UNIT – 4

CENTRE AND STATE FINANCIAL RELATIONS

India follows a federal structure where the powers are shared between both the centre
and the states. Though however, the distribution of these powers are not equal, and we often
find states raising constant concerns about their extreme dependence on the Union Government
for all the matters, thus limiting their powers and autonomy. Hence, it is also said that India
follows a quasi-federal structure where the central government enjoys more powers over the
states.

FEDERAL SYSTEM

A federation is an association of two or more states. The member states of a federation

have the Union Government for the whole country and there are State Governments for the
parts of the country.

Federal finance refers to the system of assigning the source of revenue to the Central as
well as State Governments for the efficient discharge of their respective functions i.e. clear-cut
division is made regarding the allocation of resources of revenue between the central and state
authorities.

RELATIONSHIP OF CENTRE AND STATES

a. FINANCIAL RELATIONS

Allocation of taxing powers

i. Parliament has the exclusive power to levy taxes on subjects enumerated in the Union
list
ii. State legislature has the exclusive power to levy taxes on subjects enumerated in the
state list
iii. Both union and state can levy taxes on matters enumerated in the concurrent list
iv. Residuary power of taxation is vested in the Parliament
Distribution of tax revenues:

i. Taxes are imposed by the centre but are collected and appropriated by the state (Article
268). The proceeds under this form part of the consolidated fund of the state. Ex:
Stamps duty, excise duty
ii. Taxes are levied and collected by the centre but assigned to the states (article 269). Ex:
Taxes on the sale or purchase of goods (other than newspapers) in the course of inter-
state trade. The proceeds under this form part of the consolidated fund of the state.
iii. Taxes are levied and collected by the centre but distributed between the centre and the
states (Article 270). This category includes all taxes except those mentioned above,
surcharges and cess. The matter of distribution of these taxes is prescribed by the
President based on the recommendation of the Finance Commission
iv. Parliament at any point can levy the surcharges on taxes and duties referred to in Article
269 and article 270. Such proceeds from surcharges go exclusively to the centre
v. Taxes levied and collected and retained by the states: These are the taxes belonging to
the states exclusively. They are enumerated in the state list. Ex: Taxes on agriculture
income, excise duties on alcohol, taxes on professions, ceilings etc

Distribution of Non-tax revenues:

a. The centre: The receipts from the following form the major sources of non-tax
revenues of the centre:
i. Posts & Telegraphs;
ii. Railways
iii. Banking
iv. Broadcasting
v. Coinage & currency
vi. Central public sector enterprise
vii. Escheat and lapse
b. The states: The receipts from the following form the major sources of non-tax revenues
of the states:

i. Irrigation
ii. Forests
iii. Fisheries
 iv. State public sector enterprise

c. Grants-in-Aid to the states: Constitution provides for grants-in-aid to the state from
the central resources. There are two types of grants-in-aid: statutory grants and
discretionary grants
d. Statutory grants:

i. Article 275 empowers the parliament to make grants to the states which are in
need of financial assistance and not to every state
ii. These sums can be different for different states. These sums are charged on the
Consolidated Fund of India every year
iii. These are given to the states based on the recommendation of the Finance
Commission

Discretionary grants:

i. Article 282 empowers both the centre and the states to make any grants for any
public purpose, even if it is not within their legislative competence.
ii. The centre is under no obligation to give these grants and the matter lies within
its discretion

Other grants:

i. Constitution provided for a temporary grant for specific purpose. Ex: grants for
the states of Assam, Bihar, Odisha and West Bengal in lieu of export duties on
jute and jute products.
ii. These grants were to be given for a period of 10 years from the commencement
of the constitution based on the recommendation of the Finance Commission

b. LEGISLATIVE RELATIONS

There are four aspects in the Centre-state legislative relations:

i. Territorial extent of central and state legislation

ii. Distribution of legislative subjects
iii. Parliamentary legislation in the state field
 iv. Centre’s control over state legislation.

Territorial extent of central and state legislation

a. Parliament can make law for the whole or any part of the territory of India (territory
includes union, state, UT)
b. State legislature can make laws for the whole or any part of the state. Laws made by
the state are not applicable outside the state, except when there is sufficient relation
between the state and object
c. Parliament can alone make ‘extra-territorial’ legislation
d. Instances when laws made by the Parliament are not applicable:
e. President can make regulations which has a same effect as that of the law made by
parliament for- Andaman and Nicobar islands, Daman and Diu, Dadra and Nagar
Haveli and Lakshadweep
f. Governor is empowered to direct that an act of parliament does not apply to a scheduled
area in the state or apply with specified modifications and exceptions
g. Governor of Assam can likewise direct that an act of Parliament does not apply or apply
with some modification. The same power is vested in President in relation to
Meghalaya, Tripura and Mizoram.

Distribution of Legislative subjects

a. Constitution provides for three-fold classification- union list, state list and concurrent
list
b. Parliament has exclusive powers vis-à-vis the union list
c. State legislature in normal circumstances has exclusive powers to make laws with
matters enumerated in the state list
d. Both state and centre can make laws on matters enumerated in the concurrent list

Centre’s control over state legislation

a. Constitution has empowered the centre to exercise control over the state’s legislative
matters in the following ways:
b. Governor can reserve certain types of bills passed by state legislature for the
consideration of the president. The president enjoys absolute veto over them
 c. Bills on certain matters enumerated in the state list can be introduced in the state
legislature only with prior recommendation of the President. Ex: Inter-state trade and
commerce

During a financial emergency, president can call upon a state to reserve money
bills and other financial bills for his consideration

c. ADMINISTRATIVE RELATIONS

i. The executive power has been divided between the centre and the states on the lines of
distribution of legislative powers
ii. The power of the centre extends to the whole of India on matters where it has exclusive
jurisdiction (union list) and to the exercise of rights, authority and jurisdiction conferred
on it by any treaty or agreement
iii. The jurisdiction of the state extends to those matters enumerated in the state list
iv. In matters related to concurrent list, the executive power rests with the states
v. Obligation of states to the centre:

a. State’s executive power has to be conducted in such a way so as to ensure

compliance with the laws made by the Parliament
b. And not to impede or prejudice the exercise of executive power of the centre in
a state

vi. These directions are coercive in nature (Article 365) since any failure to abide by them
could invite the use of Article 356
vii. Centre has been empowered to issue advice to states in the following instances:

a. Construction and maintenance of means of communication declared to be of

national importance or military importance by the state
b. Measures to be taken for the protection of the railways within the state
c. Provision of adequate facilities for instruction in the mother-tongue at the
primary stage of education to children belonging to linguistic minority groups
d. The drawing up and execution of the specified schemes for the welfare of the
ST in the states
 viii. The coercive sanction behind the central directions under article 365 is also applicable
in this case
ix. Mutual delegation of functions: The constitution provides for inter-governmental
delegation of executive functions in order to mitigate the rigidity and avoid a situation
of deadlock

a. The president with the consent of the state government may delegate the
executive functions of the union to the state
b. The governor with the consent of the central government may delegate the
executive functions of the state to the union
c. This mutual delegation could be either conditional or unconditional
d. The constitution also provides for delegation of union executive functions to the
state without the consent of the state. However, such delegation is made by
Parliament and not President. However, a state cannot delegate its executive
power in the same way

x. Cooperation between the centre and the states: The following provisions have been
included to secure cooperation and coordination between the centre and the states

a. Parliament can provide for the adjudication of any dispute or complaint with
respect to the use, distribution and control of waters of any inter-state river and
river valleys
b. President can establish an Inter-state council to investigate and discuss subject
of common interest between the centre and the states.
c. Full faith and credit is to be given throughout the territory of India to public
acts, records and judicial proceedings of the centre and every state
d. Parliament can appoint an appropriate authority to carry out the purposes of the
constitutional provisions relating to the interstate freedom of trade, commerce
and intercourse.

PRINCIPLES OF FEDERAL FINANCE

a. Principle of Independence
 Under the system of federal finance, a Government should be autonomous and free
about the internal financial matters concerned. It means each Government should have separate
sources of revenue, authority to levy taxes, to borrow money and to meet the expenditure. The
Government should normally enjoy autonomy in fiscal matters.

b. Principle of Equity

From the point of view of equity, the resources should be distributed among the
different states so that each state receives a fair share of revenue. The allocation of resources
should be made in such a way as to give equitable treatment to the individuals and business
firms in different places.

c. Principle of Uniformity

In a federal system, each state should pay equal tax payments for federal finance. But
this principle cannot be followed in practice because the taxable capacity of each unit is not of
the same. Since this principle of uniformity emphasis on the uniformity of pattern of
expenditure in all the states, equality of contribution imposes heavy burden on backward states.

d. Principle of Adequacy of Resources

The principle of adequacy means that the resources of each Government i.e. Central
and State should be adequate to carry out its functions effectively. Here adequacy must be
decided with reference to both current as well as future needs. Besides, the resources should be
elastic in order to meet the growing needs and unforeseen expenditure like war, floods etc.

e. Principle of Fiscal Access

In a federal system, there should be possibility for the Central and State Governments
to develop new source of revenue within their prescribed fields to meet the growing financial
needs. In nutshell, the resources should grow with the increase in the responsibilities of the
Government.

f. Principle of Integration and coordination

The financial system as a whole should be well integrated. There should be a perfect
coordination among different layers of the financial system of the country. Then only the
federal system will prosper. This should be done in such a way to promote the overall economic
development of the country.

g. Principle of Efficiency

The financial system should be well organized and efficiently administered. There
should be no scope for evasion and fraud. No one should be taxed more than once in a year.
Double taxation should be avoided.

h. Principle of Administrative Economy

Economy is the important criterion of any federal financial system. That is, the cost of
collection should be at the minimum level and the major portion of revenue should be made
available for the other expenditure outlays of the Governments.

i. Principle of Accountability

In a federal set up, the Governments both Central and States enjoy financial autonomy.
Thus, in such a system each Government should be accountable to its own legislature for its
financial decisions i.e. the Central to the Parliament and the State to the Assembly.

PROBLEMS OF FEDERAL FINANCE

a. Division of Work According to Financial Resources

According to the federal system, the centre and state have been given independent work
in the constitution. So, it is necessary that every government will require financial resources in
abundance for fulfilling their work, they will be provided resources in abundance, the tasks of
national favour like security, international and foreign trade, postage and communication,
railways etc.

Are given in the constitution, whereas state governments have been given tasks of local
or regional favour such as education, health, social services, internal law system etc. have been
given. Economic resources must be available according to all these tasks and in which centre,
state and local government should be independent to obtain their income and to spend. But,
here this is important to mention that independent and coordinated level can’t be maintained
intensively between centre and states in any federal system.
b. Imbalance between Works and Resources

There is one more problem in federal finance that interference is created due to changes
in social and technical between services and resources. It has been seen in the federal system
that the sources of income in central government increases gradually, but, neither sources
increase according to tasks of states, but their freedom is also at stake.

There has been enough increase in tasks of states from the concept of the welfare state
in present, but they did not get money in abundance. In that condition such a system is required
which can redistribute and coordinate resources in changing contribution and by providing
more part to states in central tax revenue, establishing concurrent powers.

c. States Relative Poverty

Some state relative poverty produces a source of the financial problem. Due to
differences in economic development and natural resources, all the states are not at an equal
level so their financial problems are also different. Because of this difference, their social and
administrative problems also differ from each other.

It is essential to remove all these differences which can be solved by giving grants to
the states by the centre. Poor states should be given more grants as compare to other states. In
our country, the finance committee recommends tax revenue and grant on a general-purpose
per person income basis.

CONSTITUTION

A constitution is the basic law of a given country. It lays out the formal structure of the
state, defining the central governments powers and institutions. Moreover, it specifies the
relationship between the central government and other levels. Additionally, the constitution
establishes the rights of citizens and thereby creates limits on the government.

FINANCIAL RELATION BETWEEN CENTRE AND STATES - CONSTITUTIONAL

PROVISIONS

Article 268
 i. Article 268 deals with stamp duty levied by the Union
ii. But collected and distributed by the States.
iii. These taxes are not included in the Consolidation Fund of India and are allocated by
the same state in which they are levied, so they do not contribute to the Indian
Consolidation Fund.
iv. With the 88th amendment to the Constitution, a new provision 268 A was included in
this article, which included the tax on services in its ambit, but it was again excluded
nby the 101st Amendment to the Constitution and the introduction of GST.

Article 269

i. It is a tax levied on all interstate purchases, sales and transportation of goods, except
those mentioned in section 269 A and in newspapers.
ii. Taxes are collected and collected by the central government but are distributed by the
state governments. The tax levied under this clause is not included in the consolidated
fund of India.

Article 269 A

The 101st Constitutional Amendment introduced a new provision 269A, which

introduced a number of significant changes.

Article 269A (1) mainly deals with the following aspects:

Taxation and collection of Goods and Services Taxes (GST).

i. This is applicable in the case of Inter-state trade or commerce.

ii. The collected taxes will be distributed between the states and the Union.
iii. Parliament has the power to pass legislation on the distribution of taxes levied in
accordance with this article, in accordance with the recommendations of the GST
Council.
iv. GST on supplies in interstate trade or commerce levied and collected by the Center;
however, this fee is divided between the Center and the states, as in manner provided
by parliament in accordance with the recommendations of the GST Council.
v. Parliament is also empowered to develop guidelines for where and when the supply of
goods or services, or both, takes place in the course of interstate trade or commerce.
Article 270

Taxes are collected and levied by the Center, but are allocated between the Center and
the states (Article 270).

This category includes all taxes and levies mentioned in the List of the Union, with
the exception of the following:

i. Duties and taxes are referred to in Article 268, 269 and 269 A.
ii. Surcharges on taxes and duties referred to in Article 271.
iii. Any levies received for specific purposes.
iv. The 101st Amendment added two new sub-clauses, Section 270 (1A) and 270 (1B)
under this Article. The tax allocated between the center and the state was revised after
the introduction of the GST.

Article 271

i. Parliament has the right to increase taxes or duties at any time by introducing
additional charges, except in the case of the goods and services tax referred to in
section 246A.
ii. All income generated from surcharges will be part of India's consolidated fund. Taxes
will be withheld by Parliament and will not be shared between states.

Composition of the Finance Commission

The Finance Commission of India is composed of five members which include one
Chairman, and four other members of the Commission. All of these members are appointed by
the President of India who also determines the term of their office. These members are anyway
subjected to reappointment as per requirement. The responsibility of determining the
qualification, and the manner of appointment for the Finance Commission’s members rest on
the Parliament’s shoulder, as have been provided by the Indian Constitution. The qualification
that has been determined by the Parliament for the Chairman and the members of the
Commission have been presented hereunder
 a) The Chairman of the Commission must be an individual with expertise in public affairs.
The current Chairman of the Commission is Mr. N.K. Singh, who has been a member
of the Planning Commission alongside being an IAS officer.

b) The four members of the Commission are selected from the following list;

1. A high court judge, or an individual who has been qualified to hold such a position.

2. A person who has his or her expertise in finance and accounts of the government.

3. Any person having divergent experience in financial matters and in administrative

matters.

4. Any person possessing special knowledge of economics, and related studies.

The 15th Finance Commission has been formed with Mr. N. K. Singh as its Chairman
followed by Mr. Ajay Narayan Jha, Prof. Anoop Singh, Mr. Ashok Lahiri, Prof. Ramesh
Chand as the members of the Commission, and Mr. Arvind Mehta as the Secretary.

FINANCE COMMISSION
The Finance Commission is a constitutional body formed every five years to give
suggestions on centre-state financial relations. Each Finance Commission is required to make
recommendations on:

a. Sharing of central taxes with states

b. Distribution of central grants to states
c. Measures to improve the finances of states to supplement the resources of panchayats
and municipalities
d. Any other matter referred to it.

Composition of transfers
The central taxes devolved to states are untied funds, and states can spend them according
to their discretion. Over the years, tax devolved to states has constituted over 80% of the total
central transfers to states. The centre also provides grants to states and local bodies which must
be used for specified purposes. These grants have ranged between 12% to 19% of the total
transfers.
Over the years the core mandate of the Commission has remained unchanged, though it has
been given the additional responsibility of examining various issues. For instance,
the 12th Finance Commission evaluated the fiscal position of states and offered relief to those
that enacted their Fiscal Responsibility and Budget Management laws. The 13th and
the 14th Finance Commission assessed the impact of GST on the economy. The 13th Finance
Commission also incentivized states to increase forest cover by providing additional grants.

15th Finance Commission

The 15th Finance Commission constituted in November 2017 will recommend central
transfers to states. It has also been mandated to:
a. Review the impact of the 14th Finance Commission recommendations on the fiscal
position of the centre
b. Review the debt level of the centre and states, and recommend a roadmap
c. Study the impact of GST on the economy
d. Recommend performance-based incentives for states based on their efforts to control
population, promote ease of doing business, and control expenditure on populist
measures, among others.

Borrowing by the centre and the states

1. The central government can borrow either within India or outside upon the security of
the Consolidated Fund of India or can give guarantees, but both within the limits fixed
by the parliament. As of now, no such law has been enacted by the Parliament
2. A state government can borrow within India and not abroad upon the security of the
consolidated fund of the state or can give guarantees but both within the limits fixed by
the legislature of that state
3. The central government can make loans to any state or give guarantees in respect of
loans raised by any state. Any sums required for the purpose of making such loans are
to be charged on the consolidated fund of India
4. A state cannot raise any loan without the consent of the centre, if there is still
outstanding any part of loan made to the state by the centre or in respect of which a
guarantee has been given by the centre

Inter-governmental tax immunities

i. The property of centre is exempted from all taxes imposed by a state or any
authority within a state like municipalities, district boards, and panchayats and so
 on. However, Parliament can remove this ban. This exemption is not applicable to
companies or corporations created by the central government.
ii. The property and income of a state is exempted from central taxation. However, the
centre can tax commercial operations of a state if Parliament provides for it. The
property and income of local authorities situated within a state are not exempted
from central taxation.

The centre can impose customs duty on goods imported or exported by a state,
or an excise duty on goods produced or manufactured by a state

During emergencies: financial relations between centre and the states

➢ National emergency:
1. President can modify revenue distribution between the centre and the states.
2. Such modification continues till the end of the financial year in which the
emergency ceases to operate

➢ Financial emergency

Centre can give directions to the states- to observe the specified cannons of financial
propriety, reduce the salaries and allowances of all class of persons serving in the state and to
reserve all money bills and other financial bills for the consideration of the President

Tensions in the centre-state relations

a. Mode of appointment and dismissal of governor

b. Discriminatory and partisan role of governors
c. Imposition of President’s rule for partisan interests
d. Deployment of central forces in the states to maintain law and order
e. Reservation of state bills for the consideration of the President
f. Discrimination in financial allocations to the states
g. Management of All-India services
h. Use of electronic media for political purposes
i. Encroachment by the centre on the state list
THE CONSTITUTION 80th AMENDMENT ACT, 2000

The constitution 80th amendment Act, 2000 introduced in the alternate scheme for the
distribution of taxes between the Union and the Province, based on the recommendations of
the Tenth Finance Committee. Under the current income-sharing arrangement between the
Union and the States, 26% of the total revenues of Federal taxes and duties are to be transferred
to the States instead of their present portion of income tax, excise duty, special excise duties,
and exemptions instead of taxes on rail passenger fares.

Provided for an ‘alternative scheme of devolution’ of revenue between the Centre and
states. This was enacted on the basis of the recommendations of the Tenth Finance Commission
which had recommended that out of the total income obtained from Central taxes and duties,
29% should be distributed among the states.

Statement of Objects and Reasons

i. The Tenth Finance Commission had submitted its report on the 26th November, 1994
for the period of five years, i.e., from 1995-96 to 1999-2000. The said report was laid on
the table of both the Houses of Parliament on the 14th March, 1995. One of the
recommendations of the Commission that has been under consideration of the
Government is an alternative scheme of sharing of the proceeds of certain Union taxes
and duties between the Union and the States.
ii. The alternative scheme envisages that twenty-six per cent out of the gross proceeds of
Union taxes and duties (excluding stamp duty, excise duty on medicinal toilet
preparations, Central Sales Tax, Consignment tax, cesses levied for specific purposes
under any law made by Parliament and Surcharge) is to be assigned to the States in lieu
of their existing share in income-tax, basic excise duties, special excise duties and grants
in lieu of tax on railway passenger fares.
iii. In addition, three per cent share in the gross proceeds of all Central taxes and duties
(excluding stamp duty, excise duty on medicinal/toilet preparations, Central Sales Tax,
Consignment tax, cesses levied for specific purpose under any law made by Parliament
and Surcharge) is to be assigned to the States in lieu of their existing share in Additional
Excise Duties in lieu of Sales Tax on tobacco, cotton and sugar. The commission had
proposed that tobacco, cotton and sugar may continue to be exempt from Sales Tax and
 the Additional Excise Duties in lieu of Sales Tax on these items may be merged with the
Basic Excise Duties.
iv. Whether the alternative scheme would be more gainful to the Centre or to the States vis-
-vis existing arrangements would entirely depend on the relative growth in the Collection
of various Central taxes and duties to be pooled.
v. The benefits of the scheme have been listed by the Commission in para 13.2. and 13.3
and 13.18 of their reports. These areas follows:-
a.with a given share being allotted to the States in the aggregate revenues from
Central taxes, the States will be able to share the aggregate buoyancy of Central
taxes;
b. the Central Government can pursue tax reforms without the need to consider
whether a tax is sharable in the states or not;
c. the impact of fluctuations in Central tax revenues would be felt alike by the Central
and the State Governments;
d. Should the taxes mentioned in articles 268 and/or 269 from part of this
arrangement, there will be greater likelihood of their being tapped; and
e. the progress of reforms will be greatly facilitated if the ambit of tax sharing
arrangement is enlarged so as to give greater certainty of resource flows to, and
increased flexibility in tax reform.
vi. The above scheme recommended by the Commission is in national interest as it helps to
remove a perceived inter-tax in the tax mobilisation effort of the Government of India
while leaving sufficient flexibility for meeting Centres exclusive needs by keeping
Cesses and Surcharges outside the pooling arrangement.
vii. A Discussion Paper bringing out various aspects of the scheme was laid on the table of
both the Houses of Parliament on the 20th December, 1996 with a view to generate an
informed debate.
viii. On the basis of a consensus reached in the Third Meeting of the inter-State Council held
on the 17th July, 1997, the then Government had agreed in principle to accept the scheme
recommended by the Tenth Finance Commission subject to certain modifications.
ix. The Government had decided to ratify the decision taken by the previous Government
according in principle approval for the scheme recommended by the Tenth Finance
Commission with some modifications.
 x. Firstly, the percentage share of State is to be reviewed by the successive Finance
Commissions instead of freezing it for fifteen years as suggested by the Tenth Finance
Commission.
xi. Secondly, Government had decided to change the sharing of gross proceeds as
recommended by the Tenth Finance Commission to the sharing of net proceeds in order
to maintain consistency between articles 270, 279 and 280 of the Constitution. However,
this will not result in any consequent loss to the States because the Government has also
simultaneously decided to compensate the States by suitably enhancing the percentage
share beyond 29%.
xii. Thirdly, as intended by the Commission, no amendment is sought to be done in article
271, which authorize the Central Government to levy surcharge on Central taxes and
duties for the purpose of the Union.
xiii. The scheme will be effective from 1st April, 1996. The percentage share of net proceeds
during 1996-97 to 1999-2000 will be such that the States share is 29% of the gross
proceeds. The recommendations of the 11th Finance Commission, which has been
mandated to give its final report by 30th June, 2000, will cover the 5 years period w.e.f.
1st April, 2000.
xiv. In order to implement this decision, this Bill seeks to amend article 269, 270 and 272 of
the Constitution so as to bring several Central taxes and duties like Corporation tax and
Customs duties at par with personal income-tax as far as their constitutionally mandated
sharing with the States is concerned.

CONFLICTS BETWEEN THE CENTRE AND THE STATE.

1. In some cases the entire revenue is allocated among the States. But the rates and bases
are wholly decided by the Centre regardless of the policies and desires of the States.
This is virtual spoon-feeding of the States by the Centre.
2. Secondly, it is felt that the Centre has failed to take sufficient initiative to impose all
the taxes as per Article 269, the entire net proceeds of which are supposed to be
appropriated by the States.
3. The States make notable contribution to the development of the private corporate sector.
They provide an integrated infrastructure for industrial development in the form of
power, water, roads, land, factory sheds and even raw materials. Moreover, the State
Governments have to provide huge amount of financial incentives and concessions to
 attract industries. Yet they were excluded from sharing the revenue of such taxes. This
is unjust and unfair.
4. The Centre has replaced certain items, previously subject to State sale tax, by various
excise duties. The wider coverage given to excise duties has added to the financial
hardship of the States.
5. The allocable excise duties have been totally excluded from the allocable resource (or
divisible pool). Moreover the Centre has deliberately raised the rates of these excise
duties as also special and auxiliary duties. But the additional revenues collected from
these sources are not to be shared with the States or to be shared in any small
proportions. By contrast, the rates of those duties which are to be shared with the States
have been kept at low levels for years together.
6. The contribution to the divisible pool made by income-tax (other than corporate tax)
and Union excise duties is considered to be grossly inadequate to meet the revenue gap
of the States. The present 85% allocation of income tax proceeds seems to have reached
a ceiling. There is no scope for extending the coverage of the various excise duties
either.
7. The conditional grants are treated as a tax on the States in the sense that they interfere
with state priorities and create pressure on the States. On the contrary, unconditional
grants virtually become financial deficit grants since they create considerable
divergence between the power to spend and the need to tax.
8. Loans are given by the Centre to the State at concessional rates by extending overdraft
facilities without any consideration of productivity and repayment capacity. These
loans have been rising steadily over the entire plan period. Such loans are outside the
scope of recommendations of the Finance Commissions. Hence the growth
indebtedness of the States to the Centre is not a healthy development in the area of
federal finance.
9. Originally, the railway passenger taxes were entirely appropriated by the States. But
they were subsequently abolished. To compensate for the loss of revenue the Centre
has arbitrarily fixed a grant in lieu of railway passenger tax.
10. The Central Government raised the exemption limit on income tax over the years. But
it did not suffer much loss because it raised the surcharge on income tax. But the States
had to lose because the proceeds of the surcharge were not shared with the States.

PLANNING COMMISSION
 To formulate a plan for the most effective and balanced utilisation of country's
resources. To define the stages, on the basis of priority, in which the plan should be carried out
and propose the allocation of resources for the due completion of each stage. Parent
agency: Government of India, Agency executive: Prime Minister of India, Formed: 15 March
1950.

The Planning Commission’s primary role, as its name implies, is to plan. A Planning
Commission is a body of citizens that serve within local government, acting as an advisory
group to the municipal governing body on issues and policies related to planning, land use
regulation, and community development. Planning Commissioners act as citizen planners and
work to develop plans and implementation policies that affect how their community manages
changes in growth and development. Each of the Centre Region municipalities have a seven
member planning commission that work to advise their respective governing bodies on
municipal planning matters. Municipal Planning Commission’s may meet once, twice, or
several times a month to discuss proposed development, planning initiatives, new ordinances,
etc. In addition to municipal planning commissions, the six Centre Region municipalities also
participate in regional planning as members of the Centre Region Council of Governments.
The Centre Regional Planning Commission (CRPC) was created in the early 1960s to plan for
growth and development at the multi municipal level. The CRPC consists of one representative
from each municipality (typically a Planning Commission member) as well as a representative
from the Pennsylvania State University.

Functions of the Planning Commission India

a. Make an assessment of the material, capital and human resources of the country,
including technical personnel, and investigate the possibilities of augmenting such of
these resources as are found to be deficient in relation to the nation’s requirement;
b. To formulate plans for the most effective and balanced utilization of country's resources.
c. To indicate the factors which are hampering economic development.
d. On a determination of priorities, define the stages in which the Plan should be carried
out and propose the allocation of resources for the due completion of each stage;
e. Periodical assessment of the progress of the plan.
f. Determine the nature of the machinery which will be necessary for securing the
successful implementation of each stage of the Plan in all its aspects;
 g. With the changing times, the Planning commission is preparing itself for long term
vision for the future. The commission is seeing to maximize the output with minimum
resources.
h. From being a centralized planning system, the Indian economy is slowly progressing
towards indicative planning wherein the Planning Commission has set the goal of
constructing a long term strategic vision for the future.
i. It sets sectoral targets and provides the catalyst to the economy to grow in the right
direction.
j. The Planning Commission plays an integrative role in the development of a holistic
approach to the formulation of policies in critical areas of human and economic
development.

ROLE OF THE PLANNING COMMISSION

a. General Plan

Assist in writing the general plan and hold public hearings on its adoption. Promote
public interest in the general plan. Consult with and advise public officials and agencies,
utilities, organizations, and the public regarding implementation of the general plan. Also
review, hold hearings on, and act upon proposed amendments to the plan.

b. Specific Plans

Assist in writing any specific plans or community plans and hold public hearings on
such plans. (The governing body retains authority to actually adopt specific plans.) Also
review, hold hearings on, and act upon proposed amendments to such plans.

c. Zoning and Subdivision Maps

Review, hold hearings on, and act upon zoning ordinances, maps, conditional use
permits, and variances. Similarly consider subdivision applications.

d. Individual Project Approvals

Review individual projects for consistency with the general plan, any applicable
specific plans, the zoning ordinance, and other land use policies and regulations.

e. Report on Capital Improvements Plans

 Annually review the jurisdiction’s capital improvements program and the public works
projects of other local agencies for consistency with the general plan.

f. Coordinate Planning Efforts

Coordinate local plans and programs with those of other public agencies such as the
Coastal Commission.

g. Special Studies

Undertake special planning studies as needed.

ROLES AND RESPONSIBILITIES OF THE PLANNING COMMISSION

a. The Planning Commission is established and empowered per the Land Use Article of
the Annotated Code of Maryland and will serve as an advisory body to the Council.
b. The Planning Commission will consist of 7 members appointed by the Council who will
serve without compensation.
c. They will each serve 5 year terms or until a successor takes office.
d. They will represent a geographic diversity of Aberdeen.
e. A Chairperson and Deputy Chairperson will serve for one year with eligibility for
reelection.
f. A majority of the members (4) shall constitute a quorum for a business transaction and
a majority vote of those present at any meeting shall be sufficient for any official action.
g. The Planning Commission will adopt rules of procedure for the conduct of their
business.
h. The Planning Commission will create and approve a Comprehensive Plan and make a
recommendation on the Plan to the Council.
i. The Planning Commission will review, comment, and approve a recommendation to the
Council for all preliminary site plans and preliminary and final subdivision plats.
j. The Planning Commission will recommend the various zoning districts and boundaries
and recommend any changes.
k. The Planning Commission will recommend text amendments to the Development Code.
l. The Planning Commission will recommend changes to the Subdivision Regulations.
m. The Planning Commission will recommend land acquisition and development for City
open space or recreation purposes.
n. The Planning Commission will recommend changes in land use or development arising
from local, state, or federal programs or policies.
o. The Planning Commission will make any other recommendations based on sound
planning principles to the Council on items of interest or concern.
p. The Planning Commission will submit an annual report to the Council and the Maryland
Department of Planning.
q. The Planning Commission will review the Development Code, Zoning Map, and
Comprehensive Plan as needed or a minimum of every six years to take advantage of
new techniques, correct deficiencies or for other appropriate reasons.
r. The Planning Commission may impose conditions on its approval of developments
including but not limited to configuration of streets, sidewalks, location of public
improvements, reservation of open space and recreational areas.
s. The Planning Commission may also recommend programs for public structures,
improvements, and other land acquisitions that would benefit the City.
t. The Planning Commission may also enter upon any land and make examinations and
surveys.
u. The Planning Commission will have such powers to enable it to fulfill its functions,
promote planning or execute the purposes of the Land Use Article of the Annotated Code
of Maryland.
v. Each member will have to complete a Planning Commissioner Training Program
sponsored by the Maryland Department of Planning.