means of communications, declared to be of national and military importance, and also on the measures for the protection of Railways.Article 256 of the Constitution states that the executive power of the states shall be so exercised as to ensure compliance with the laws of Parliament.
Also the union executive power extends to the giving of such directions to the states as may appear to the Government of India to be necessary for the purpose. It is further stipulated under Article 246 of the Constitution that if the state government fails to endorse the laws passed by the Parliament within its jurisdiction, the union government can issue directions to the states to ensure their compliance. This article lays down that it shall be the duty of the states to exercise its executive power so as to ensure that due effect is given within the state to every act of Parliament and to every existing law which apply in that state. This is a statement of constitutional duty of every state.
Legislative relations between the Centre & the States:
- Union List Only Parliament can make laws in the case of a subject listed in the Union list. It has 100 subjects for now.
- State List Only state can make laws in the case of a subject listed in the State List. It has 61 subjects for now.
- Concurrent List:- Parliament and state (both) are allowed to make laws on the subjects listed in this list. If both have made laws on the same subject then the central law overrides the state law. It has 52 subjects for now.
42nd Amendment Act, 1976 transferred 5 Subjects from state list to concurrent list. (those five subjects were – education, forests, weights and measures, protection of wild animals and birds and administration of justice; constitution and organisation of all courts except the Supreme Court and the high courts.
Financial relations between the Centre & the States:
• The essence of federalism is not just the distribution of functions but also the distribution of resources necessary for the adequate & effective performance of
these functions.
• No system of federation can be successful unless both the union and the states have at their disposal adequate financial resources to enable them to discharge their respective responsibilities under the constitution.
• In the Indian constitution, the union – state financial relations are given in Chapter one of Part XII running from Art. 264 to 293.
Under the Constitution the financial resources of the State are very limited though they have to do many works of social uplift under directive principles. In order to cope with their ever-expanding needs, the Central Government makes grants-in-aid to the States. Grant- in-aid to States , through it Central Government exercises a strict control over the States because grants are granted subject to certain conditions.
The Indian constitution provides for a federal framework with powers divided between the Centre and the states. The Financial powers entrusted by the Constitution reflect a clear asymmetry between the taxation powers and the functional responsibili-ties, with the Centre being assigned taxes with higher revenue potential and States being entrusted with more functional responsibilities. The Constitution provides, under Article 280, the institutional mechanism of Finance Commission and other enabling provisions for the transfer of resources from the Centre.
The Role of the Finance Commission under Indian Constitution are to make recommendation to the President with regard to following matters:
a) To determine the scheme that governs the matters relating to the distribution of net proceeds of taxes which are in the divisible pool, between the Centre and States. 
b) To make recommendations, to determine the principle that would regulate or govern the revenues to the States from the Central Revenue in the form of Grant in Aid to the needy States
c) This function of the Commission is included by the way of 73rd and 74 Constitutional Amendment to strengthen the financial Status of the local bodies by providing the supplement to the resources of the Panchayats and Municipalities in the States on the basis of the recommendation of State Finance Commission from the Consolidated fund of the State.
d) The last function of the Commission as provided by the Constitution under Article 280 3(d) is very vast any matter relating to the Fiscal interest between the intergovernmental bodies can be referred to the Commission by the President, These function or Terms of Reference, which broadly fixed by the Constitution itself; while at the same time an element of flexibility is built into these terms of reference under sub clause (d) of Article 280(3). Under this Clause the President has a power to refer any matter to the Commission ‘in the interests of sound finance.
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