HARMONIZING

ECONOMIC POLICIES:
BALANCING STATE
AUTONOMY AND
NATIONAL INTERESTS
IN TRADE AND
COMMERCE
STUDENT PROFILE
NAME: MATHANGI SHANKAR
ENROLLMENT NUMBER: 00617703523
COURSE: BBA LLB(H)
SUBJECT: CONSTITUTIONAL LAW- I
CLASS AND SECTION: 2-K
BATCH: 2023-28
ACTIVITY: PSDA
DATE OF SUBMISSION: 20-03-2024
SUBMITTING TO: PROF. DR. T.V.SUBBA RAO
TABLE OF CONTENTS
1. Introductory
2. Position in India
3. Inter-relation between Article 19(1)(g) and 301
4. Application and scope of Article 301
5. Atiabari Tea Co. Ltd. Vs. State Of Assam, AIR 1961
SC 232,254
6. Exceptions to freedom of trade and commerce
7. Conclusion
 INTRODUCTORY
Trade, commerce and intercourse may be domestic, foreign or international. Articles 301-305 of the Indian
Constitution deal with the domestic trade , intercourse and commerce i.e. within the territory of India.
Such commerce within the country may be of 2 types:
1. Intra state : within the territory of a particular state
2. Inter state: between two or more states
No federal country has an even economy. Some of the constituent units may be agricultural while the others
may be industrial. Some states may produce raw materials while the processing and manufacturing
industries may be present in the other states because of several favorable factors like cheap labor, suitable
climatic conditions, natural resources etc. This circumstance creates the possibility that the constituent units
which have legislative powers of their own may , to serve their own narrow interests, seek to create trade
barriers by restricting the flow of commodities either from outside or to other units.
Creation of such trade barriers may hamper the national interests as it may affect the economy of the
country as a whole and this would cause disadvantages to all other units in the longer run.
Free flow of trade , commerce and intercourse within a federal country having two tier polity is a pre-
requisite for promoting the economic unity of a country. An attempt has therefore been made in all
federations, through adopting suitable constitutional formulae, to create and preserve a national economic
fabric in order to minimize the possibility of emergence of local economic barriers, to remove impediments
in the way of inter-state and commerce thus help in welding the country into one single economic unit so
that the economic resources of all the various regions may be exploited and harnessed and pooled into the
common advantage and prosperity of the country as a whole.
POSITION IN INDIA
The Constitution makers desired to promote free flow of trade and commerce in India
as they fully realized that economic unity and integration of the country provided the
main sustaining force for the stability and progress of the political and cultural unity of
the federal polity, and that the country should function as one single economic unit
without any barriers on internal trade.
In order to ensure that state legislatures subjected to local and regional pulls do not
create any barriers in the future, Articles 301-305 were incorporated in the Indian
Constitution. These provisions deal with trade, commerce and intercourse within the
country. The main provision is Article 301.
According to Article 301 , “trade, commerce and intercourse throughout the territory
of India shall be free”
This constitutional provision imposes a general limitation on the exercise of legislative
power, whether of the Centre or the of states, to secure unhampered free flow of trade,
commerce and intercourse from one part of the country to the another. The purpose of
this article is to promote economic unity of India and that there should not be any
territorial, economic or any regional barriers.
INTER-RELATION BETWEEN
ARTICLE 19(1)(g) AND 301
Article 19(1)(g) of the Constitution which is a fundamental right, confers on the
citizens the right to practice any profession or carry on any occupation, trade or
business subject to reasonable restrictions in public interest.
One view is that while Article 19(1)(g) deals with the right of the individual, Article
301 provides safeguards for carrying on trade as a whole distinguished from an
individual's right to do the same. The Hon’ble Supreme Court has denounced the
theory that Article 301 guarantees freedom “in the abstract and not of the
individuals”. Another way of projecting the same idea is to say that Article 301 aims
at preventing restrictions on the volume of trade flowing and therefore, the effect of
law on individuals is irrelevant.
APPLICATION AND SCOPE OF
ARTICLE 301
The makers of our Constitution while framing Article 301 had before them the
experiences of the other pre-existing Constitutions particularly the American and
Australian Constitutions, the main inference was taken from the Australian Constitution.
Article 301 imposes a constitutional limitation on the legislative as well as executive
powers of the Union and the States. Any legislative or executive act falling under its reach
must be justified under the provisions of this article. This article enacts a general rule that
trade, commerce and intercourse within the territory of India shall be free. The freedom of
this article is is not confined to inter-state trade and commerce but also extends to intra-
state trade and commerce .
The major objective of this article in the constitution is to break down the barriers
between the constituent states and to make the entire territory of a country as one unit
with a view of encouraging trade, commerce and intercourse within the country.
ATIABARI TEA CO.LTD. Vs. STATE OF
ASSAM, AIR 1961 SC 232,254
The Hon’ble Court held that tax laws are not outside the purview of Article 301. In that case, the
appellants carried on the business of growing tea and exporting it to Calcutta via Assam.
During its passing through the State of Assam, the tea was liable to tax under the Assam Taxation Act,
1954, this act imposed a tax on goods being carried through roadways or inland waterways in Assam.
The Hon’ble SC held that tax imposed on the goods directly restricted the free movement or
transportation of the goods and thus, Article 301. The act was therefore held void and the State was
restrained from levying tax. In the course of the judgement Justice Gajendragadkar explained that
restrictions, and freedoms that are guaranteed by Article 301, such restrictions as directly and
immediately restricting the free flow or movement of trade would be permissible under Article 301.
Thus, such measures as traffic regulation, licensing of vehicles, economic and social management etc.
are not open to challenge under Article 301 because their impact on the freedom guaranteed by that
article is only indirect.
It was also pointed out that taxes may and do amount to restrictions, but it is only such taxes, as directly
and immediately restrict trade that would fall within the purview of Article 301. Since the tax in the
instant case affected the free flow of trade, it could be valid only if it satisfied the requirements of Article
304(b) i.e. restrictions on trade must be reasonable and in the interest of the general public. The Bill
proposing the tax in the said case was introduced with the previous sanction of the President.
The Assam legislature subsequently amended the Act following the requirements of Article 304(b) and
the validity of the amended Act was upheld by the Supreme Court in Khyerbari Tea Co. Vs. State of
Assam, AIR 1964 SC 925.
EXCEPTIONS TO FREEDOM OF
TRADE AND COMMERCE
No freedom can be absolute in this context absolute freedom of trade, commerce and intercourse may lead to economic
confusion, and it may defeat the purpose of the constitutionally guaranteed freedom of trade and commerce.
The framers of the Constitution realised that under some circumstances freedom of trade and commerce may have to
be curbed or curtailed. Therefore, the wide amplitude of the freedom granted by Article 301 is expressly limited by
provisions lying between Articles 302 to 305.
The exceptions to Article 301 are as follows:
(1) Parliament is given the power to regulate trade and commerce in the public interest under Article 302 subject
to Article 303.
(2) The State Legislatures are given power to regulate trade and commerce under Article 304 subject to Article 303.
(3) Article 305 protects existing laws from the operation of Articles 301 and 303.
(4) Article 305 also saves nationalization laws from the operation of Article 301.
The purpose of these provisions is two-fold. One, Parliament is entitled by itself to impose restrictions on trade and
commerce. Two, the power of the States to do so is restricted. The Centre can prevent a State from restricting if it is
against national interest. Before, however, Articles. 302 to 304 come into play, the Court must decide whether
the 'restriction' imposed is 'regulatory' or not. As stated above, if it is regulatory, its validity need not be assessed
concerning any of the constitutional provisions contained in Articles. 302 to 304.
CONCLUSION
In the Indian Constitution, the balancing act between state autonomy and national interests in trade and
commerce is a nuanced and delicate task. While the Constitution grants states certain powers to regulate
trade and commerce within their territories under Article 301, it also recognizes the necessity of a unified
national market and the promotion of free trade across state borders.
The conclusion drawn from this constitutional framework is that while states have the autonomy to enact
laws and policies to promote their economic interests, they must do so in harmony with the broader
national interest. This requires a delicate balance between allowing states the flexibility to address local
economic needs and ensuring the smooth functioning of the national economy.
In practice, achieving this balance often involves collaboration and coordination between the central and
state governments. It requires the formulation of coherent economic policies that consider both national
priorities and the diverse needs of individual states. Furthermore, mechanisms such as the Goods and
Services Tax (GST) have been introduced to facilitate a unified national market while also providing states
with some degree of fiscal autonomy.
Ultimately, the goal is to create an environment where states can thrive economically within the
framework of a unified national market. This necessitates ongoing dialogue, cooperation, and a
commitment to finding solutions that benefit both individual states and the nation as a whole. By striking
this balance, India can harness the strengths of both state autonomy and national unity to foster sustainable
economic growth and development.