Model Answer

Introduction

Recently, several states have protested against what they perceive as fiscal discrimination by the Centre, even approaching the Supreme Court of India. While the measures taken by the Central government have certainly impacted state finances, it is essential to examine the financial challenges faced by state governments and the role they play in this situation.

Central Government Measures Impacting State Finances

Increase in Cesses and Surcharges
The Central government has increased the share of cesses and surcharges, effectively reducing the amount of tax revenue available to states. For instance, the share of cesses and surcharges in the Centre’s gross revenue increased from 8.6% in 2010-11 to 28% in 2021-22, which has diminished the divisible pool for states.

Decline in Centrally Sponsored Schemes (CSS)
The reduction in Centrally Sponsored Schemes from 130 to 70 starting in April 2023 has placed additional financial burdens on states. The reduction has limited central assistance, making it harder for states to finance key projects.

Restricting Borrowing by States
The Centre has reduced the fiscal space available to states by including their off-budget borrowings in the Net Borrowing Ceiling (NBC). For example, Kerala challenged this move in the Supreme Court, arguing that it severely restricted their ability to manage state finances.

State Governments’ Role in Financial Challenges

Power Sector Issues
State governments often cover the losses of power companies with grants or guarantees against their borrowings, which increases their contingent liabilities. For example, nearly 40% of loans raised by state-owned entities are guaranteed by state governments.

Non-merit Freebies
Several states have allocated substantial funds for non-merit freebies, such as loan waivers and subsidies, which strain their fiscal capacity. States like Punjab have been identified as being on the brink of a fiscal crisis due to these subsidies.

Reintroduction of Old Pension Scheme (OPS)
Some states, including Rajasthan and Punjab, have reinstated the OPS, which places a significant future burden on state finances and limits capital expenditures.

Excessive Borrowings
States like Tamil Nadu have consistently borrowed to fund welfare schemes, leading to rising debt levels. Tamil Nadu, for example, has been the top borrower in the country for the past four years.

Conclusion

While central measures have certainly affected state finances, the states themselves also need to address their financial management issues. A balanced approach that enhances states’ revenue-generating capabilities and ensures timely transfers from the Centre is necessary for tackling the looming fiscal challenges.

Model Answers

Powers of Governors and Limitations on Their Authority

The Governor in Indian states holds significant powers under Articles 153 to 167 of the Indian Constitution, but these powers are not without limitations. The office is essential for maintaining the link between the Union and state governments, acting in an executive, legislative, judicial, and discretionary capacity.

Executive Powers

• Governors have the authority to oversee all executive actions of the state government, including appointments such as the Chief Minister and other key officials.
• Source: Articles 153-157 of the Constitution.

Legislative Powers

• The Governor ensures the State Budget is presented in the legislature and can promulgate Ordinances during emergencies. They also have the power to recommend Money Bills and grants.
• Source: Article 200 and Article 213.

Judicial Powers

• Governors hold powers to grant pardons and consult the President on High Court appointments.
• Source: Article 161 of the Constitution.

Discretionary Powers

• Governors can act in situations like recommending President’s Rule (Article 356) or appointing a Chief Minister in case of a fractured mandate.
• Source: Articles 163 and 356.

Limitations on the Powers of the Governor

While the powers of the Governor are broad, they are restricted by various provisions and judicial rulings.

Limits on Executive and Discretionary Powers

• Article 154(2)(a) prohibits the Governor from exercising powers that belong to other authorities by law.
• Source: Article 154 of the Constitution.

Governor’s Relationship with the Council of Ministers

• According to Article 163, the Governor must act on the advice of the Council of Ministers headed by the Chief Minister, limiting their discretionary power.
• Source: Article 163.

Judicial Restrictions

• The S. R. Bommai case (1994) ruled that the Governor cannot dismiss a state government without a floor test, and must not act solely based on their subjective judgment regarding the majority.
• Source: S. R. Bommai v. Union of India (1994).

Ordinance Powers

• In D.C. Wadhwa case (1986), the court restricted the Governor’s power to re-promulgate ordinances indefinitely, stating that such actions cannot substitute the legislature’s authority.
• Source: D.C. Wadhwa v. State of Bihar (1986).

Conclusion

Although Governors hold vast powers in India, including executive, legislative, and judicial functions, the Constitution and judicial precedents place significant limitations on these powers. These restrictions are in place to protect democratic values, ensure the proper functioning of the federal structure, and prevent misuse of power.