Article 298

Article 298 of the Constitution of India defines the executive powers of the Union and the States in relation to trade, business, property management, and the making of contracts. It enables both levels of government to actively engage in economic and commercial activities, reflecting the Constitution’s vision of a welfare-oriented and self-reliant state.

Constitutional Context and Objective

The inclusion of Article 298 recognises the importance of allowing governments—both Union and State—to act as economic agents in addition to their traditional administrative roles. It ensures that public authorities have the power to carry out commercial and developmental activities, acquire and manage assets, and enter into contracts in pursuit of their constitutional and policy objectives.
The article thus marks a significant shift from the colonial notion of a purely regulatory government to a modern economic state, capable of participating in trade and business for public welfare and national development.

Key Provisions of Article 298

Article 298 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:
Provided that—(a) the said executive power of the Union shall, in so far as such trade or business or such purpose is not one with respect to which Parliament may make laws, be subject in each State to legislation by the State; and(b) the said executive power of each State shall, in so far as such trade or business or such purpose is not one with respect to which the State Legislature may make laws, be subject to legislation by Parliament.”

From this, four key powers emerge for both the Union and the States:

1. Carrying on trade or business — Governments can engage directly in commercial activities.
2. Acquiring property — They can acquire assets necessary for governance or business purposes.
3. Holding and disposing of property — Governments can retain or sell property as per policy decisions.
4. Making contracts — They can enter into legally binding contracts to conduct trade, business, or other public purposes.

Distribution of Executive Powers

Article 298 ensures that both the Union and the States have similar economic powers, but their operation is guided by the distribution of legislative competence under Article 246 and the Seventh Schedule of the Constitution.

• The Union Government may exercise its powers in matters enumerated in the Union List (List I), which include defence, foreign affairs, inter-State trade, and major industries.
• The State Governments may exercise their powers in matters listed in the State List (List II), such as agriculture, local trade, and public health.
• In the case of overlapping or concurrent matters, Parliament’s authority prevails, ensuring national uniformity.

This distribution maintains a federal balance between economic autonomy and national coordination.

Subordinate Clauses and Limitations

The two provisos in Article 298 clearly define the checks and balances between the Union and State governments:

• Clause (a): The Union’s executive power in matters of trade or business, where Parliament has no authority to legislate, remains subject to State legislation.
• Clause (b): Conversely, the State’s executive power in matters beyond its legislative jurisdiction is subject to Parliamentary law.

These clauses prevent overlap or conflict between the Union and the States in economic administration and ensure that each government operates within its constitutional boundaries.

Relationship with Article 299 and Article 300

Article 298 operates closely with Article 299, which lays down the formal requirements for contracts made in the name of the President or the Governor. Together, these provisions safeguard transparency, legality, and accountability in governmental transactions.
Furthermore, Article 300 extends the legal personality of the Government of India and the States, enabling them to sue and be sued in matters arising out of trade, property, or contracts made under Article 298.

Judicial Interpretations

The judiciary has, through various cases, clarified the scope and application of Article 298 in maintaining the balance of executive power and legislative control:

• K. K. Verma v. Union of India (1954): The Court examined the extent of the Union’s executive powers in commercial matters and upheld that both Union and State governments can carry on trade and business within the spheres of their legislative competence.
• State of West Bengal v. Union of India (1963): The Supreme Court discussed the relationship between the Union and the States concerning ownership, trade, and business powers, reiterating that the Union cannot encroach upon matters reserved for the States unless authorised by Parliament.
• A.K. Kraipak v. Union of India (1969): Although not directly on Article 298, this case highlighted that governmental actions in business must adhere to principles of fairness and public interest, even when acting as a commercial entity.

Through these interpretations, the Court has consistently emphasised that government economic activities must conform to constitutional and legislative authority, ensuring accountability to the public and Parliament.

Significance of Article 298

Article 298 has profound constitutional and economic importance:

1. Empowers the Government as an Economic Actor: It allows both levels of government to engage directly in trade, business, and industrial operations, thereby promoting public welfare and economic development.
2. Foundation for Public Sector Undertakings (PSUs): It provides the constitutional basis for the establishment of public enterprises and government corporations, which play a major role in sectors such as energy, transportation, and telecommunications.
3. Facilitates Economic Self-Reliance: By empowering governments to acquire and manage property, Article 298 supports national self-sufficiency and resource control.
4. Promotes Cooperative Federalism: The balance of legislative and executive authority ensures coordination between the Union and the States in managing economic resources.
5. Ensures Administrative Flexibility: The government can enter into contracts, acquire property, and engage in business without needing constant legislative approval, allowing efficiency in decision-making.

Practical Applications

• Public Enterprises and Infrastructure: Article 298 underlies the creation of central and state-owned corporations such as Indian Oil Corporation, State Transport Undertakings, and Electricity Boards.
• Property Transactions: Governments regularly acquire, lease, or dispose of land and buildings for public purposes under the authority of this article.
• Contractual Dealings: Ministries, departments, and public corporations enter into commercial contracts for procurement, development, and services.
• Public–Private Partnerships (PPPs): The government’s ability to engage in business and make contracts forms the basis for PPPs in sectors like infrastructure, education, and healthcare.

Limitations on Executive Powers

While Article 298 grants wide powers, these powers are not absolute:

• They must operate within the scope of legislative competence defined under Articles 245 and 246.
• They are subject to constitutional limitations, including fundamental rights, financial accountability, and public interest.
• Governmental contracts and business dealings must comply with the formal requirements of Article 299, ensuring legal validity.
• Courts may intervene in cases of misuse of executive power or violation of constitutional or statutory provisions.

Relationship with Economic Governance

Article 298 has been central to the evolution of India’s mixed economy model. It legitimised direct government participation in trade and industry during the early decades after independence, and later supported economic liberalisation by allowing governments to enter into commercial partnerships and manage state-owned enterprises efficiently.It continues to provide the constitutional foundation for modern economic governance, including initiatives related to privatisation, disinvestment, and public–private collaboration.