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CENTRE-STATERELATIONSHIPS

GROUP 12AASHRIK JHAWAR

ANKIT MACHHARMISHAL GOLECHHA

DHAVAL GAJJAR

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Indias Federal Structure till 1990s

UNION

STATES

DISTRICT

BLOCK / TALUKA

VILLAGE

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Federal Structure in India After 1992

Central Government

State Government

Local Government

Urban Local Bodies

Rural local Self-Governing Institutions

District Panchayats(540)

IntermediatePanchayats (6096)

Village Panchayats(2,32,000)

Corporations

Municipalities

Town Areas

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The Administrative Structure of theGovernment of India

President

Vice President

Prime MinisterCouncil of Ministers

Minister Minister Minister

Secretary

Additional Secretary

Joint Secretary

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The Administrative Structure of the StateGovernments

Governor

Chief MinisterCouncil of Ministers

Minister Minister Minister

Secretary

Additional Secretary

Joint Secretary

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COMMISSION ON CENTRE-STATE

RELATIONSHIPS

The Commission examined the same in the threeuniversally accepted sectional forms namely, thelegislative, the administrative and the financialrelations.

In the legislative relations, among others, detailedconsideration was given to the structural andfunctional aspects of the legislativelists in the domainof the Centre, the State and the concurrent jurisdiction,the Articles of the Constitution bearing close links with

the functioning of the Centre and States and the relatedaspects.

In the administrative relations the report providedextensive focus on the role of Governor, the prime andorganic Constitutional link between the Centre and the

State.

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In financial relations, detailed consideration was givento the distribution of taxation powers, the transfer

mechanisms under the aegis of the FinanceCommission(s), the resource mobilization practices bythe Centre and the States, the economic and socialplanning including the Panchayati Raj system, thebalanced development of agriculture and industry, the

inter-state trade and commerce, the inter-state river-water disputes and other connected issues, which hadthe economic, political and emotive bearing on thefederal relations.

In addition, the Commission focused its attention to therole of Judiciary, the mass media, dissemination andcommunication of prompt and correct information andthe management of the language formulae to promotehealthy practices and sound federal relations.

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Presently, most states are fiscally stressed and have

unacceptably high debt levels coupled with high revenue

deficits:

Aggregate revenue deficits of states are in excess of 25% of

their revenue receipts.

Debt- GDP ratio is about 30%.

As part of a MTFRP, GOI now determines the borrowing limitsfor states. These limits are defined both in terms of

aggregates as well as in terms of specific components.

The above ceilings and their componental distribution are not

rigid.

STATE FINANCES AN OVERVIEW

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TAXING POWERS OF UNION AND STATES

-Clear division of Taxing Powers

-No overlapping of Tax jurisdictions

-Little scope for Competitive exploitation of the same

resource(A)Taxes controlled by Union

(B)Taxes controlled by States

(C)Residuary taxing powers of Union

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APPROPRIATION OF PROCEEDS

[OF UNION TAXES BY STATES]

Balancing the Central-State Fiscal position throughappropriation as-

Duties levied by the union but collected and appropriatedby the states.

Taxes levied and collected by the Union but whollyassigned to the states.

Taxes levied and collected by the Union but distributedbetween the Union and the States.

Taxes though levied, collected and wholly appropriated bythe Union but the States claiming share in them.

Taxes levied and collected by the Union but may bedistributed between Union and States.

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Borrowing powers of the Union and theStates

(A) Borrowing powers of the Union-

Article 292 of the Constitution Confers upon theGovt. of India exclusive power to borrow upon thescrutiny of the Consolidated Fund of India (i.e. of

the resources of the Union), subject to suchlimitations as Parliament may be law impose underits legislative Power with respect to the Public Debtof the Union.

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(B) Borrowing powers of the State-

Constitutional provisions- Articles 293(1)- 293(4) laydown the position in this regard. Under these, states

can:

Borrow only within the territorial limits of India

With the prior consent of GOI in case they haveloans outstanding against GOI

GOI may impose conditionalities prior to grantingconsent

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STATES OWN RESOURCES

Balance from current revenues

Contribution from State Public Sector

undertakings

Plan Grants awarded by Finance Commissions

Net Miscellaneous Capital Receipts

Provident Fund

Mobilization of Small Savings Statutory Liquidity Ratio Based borrowings

Negotiated Loans

Debentures and Bonds

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CENTRAL ASSISTANCE

Union Government is giving the Central assistance to

State Plans.

Given in the form of block grants & loans in the ratio

of 90:10 for special category States and 30:70 forothers

Normal Central assistance

Based on the Gadgil-Mukherjee formula approved by

the National Development Council in 1991

Following criteria:-

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1 Population (1971 census

& 1977 projection)

60%

2. Income criteria 25%

Of which deviation

criteria

20%

Distance Method 5%

3. Performance 7.5%

Tax Effort 2.5%

Fiscal management 2.0%

National Objectives 3.0%

Pop control 1.0%

Female literacy 1.0%

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On time completion of

Externally aided projects

0.5%

Land Reforms 0.5%

4. Special Problems 7.5%

Total 100.00

Additional Central Assistance for Externally Aidedprojects:

Central Government provides assistance to Stateson the basis of actual expenditure incurred on theprojects

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SCALE OF OPERATIONS(MINISTRY OF FINANCE)

Total Loan Portfolio outstanding for all State Governments as

on 1st April, 2006 is Rs.1,52,000 crores(US $ 33 b).

Total volume of transactions (turn over) on an yearly basis is :

Releases (Loans,Grants,Investments)Rs.2,43,000 crores(US $

53 b).

Repayments Rs.21,000 crores(US $ 9 b).

Prepayments under Debt Swap Rs.1,05,000 crores(US $ 23.0

b)

Total number of records generated annually 18,000

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TRANSFER TO STATES & UTsRs. in crores

Major Head 2005-06

(Actual)

2245-Relief on natural calamities 2,175.00

3601-Grants to State Govts 50,115.00

3602-Grants to Uts 325.00

7601-Loans & Advances to State Govts.

DEVOLUTION OF TAXES

Transfer of Small Saving Collection ( Investments)

5,325.00

94402.00

89836.00

TOTAL 242178.00

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THANK YOU