This article is written By Subhashmin Moharana, an Intern under Legal Vidhiya.
Introduction
Article 298 of the Indian Constitution is significant as it grants the central and state governments the power to engage in trade and business activities. This provision acknowledges that the executive power of the Union and each state extends to carrying on trade, acquiring and disposing of property, and making contracts for any purpose. It recognizes the role of governments in promoting economic development, facilitating domestic and international trade, and participating in commercial ventures. The power granted by Article 298 enables the governments to actively participate in economic activities and contribute to the growth and welfare of the nation. It provides a legal framework for the government’s involvement in trade and business matters, subject to the provisions and limitations set forth in the Constitution.
Keywords: Article 289, power to trade, union and states in trade.
Scope of Executive Power
Article 298 of the Indian Constitution[1] confers significant executive power to both the Union and state governments in carrying on trade and business activities. This provision recognizes the wide-ranging authority of the government to engage in various aspects of commerce.
Firstly, Article 298 empowers the government to participate in trade and business activities, both within the country and with other countries. This includes promoting domestic industries, facilitating exports and imports, and encouraging economic growth. The government can establish public enterprises, invest in strategic sectors, and regulate trade-related policies and practices. Secondly, the provision grants the authority to acquire, hold, and dispose of property. The government can acquire land or assets for public purposes, such as infrastructure development or industrial projects. It can also hold and manage properties for commercial or developmental purposes. Additionally, the government has the power to dispose of properties through sales, leases, or transfers as deemed necessary. Thirdly, Article 298 allows the government to make contracts for any purpose. This enables the government to enter into agreements, partnerships, or business contracts with various entities, including private companies, international organizations, or other governments. Contracts can be made for the procurement of goods and services, infrastructure projects, joint ventures, or any other commercial arrangement necessary for the functioning and development of the country.
Article 298 empowers the government to engage in trade and business activities, acquire and dispose of property, and make contracts. This provision grants the executive the necessary tools and authority to actively participate in the economy, promote economic growth, and serve the best interests of the nation. However, the exercise of this power is subject to constitutional provisions, laws, and regulations to ensure accountability and adherence to the rule of law.
Constitutional Limitations
The exercise of the power granted by Article 298 of the Indian Constitution is subject to other provisions of the Constitution. While this provision confers executive power on the Union[2] and state governments to carry on trade and business activities, it must be exercised within the framework of constitutional limitations and regulations.
The government’s trade activities must comply with constitutional limitations to ensure adherence to principles of democracy, rule of law, and protection of fundamental rights. For example, the government cannot engage in trade activities that discriminate based on religion, caste, gender, or violate the principles of equality and non-discrimination enshrined in the Constitution. Specific restrictions and regulations on the government’s trade activities are imposed by the Parliament and state legislatures through laws and regulations. These laws can pertain to a wide range of areas, such as intellectual property rights, consumer protection, labor laws, environmental regulations, and competition laws. These regulations aim to ensure fair competition, safeguard consumer rights, protect the environment, and promote social and economic welfare. Additionally, the government’s trade activities may be subject to judicial scrutiny. The judiciary plays a crucial role in interpreting and enforcing constitutional provisions, including those related to trade and business. Courts can review the actions of the government and strike down any trade-related decisions that are found to be unconstitutional or in violation of fundamental rights. Furthermore, international trade activities of the government are subject to international treaties, agreements, and obligations. India’s trade policies and actions must comply with international trade norms, such as those established by the World Trade Organization (WTO) and bilateral or multilateral trade agreements.
While Article 298 grants the Union and state governments the power to engage in trade and business activities, these powers are not absolute. The government’s trade activities must comply with constitutional limitations, adhere to laws and regulations enacted by the Parliament and state legislatures, and meet international trade obligations. This ensures that the exercise of this power is in line with constitutional principles and safeguards the rights and welfare of citizens.
Domestic Trade and Business
The power of the Union and states to engage in trade within the country is a significant aspect of Article 298[3]. This power enables the governments to actively participate in the economy, promote economic development, and contribute to overall growth. Here’s how it works:
1. Promoting Economic Development: The government’s involvement in trade within the country allows it to promote economic development by supporting domestic industries, fostering innovation, and encouraging entrepreneurship. It can implement policies and measures to boost sectors that are strategically important for national growth and create employment opportunities.
2. Infrastructure Development: Governments can utilize their trade-related powers to invest in infrastructure projects such as transportation, energy, telecommunications, and water supply. These initiatives enhance connectivity, improve logistics, and create a conducive environment for businesses to flourish. Examples include the development of highways, ports, airports, and the expansion of digital infrastructure.
3. Public Enterprises: The Union and state governments can establish and operate public enterprises to engage in trade and business activities. These entities play a vital role in sectors of national importance such as defence, energy, telecommunications, and banking. Public enterprises often provide essential services and contribute to economic growth by generating revenue and creating employment opportunities.
4. Strategic Interventions: The government can intervene in the market through trade-related policies to address specific challenges or achieve policy objectives. For instance, it can implement export promotion schemes, import restrictions, or provide incentives to particular industries to boost their competitiveness. These interventions aim to stimulate growth, ensure sectoral balance, and protect national interests.
5. Regional Development: The power of the states to engage in trade within their respective jurisdictions allows them to focus on regional development. States can formulate policies and incentives tailored to their specific needs and priorities, encouraging local industries and attracting investments. This decentralization of trade-related powers contributes to balanced regional development and reduces regional disparities.
Examples of government involvement in sectors such as public enterprises or infrastructure projects include the Indian Railways, Air India, National Highways Authority of India (NHAI), Power Grid Corporation, Bharat Heavy Electricals Limited (BHEL), and State Electricity Boards. These entities contribute to trade and economic activities, provide essential services, and play a crucial role in national development.
The power of the Union and states to engage in trade within the country empowers the government to promote economic development and growth. Through the establishment of public enterprises, infrastructure projects, and strategic interventions, the government stimulates the economy, creates employment opportunities, and ensures balanced regional development.
International Trade and Business
Article 298 of the Indian Constitution grants the Union and states the power to engage in trade not only within the country but also with other countries. This provision enables the government to actively participate in international trade and conduct business activities globally. Here’s how Article 298 facilitates trade with other countries:
1. Facilitating International Trade: Article 298 empowers the government to promote exports and imports, facilitate foreign trade, and regulate trade-related policies and practices. It allows the government to formulate strategies and policies to enhance trade relations, negotiate trade agreements, and ensure compliance with international trade norms and obligations.
2. Economic Benefits: International trade offers numerous benefits to India’s economy. It promotes economic growth by providing access to larger markets, increasing market opportunities for domestic businesses, and fostering competition. It facilitates the flow of goods, services, and capital, attracting foreign investments and stimulating domestic industries. International trade also allows for specialization and the exchange of resources, leading to efficiency gains and higher productivity.
3. Diplomatic Relations: Engaging in international trade strengthens India’s diplomatic relations with other countries. Trade acts as a catalyst for building economic partnerships and enhancing bilateral and multilateral relationships. It fosters economic diplomacy, creates avenues for dialogue and collaboration, and contributes to the overall goodwill and cooperation between nations.
4. Government Initiatives: The Indian government has undertaken several initiatives and policies to promote international trade and investments. Some notable examples include:
– Make in India: Launched in 2014, this initiative aims to promote manufacturing in India, attract foreign direct investment (FDI), and facilitate business setups.
– Export Promotion Schemes: The government has implemented various schemes like the Export Promotion Capital Goods (EPCG) scheme and the Merchandise Exports from India Scheme (MEIS) to boost exports and provide incentives to exporters.
– Bilateral and Multilateral Trade Agreements: India has engaged in negotiations and signed trade agreements with several countries and regional blocs to promote trade, remove trade barriers, and enhance market access.
These initiatives and policies demonstrate the government’s commitment to promoting international trade, attracting investments, and fostering economic cooperation with other countries.
The Article 298 allows the Union and states to engage in trade with other countries, facilitating international trade and business activities. International trade brings economic benefits to India by opening up new markets, attracting investments, and enhancing diplomatic relations. The government’s initiatives and policies further promote international trade, export-oriented growth, and integration into the global economy.
Balancing Federal and State Interests
The interplay between the Union and state governments in carrying on trade involves a delicate balance between federal and state interests. Article 298 of the Indian Constitution grants executive power to both levels of government, allowing them to engage in trade and business activities. Here’s how Article 298 maintains this balance and addresses potential conflicts or coordination challenges:
1. Concurrent Powers: The Constitution delineates the division of powers between the Union and state governments. While the Union government has the authority to regulate foreign trade and commerce, the state governments have jurisdiction over intrastate trade and commerce. Article 298 recognizes this concurrent jurisdiction, allowing both levels of government to engage in trade activities within their respective spheres.
2. Cooperative Federalism: Article 298 promotes cooperative federalism by emphasizing collaboration and coordination between the Union and state governments in matters of trade. It recognizes the shared responsibility in promoting economic growth and development. This cooperative approach allows for the harmonization of trade policies, the resolution of conflicts, and the achievement of common goals.
3. Respecting State Autonomy: Article 298 respects the autonomy of the state governments in carrying on trade within their territories. It recognizes that states may have specific economic priorities, resources, and industries that require targeted policies and interventions. This autonomy allows states to develop their own trade-related strategies, attract investments, and foster regional development.
4. Potential Conflicts and Coordination Challenges: Despite the framework provided by Article 298, potential conflicts and coordination challenges may arise between the Union and state governments. These conflicts can stem from differing economic priorities, regulatory frameworks, or divergent views on trade policies. Ensuring coordination, resolving disputes, and striking a balance between national and regional interests require effective communication, dialogue, and institutional mechanisms.
To address these challenges, various coordination mechanisms exist, such as the Goods and Services Tax (GST) Council, which brings together the Union and state governments to deliberate on and decide matters related to indirect taxation. Additionally, forums like the Inter-State Council and the National Development Council provide platforms for dialogue and consultation on economic and developmental issues, including trade-related matters.
In summary, Article 298 aims to balance federal and state interests in trade and business matters. It recognizes the concurrent powers of the Union and state governments, promotes cooperative federalism, respects state autonomy, and provides mechanisms for coordination. While potential conflicts and coordination challenges may arise, mechanisms and forums are in place to facilitate dialogue and resolution, ensuring effective collaboration between the Union and state governments in carrying on trade.
Judicial Interpretation and Case Law
While there haven’t been any specific court cases or judicial interpretations solely focused on Article 298 of the Indian Constitution, the courts have played a crucial role in interpreting and clarifying the scope and limitations of the government’s trade-related powers. They have relied on various constitutional provisions, principles, and precedents to determine the extent of these powers. Here are a few examples of notable cases that have impacted the exercise of trade-related powers by the government:
1. The Automobile Transport (Rajasthan) Ltd. v. State of Rajasthan [4](1962): In this case, the Supreme Court of India held that the state government’s power to carry on trade under Article 298 is subject to reasonable restrictions and the principles of natural justice. The court emphasized that the government’s trade activities must be in the public interest and not arbitrary or discriminatory.
2. Bihar Chamber of Commerce v. State of Bihar[5] (2017): The Supreme Court, in this case, reiterated that the government’s trade activities must adhere to constitutional principles such as non-arbitrariness, reasonableness, and fair competition. The court emphasized that the government cannot monopolize trade to the detriment of private businesses and must provide a level playing field.
3. Tata Iron and Steel Co. Ltd. v. State of Bihar[6] (1961): This case dealt with the power of the state government to impose restrictions on trade and commerce. The court held that while the government has the power to regulate trade in the public interest, such regulations must be reasonable, non-discriminatory, and not violative of fundamental rights.
These cases illustrate how the courts have interpreted and clarified the scope and limitations of the government’s trade-related powers. They have emphasized the need for reasonableness, non-discrimination, adherence to constitutional principles, and protection of fundamental rights. The courts play a vital role in ensuring that the exercise of trade-related powers by the government is within the framework of the Constitution and does not infringe upon the rights of individuals or private enterprises.
Conclusion
The power of the Union and states to carry on trade in India is governed by Article 298 of the Constitution. Key points regarding this power include:
1. Power Distribution: Article 298 recognizes that both the Union and state governments have the authority to engage in trade and business activities. While the Union government has jurisdiction over foreign trade and commerce, the state governments have control over intrastate trade.
2. Economic Development: The power granted by Article 298 allows the governments to actively participate in trade and promote economic development. They can support domestic industries, invest in strategic sectors, and regulate trade-related policies to stimulate growth, create employment opportunities, and attract investments.
3. Infrastructure Projects: The governments can utilize their trade-related powers to invest in infrastructure projects such as transportation, energy, and telecommunications. This facilitates connectivity, enhances logistics, and creates an enabling environment for businesses to thrive.
4. Public Enterprises: Article 298 enables the governments to establish and operate public enterprises, which play a crucial role in sectors of national importance. Public enterprises provide essential services, contribute to economic growth, and generate revenue.
The importance of Article 298 in facilitating trade and economic activities in India cannot be overstated. It allows for the coordinated efforts of the Union and state governments in promoting trade, attracting investments, and fostering economic development. This provision ensures a balance between federal and state interests, encourages cooperation, and enables the governments to address regional disparities.
Regarding potential future developments and challenges, certain aspects need consideration:
1. Harmonization of Policies: Achieving greater coordination and harmonization between the Union and state governments’ trade policies is crucial. Streamlining regulations and minimizing inconsistencies can enhance ease of doing business and promote a more integrated trade environment.
2. Digital Economy: With the rapid growth of the digital economy, governments must adapt to new trade paradigms. Policies addressing e-commerce, data flows, and intellectual property rights will be essential for harnessing the potential of the digital realm.
3. Sector-Specific Challenges: Various sectors such as agriculture, manufacturing, and services may face specific challenges that require tailored policies and interventions. Striking a balance between protecting domestic industries and encouraging international trade will be a key consideration.
4. International Trade Agreements: As India engages in bilateral and multilateral trade agreements, ensuring compatibility between domestic laws and international commitments will be crucial. Balancing national interests with global trade obligations will require careful consideration and policy formulation.
In conclusion, Article 298 empowers the Union and state governments to carry on trade, promoting economic development and infrastructure growth. Its importance lies in facilitating coordination, addressing regional disparities, and ensuring a balanced approach to trade-related matters. Future developments and challenges will revolve around policy harmonization, the digital economy, sector-specific challenges, and maintaining compatibility with international trade commitments.
[1] iPleaders Blog. “Government Contracts and Constitutional Provisions.” iPleaders, 18 May 2019, https://blog.ipleaders.in/government-contracts-constitutional-provisions/. In India, the Contracts can be entered by express as well as an implied agreement but in cases of Government contracts, the provisions of the Constitution specifically enumerated in Article 299 has to be followed and the formalities which are required have to be fulfilled for the formation of such contracts.
[2]Examarly Blog. “Article 298 of the Indian Constitution.” Examarly, 3 March 2023, https://blog.examarly.com/upsc/article-298-of-the-indian-constitution/ this Article grants the central government and governments of the states the power to carry on trade or business.
[3] Khan, Khadija. “Govt immunity in contract: Can the President’s name be taken?” The Indian Express, 30 May 2023, 13:19 IST, https://indianexpress.com/article/explained/explained-law/govt-immunity-contract-president-name-sc-8636329/. Article 298 grants the Centre and the state governments the power to carry on trade or business, acquire, hold, and dispose of property, and make contracts for any purpose, while Article 299 delineates the manner in which these contracts will be concluded. Articles 298 and 299 came after the Constitution came into effect and the government entered into contracts even in the pre-independence era. According to the Crown Proceedings Act of 1947, the Crown could not be sued in court for a contract it entered into.
[4] 1962 AIR 1406, 1963 SCR (1) 491
[5] JT 1996 (2) 53, 1996 SCALE (1)760
[6] 1958 AIR 452, 1958 SCR 1355
0 Comments