In the last few decades, there has always been growing conflict and tension between the Union and the States on finance matters. ‘The use of grants and loan in the last forty years has resulted in the complete domination and control of the States by the Centre.
The enormous increase in transferred resources from the Centre to States, the political pressure by the Centre through the instrument of. Grants or loans have frightened the States.
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Thus a comprehensive review is needed for Centre-State relations in general and Centre-State financial relations in particular. Various committees constituted so far on Centre-State financial relations have demanded political and financial autonomy for the States and drastic restriction of power and financial resources of the Centre. The sources of conflict as listed by States are as follows:
1. The basic assumption of the constitution in favour of a strong Centre and weak dependent States is no longer acceptable to States. So, they insist that a strong Centre requires equally strong and autonomous States.
2. The Centre, with too little to do, is entrusted with too much financial resources while the State Governments with so many vital functions to perform are starved of financial resources.
3. Unlike the States, financial resources of the Centre are highly elastic. Thus, they have to depend upon Centre to a large extent for their financial requirements.
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4. Another complaint by the States is that Centre has neither used its fiscal dominance nor instruments at disposal to narrow down the uneveness in regional imbalances. In fact regional disparities have worsened during the plans.
5. The Centre has been duplicating a number of departments, viz., education, public health, etc which all State subjects are. These subjects should be put on the concurrent list.
6. The Centre has been interfering in the affairs of the State even in the field of law and order by setting up the Central Reserve Police, the Border Security Force, the Industrial Security Force etc.