This Article is written by Prithika Vajpeyi, Intern under Legal Vidhiya
Abstract:
The power granted under Article 298 to both the Union and State governments to engage in trade, acquire and dispose of property, and enter into contracts has been the subject of much debate and controversy, with several questions raised about the extent of the powers granted to the Union and the States. This power is subject to the provisions of the Constitution and thus, is subject to certain limitations. This article seeks to examine the power of the Union and the States to carry on trade under Article 298 of the Constitution of India. It analyses the conflicts that have arisen with respect to the clash of powers of the Union and the state under Article 298.
Keywords: Trade, extent of powers, limitations, conflicts, clash of powers
Introduction:
Article 298 of the Constitution Article 298 of the Constitution of India reads as follows:
“The executive power of the Union and of each State shall extend to the carrying on of any trade or business and to the acquisition, holding, and disposal of property and the making of contracts for any purpose.”
The article is divided into two parts. The first part confers the power to carry on trade or business on both the Union and the States. The second part deals with the regulation of trade and commerce.
This provision is subject to the provisions of the Constitution, which means that the power to regulate and carry on trade is not absolute. The provision grants both the Union and the States the authority to regulate and promote trade within the country. However, it is essential to note that the powers of the Union government are more extensive than those of the States.
Background:
Before we delve into the details of Article 298, it is essential to understand the historical context in which it was framed. During the colonial era, India was a major producer and exporter of raw materials, such as cotton, jute, and tea. However, the colonial government did not allow Indian merchants to trade with foreign countries, as it wanted to maintain a monopoly over Indian trade. After India gained independence in 1947, the Constitution was framed, and the framers of the Constitution had to decide how to allocate the power to carry on trade between the Union and the States.[1]
Limitations on the Power of the Union and the States to Carry on Trade:
The Union and the States cannot regulate trade and commerce in such a way that it violates the freedom of trade and commerce guaranteed under Article 19(1)(g) of the Constitution.
Power of the Union to carry on Trade:
The Constitution confers upon the Union government the power to regulate trade and commerce in the country. The Union List, which is the exclusive domain of the Union government, contains the items related to trade, commerce, and industry. The Union government can make laws and regulations concerning inter-state trade, foreign trade, and international trade agreements. The Union government also has the power to regulate shipping and navigation, including the coastal trade and the maritime zone beyond the territorial waters of India.
The Union government also has the power to set up public sector undertakings to carry on trade and business. The public sector undertakings owned and operated by the Union government include Air India, Indian Railways, and Indian Oil Corporation, among others. The Union government can also enter into trade agreements with other countries to promote international trade and commerce.
Power of the States to carry on Trade:
The Constitution confers upon the State governments the power to regulate trade and commerce within their respective states. The State List contains the items related to trade, commerce, and industry within the state. The State governments can make laws and regulations concerning intra-state trade and commerce, including agriculture and animal husbandry, fisheries, and markets and fairs.
The State governments can also set up public sector undertakings to carry on trade and business within the state. The public sector undertakings owned and operated by the State governments include the Tamil Nadu State Transport Corporation, the Kerala State Electricity Board, and the Gujarat State Fertilizers and Chemicals, among others.
Coordination between the Union and the States:
Although both the Union and the States have the power to regulate and promote trade, there is a need for coordination between the two levels of government to ensure that the trade policies are coherent and complementary. The Constitution provides for a mechanism for such coordination through the creation of the Inter-State Council. The Council, headed by the Prime Minister and consisting of the Chief Ministers of all States, is responsible for discussing and resolving disputes related to trade and commerce between the Union and the States. [2]
Contentions raised:
One of the major debates surrounding the power of the Union and the States to carry on trade is the extent to which the state should be involved in the economy. Some argue that the state should have a minimal role in the economy, and that the market should be left to function freely, as this would lead to greater economic growth and development. Others argue that the state should have a more active role in the economy, as this would allow it to address the inequalities and injustices that arise from the functioning of the market.[3] The Constitution strikes a balance between these two positions, by allowing the state to engage in economic activities necessary for the people’s welfare, while ensuring that it does not interfere with the functioning of the market.
Another issue that has been raised in relation to the power of the Union and the States to carry on trade is the accountability and transparency of state-run enterprises. Prof. V. V. Ramanadham examines the issue of financial accountability in his treatise, “The Control of PEs in India.” It primarily suggests that Public Enterprises must account to parliament in financial problems. As said, it is part of the broader issue of PE amenability to parliamentary control and demands for a balance between democratic rights of parliament and business autonomy. The third part of financial accountability is that the best possible results should be obtained from the Public Enterprises.[4]
Conclusion:
Article 298 of the Indian Constitution grants the Union and State governments the power to carry on trade and commerce within the country. While the Union government has the authority to regulate inter-state and foreign trade, the State governments have the power to regulate intra-state trade and commerce. The coordination between the two levels of government is essential to ensure that the trade policies are coherent and complementary. The provision is significant as it provides a legal framework for the promotion of trade and commerce, which is essential for the economic growth of the country. Thus, it is important to ensure that the power granted under this Article is exercised in a manner that is consistent with the Constitution and that promotes the public interest.
[1] https://www.encyclopedia.com/international/encyclopedias-almanacs-transcripts-and-maps/trade-policy-1800-1947 visited on 28/04/23
[2] https://indianexpress.com/article/explained/everyday-explainers/explained-what-is-the-inter-state-council-7975901/ visited on 23/04/23
[3] https://www.economicsdiscussion.net/india/privatizations-of-public-sector-in-india-for-and-against-arguments/6509 visited on 24/04/23
[4] B. K. Agarwal, Neeraj Manchanda, Autonomy and Accountability of Public Enterprises in India, 15, Journal of Advances and Scholarly Researches in Allied Education, 128, 132, http://ignited.in/p/57109, last seen on 24/04/23
