Centre State Relations – Indian Polity UPSC

In this article, You will read Centre State Relations – Indian Polity for UPSC.

The Constitution of India, being Federal in structure, divides all powers (the legislative, executive, and financial powers) between the center and the states, whereas the judiciary is integrated into a hierarchical structure.

Centre State Relations

The roots of India’s present-day federal system are found in the Government of India Acts of 1919 and 1935.

The Government of India Act of 1919 –

  • Relaxed the central control over the provinces
  • Dyarchy was introduced in the provinces and
  • For the first time, the subjects were divided into Central and State subjects

The Nehru Report, 1928 had also envisaged that the Constitution of India should be federal in character.

The distribution of powers between the Centre and the States in the Indian Constitution is based on the scheme provided in the Government of India Act of 1935. Though the federal provision was not implemented, it provided a blueprint for the federal state which India established in the Constitution of 1950. However, autonomous provinces were created under this Act as the first step in the establishment of the federation.

Based on the nature of the relationship between the National government and Regional government, the governments can be classified as Unitary and Federal systems. Our Federalism is influenced by American, Canadian, and Australian Federalism.

The Constitution of India provides for a federal system of government in the country.

The Indian federal system is based on the ‘Canadian model’, unlike the US model. Indian system resembles the Canadian federation in its formation (by way of disintegration i.e., a large unitary state is converted into a federation by granting autonomy to the provinces to promote regional interests; whereas in ‘U.S model’ federation is formed by way of integration i.e., states come together to form a big and strong union. Centralizing tendency i.e., vesting more powers in the center and preference to the term ‘Union’.

Federalism in the Indian Constitution is not a matter of administrative convenience, but it is the outcome of our own process and recognition of the ground realities. At the time of Independence, India was a nascent democratic country suffering from the aftermaths of partition. The priority then was the ‘integrity’ of the country. Hence India adopted a system that is federal in normal times, but unitary in times of emergency.

Models of Federalism-

  • Unitary Federalism
  • Cooperative Federalism
  • Bargaining Federalism

Evolution of Centre-State relation in Post-independence

centre state relations
centre state relations

Constitutional Scheme of Centre-State Relations

Constitution of India provides for elaborate provisions for purpose of a greater degree of cooperation between Centre and States. Moreover, the union government has also been active and set-up various commission and committees to look after the relationship in light of the ever-changing dynamics of the relation. However, the constitutional scheme can be mainly classified into the following three facets:

  1. Legislative Relations
  2. Administrative Relation
  3. Financial Relation and Planning

1. Legislative Relations

Articles 245 to 255 in Part XI deals with different aspects of legislative relations between centre and states.

There are 4 aspects in Legislative Relations –

  1. Territorial extent of Central & state legislation;
  2. Distribution of Legislative subjects;
  3. Parliamentary legislation in the state field; and
  4. Centre’s control over state legislation

1. Territorial extent of Central & state legislation

Parliament makes laws for the whole or any part of the territory of India.

A state legislature makes laws for the whole or any part of its state.

(The laws made by the state are not applicable outside the state)

Parliament alone can make ‘extra-territorial legislation’ (hence, the laws are applicable to Indian citizens & their property in any part of the World).

Exceptions –

The President can make regulations for the peace, progress & good government of the 4 UTs – A&N; D&D; D&NH; Lakshadweep.

The Governor is empowered to direct that an act of Parliament does not apply to Scheduled Areas in the state (Schedule V)

The Governor of Assam may likewise direct that an act of Parliament does not apply to Tribal Areas in the state (Schedule VI)

The President enjoys the same power with respect to Tribal Areas in Meghalaya, Tripura & Mizoram (Be careful here, no Assam)

2. Distribution of Legislative subjects

  • GoI Act, 1935 provided for a 3 fold enumeration– Union/State/Concurrent Lists (Schedule VII)
  • Parliament has powers to make laws in Union List
  • State legislature makes laws in the State list
  • Both Parliament & state legislature can make laws in Concurrent List
  • The power to make laws with respect to residuary powers is vested in Parliament.

In case of overlapping between –

  • Union v. State => Union prevails
  • Union v. Concurrent => Union prevails
  • Concurrent v. State => Concurrent prevails

42nd CAA, 1976 transferred 5 subjects to Concurrent List from State List –

  • Education
  • Forests
  • Weights & Measurements
  • Protection of wild animals & birds
  • Administration of justice, constitution & organization of all courts (except SC & HCs)

3. Parliamentary legislation in the State field

Parliament can make laws on any matter enumerated in the State List under the following 5 extraordinary circumstances

  • When RS passes a resolution
  • During a National Emergency
  • When states make a request
  • To implement International Agreements
  • During President’s Rule

When RS passes a resolution

  • If the RS declares that it is necessary for the National Interest that Parliament should make laws on matter enumerated in the State List
  • Such a resolution must be supported by two-thirds of the members present & voting.

During a National Emergency

  • Parliament (makes laws) acquires the power to legislate with respect to matters in the State List while an emergency is in operation.
  • The laws become inoperative on the expiration of 6 months after the emergency has ceased to operate.

When states make a request

  • When the legislatures of two/more states pass a resolution requesting the Parliament to enact laws on a matter in State List.
  • A law so enacted applies only to those states which have passed the resolution. Any other state may adopt it afterward by passing a resolution.
  • Such a law can be repealed/amended only by the Parliament & not by concerned state legislatures.
  • Ex. Prize Competition Act, 1955; Wildlife (Protection) Act, 1972; Water (Prevention & Control of Pollution) Act, 1974 etc.

To implement International Agreements

  • Parliament can make laws for implementing International treaties, agreements, or conventions
  • Ex. UN (Privileges & Immunities) Act, 1947; Geneva Convention Act, 1960; legislation relating to TRIPS etc.

During President’s Rule

  • When the President’s rule is imposed on the state, the Parliament can make laws on matters in State List.
  • A law made so by the parliament continues to be operative even after the President’s rule.
  • But, such a law can be repealed/altered/re-enacted by the State Legislature.

4. Centre’s control over state legislation (SARKARIA COMMISSION)

  • The Governor can reserve certain Bills passed by the state legislature for consideration of the President – The President enjoys ‘absolute veto’ over the bills.
  • Bills on certain matters enumerated in the State List can be introduced by the state legislature only with the previous sanction of the President.
  • The President can direct the states to reserve money bills & other Financial Bills passed by the state legislature for his consideration during a ‘Financial Emergency’.

2. Administrative Relations

Articles 256 to 263 (PART XI) deal with the Administrative Relations between the Centre & State.

Aspects under Administrative Relations –

  • Distribution of Executive Powers
  • The obligation of States & the Centre
  • Centre’s directions to the States
  • Mutual Delegation of Functions
  • Cooperation between the C&S
  • All India Services
  • Public Service Commissions
  • Integrated Judicial System
  • Relations during Emergencies
  • Other Provisions
  • Extra – Constitutional Devices

1. Distribution of Executive Powers

  • Executive powers of the Centre extend to the whole of India:
    1. Parliament has exclusive powers of legislation to the matters enumerated in Union List.
    2. Parliament will have rights, authority & jurisdiction on states if any treaty/agreement is conferred.
  • Executive powers of the state extend to its territory:
    1. With respect to matters enumerated in State List.
    2. On matters enumerated in Concurrent List, the Executive Power rests with the states except when a Constitutional provision or a parliamentary law specifically confers it on the centre.

“A law on a concurrent subject is enacted by Parliament but executed by the states except when the constitution or the Parliament has directed otherwise”.

2. Obligation of States & the Centre

  • Constitution has placed 2 restrictions on the Executive Power of the states so that the Centre can exercise its executive power in an unrestricted manner.
  • The executive power of every state is to be exercised in such a way –
    • (i) As to ensure compliance(act in accordance) with the laws made by the Parliament & any existing laws which apply in the state;
    • (ii) As not to impede or prejudice the exercise of executive power of the Centre in the state.

Article 365 says that where any state has failed to comply (act in accordance) with any directions given by the Centre, the President can hold that a situation has arisen in which the govt. of the state cannot be carried on in accordance with the Constitution.

In such a situation, the President’s rule can be imposed in the state under Article 356.

3. Centre’s directions to the States

  1. Centre gives directions in construction & maintenance of means of communication by the state.
  2. Directions on the measures to be taken for the protection of railways within the state.
  3. Provision of adequate facilities for instruction in the mother-tongue at the primary stage of the education to children belonging to linguistic minority groups of the state.
  4. The drawing up & execution of the specified schemes for the welfare of the Scheduled Tribes in the state.

4. Mutual Delegation of Functions

  1. The distribution of executive powers between C&S is rigid and many times lead to conflicts, hence the Constitution provides for inter-government delegation of executive functions to mitigate rigidity & avoid a situation of deadlock.
  2. Accordingly, the President may (with the consent of the state govt.) entrust to that govt. any of the executive functions of the Centre.
  3. Conversely, the Governor of a state may (with the consent of the Central govt.) entrust to that govt. any of the executive functions of the state.
  4. Constitution also makes a provision for the entrustment of the executive functions of the Centre to a state (without the consent of that state)  here, the delegation is by Parliament (not by President)
  5. Mutual delegation of functions between the C&S can take place either under an agreement or by legislation. (Centre can use both the methods but a state can use only the agreement method)

5. Cooperation between the C&S – to secure cooperation & coordination

  • Parliament can provide for the adjudication of any dispute w.r.t use/distribution/control of waters of any inter-state river & valley.
  • President can establish an Inter-State Council (under Art 263) to investigate & discuss common interests between C&S.
  • Full faith & credit is to be given throughout the territory of India to public acts, records & judicial proceedings of the Centre & every state.
  • Parliament can appoint an appropriate authority to carry out the purpose of the constitutional provision relating to the interstate freedom of trade & commerce.

6. All – India Services

  • AIS – IAS, IPS & IFS are recruited & trained by the Centre
  • Article 312 authorizes Parliament to create new AIS on the basis of an RS resolution to that effect.
  • AIS help in maintaining a high standard of administration in C & S.
  • Help to ensure uniformity of the administrative system throughout the country.
  • Facilitate liaison, cooperation, coordination & joint action on the issues of common interests between C&S.

7. Public Service Commissions

  • Chairman & members of SPSC – appointed by Governor but removed by President.
  • Parliament can est. JSPSC(Joint) – for 2/more states on their request [Ch & mem of JSPSC appointed by President]
  • UPSC serves the needs of a state on the request of the state Governor & with the approval of the President.
  • UPSC assists the states (when requested by 2/more states) in framing & operating schemes of Joint Recruitment for any services.

8. Integrated Judicial System

  • Judges of a state HC are appointed by the President in consultation with CJI & Governor of the state. They can be transferred & removed only by the President.
  • Parliament can establish a common HC for 2/more states.

9. Relations during Emergencies

  • Art 352 National emergency  Centre becomes entitled to give executive directions to a state on “any” matter.
  • Art 356 President’s Rule  President can assume himself the functions of the state govt & powers vested in Governor or any executive authority.
  • Article 360 Financial emergency  Centre can direct the states to observe canons of financial propriety & President can give directions like the reduction of salaries of persons serving in the state & HC judges.

Other Provisions

  1. Art 355 Imposes 2 duties on Centre 
    • to protect every state from external & internal aggression/disturbance and
    • to ensure that the govt of every state is carried on in accordance with the provisions of the Constitution.
  2. The Governor of a state is appointed by the President & holds office during the pleasure of the President.
  3. Governor acts as an agent of the Centre & submits periodical reports to the Centre about the administrative affairs of the state.
  4. State Election Commissioner is appointed by the Governor but removed by the President.

10. Extra – Constitutional Devices

Includes no. of advisory bodies & conferences held at the Centre level.

  1. Non-Constitutional Bodies => NITI Aayog, NDC, Central Council of Health, North East Council, Central Council for Local Govt, Transport Development Council, Zonal Councils, UGC, etc.
  2. Conferences => Governors’ conference (presided by the President), CMs’ conf (Presided by the PM), Chief Secretaries’ conf (pres by the Cabinet Secretary), Conf of Inspector General of Police, CJs’ conf (by CJI), Home Ministers’ conf (Central HM), etc.

3. Financial Relations

Articles 268 to 293 in Part XII deal with Financial Relations between Centre and State.

Aspects under Financial Relations –

  1. Allocation of Taxing Powers
  2. Distribution of Tax Revenues
  3. Distribution of Non-Tax Revenues
  4. Grants-in-Aid to the States
  5. Finance Commission
  6. Protection of the States’ Interest
  7. Borrowing by the C & S
  8. Inter-Governmental Tax Immunities
  9. Effects of Emergencies
101st Amendment to the Constitution

Goods and Services Tax (GST) is an indirect tax that was introduced in India on 1 July 2017 and was applicable throughout India which replaced multiple cascading taxes levied by the central and state governments. It was introduced as The Constitution (One Hundred and First Amendment) Act 2017, following the passage of the Constitution 122nd Amendment Bill.

Under GST, goods and services are taxed at the following rates, 0%, 5%, 12%, 18% and 28%.

Article 246 (A)

This is a new article inserted in the constitution. It says that –

(1) Notwithstanding anything contained in articles 246 and 254, Parliament, and, subject to clause (2), the Legislature of every State, has the power to make laws with respect to goods and services tax imposed by the Union or by such State.

(2) Parliament has exclusive power to make laws with respect to goods and services tax where the supply of goods, or of services, or both takes place in the course of inter-State trade or commerce.

  • Both Union and States in India now have concurrent powers” to make law with respect to goods & services
  • The intra-state trade now comes under the jurisdiction of both centre and state; while inter-state trade and commerce are “exclusively” under central government jurisdiction.
Article 269A
  1. Goods and services tax on supplies in the course of inter-State trade or commerce shall be levied and collected by the Government of India and such tax shall be apportioned between the Union and the States in the manner as may be provided by Parliament by law on the recommendations of the Goods and Services Tax Council.
  2. The amount apportioned to a State under clause (1) shall not form part of the Consolidated Fund of India.
  3. Where an amount collected as tax levied under clause (1) has been used for payment of the tax levied by a State under article 246A, such amount shall not form part of the Consolidated Fund of India.
  4. Where an amount collected as tax levied by a State under article 246A has been used for payment of the tax levied under clause (1), such amount shall not form part of the Consolidated Fund of the State.
  5. Parliament may, by law, formulate the principles for determining the place of supply, and when a supply of goods, or of services, or both takes place in the course of inter-State trade or commerce.’
Article 279A – Goods and Services Tax Council (GSTC)

This article provides for the constitution of a GST council by the president within sixty days from this act coming into force. The GST council will constitute the following members:

  • Union Finance Minister as chairman of the council
  • Union Minister of State in charge of Revenue or Finance
  • One nominated member from each state who is in charge of finance or taxation
Changes in the 7th Schedule

Union List:

Entry 84 of Union List earlier comprised the duties on tobacco, alcoholic liquors, opium, Indian hemp, narcotic drugs and narcotics, medical and toilet preparations. After this amendment, it will comprise of Petroleum crude, high-speed diesel, motor spirit (petrol), natural gas, and aviation turbine fuel, tobacco, and tobacco products. Thus, these are now out of the ambit of GST and subject to Union jurisdiction.

Entry 92 (newspapers and on advertisements published therein) has been deleted thus, they are now under GST.

Entry 92-C (Service Tax) has now been deleted from union list.

State List:

Under State list, entry 52 (entry tax for sale in state) has been deleted.

In Entry 54, Taxes on the sale or purchase of goods other than newspapers, subject to the provisions of Entry 92-A of List I.; has been now replaced by Taxes on the sale of petroleum crude, high-speed diesel, motor spirit (commonly known as petrol), natural gas, aviation turbine fuel and alcoholic liquor for human consumption, but not including the sale in the course of inter-State trade or commerce or sale in the course of international trade or commerce of such goods.”

Entry 55 (advertisement taxes) have been deleted.

Entry 62 (Taxes on luxuries, including taxes on entertainments, amusements, betting, and gambling) has been replaced by these taxes only to be levied by local governments (panchayats, municipality, regional council, or district council.)

Other Important amendments in existing articles

  • The residuary power of legislation of Parliament under article 248 is now subject to article 246A.
  • Article 249 has been changed so that if the 2/3rd majority resolution is passed by Rajya Sabha, the Parliament will have powers to make necessary laws with respect to GST in the national interest.
  • Article 250 has been amended so that parliament will have powers to make laws related to GST during the emergency period.
  • Article 268 has been amended so that excise duty on medicinal and toilet preparation will be omitted from the state list and will be subsumed in GST.
  • Article 268A has been repealed so now service tax is subsumed in GST.
  • Article 269 would empower the parliament to make GST related laws for inter-state trade/commerce.

Distribution of Non-Tax Revenues

(i) The Centre – receipts from

a) Posts & telegraphs
b) Banking
c) Railways
d) Broadcasting
e) Coinage & currency
f) Escheat & lapse

(ii) The States – receipts from

a) Irrigation
b) Forests
c) Fisheries
d) State PSE
e) Escheat & lapse

Grants-in-Aid to the States

A. Statutory Grants Article 275

  • Article 275 empowers Parliament to make grants to the states
  • Grants are provided to only states which are in need of Financial assistance
  • Charged on the Consolidated Fund
  • Specific grants for promoting the welfare of STs or to rise the administration of the scheduled areas in a state (Schedule 5)
  • Statutory grants are given under the recommendations of FC

B. Discretionary Grants Article 282

  • Article 282 empowers both the C & S to make any grants for any public purpose
  • Centre makes grants to the states on recommendations of the PC(an extraconstitutional body)
  • Centre is under no obligation to give these grants
  • Grants given to help the state to fulfill plan targets
  • Grants also used to influence & coordinate state action to effectuate a national plan

C. Other Grants

  • Grants for a temporary period
  • Ex grants provided in lieu of export duties on jute & jute products to the states of Assam, Bihar, W. Bengal & Orissa
  • Charged on Consolidated Fund
  • Recommended by FC

Finance Commission (Article 280)

The Finance Commission, set up in 1951 under Article 280 of the Constitution, basically decides how revenue has to be distributed between the Centre and the States. In addition, the Commission also decides the principles on which grants-in-aid will be given to the States.

Article 280 provides for FC (a quasi-judicial body) constituted by the President

FC make recommendations to the President

(i) Distribution of the taxes to be shared between C&S, allocation & respective shares
(ii) The principles which should govern the Grants-in-Aid by Centre to the states
(iii) The measures need to augment the Consolidated Fund of the state
(iv) Any other matters referred to it by the President

FC = Balancing Wheel of fiscal federalism.

14th Finance Commission Recommendation for Tax Devolution

  • States’ share in the net proceeds of Union tax revenues increased to 42% from 32% earlier. This is the largest ever jump in the percentage of devolution. In the past, changes have ranged between 1-2% increase.
  • Many Centrally Sponsored Schemes (CSS) delinked from the support of the Centre. Finance Commission has identified over 30 CSS schemes to be delinked from the Centre’s support but all have not yet been delinked considering the national priorities and legal obligations.
  • Sharing pattern under various CSS to undergo a change, with States sharing higher fiscal responsibility for scheme implementation.
  • Distribution of grants to States for local bodies based on 2011 population data (90% weight) and area (10% weight)

15th Finance Commission

The 15th Finance Commission was constituted on November 27, 2017, and is headed by former Revenue Secretary and former Rajya Sabha MP N.K. Singh.

The terms of reference of the 15th Finance Commission are thus a matter of utmost importance to the resources available to the States of India.

Concerns:

The terms of reference of this Commission have created apprehension among States about principles of fairness and equity in the distribution of public resources for development.

Issues:

Asymmetry in the federal system:

The States in India today neither have the resources to fulfill their tasks as laid down in the Constitution nor do they have the right to raise such resources. There is thus a great asymmetry in India’s federal system.

The Centre’s capacity to mobilise resources is far greater than that of the States, but the latter are required to undertake development expenditures that far exceed their revenue generating capabilities.

The Constitution of India entrusts the Finance Commission with the responsibility of addressing this anomaly.

In the wake of demonetisation and GST:

The devolution of resources by the 15th Finance Commission assumes further significance in the current environment, in which the finances of States have received a double blow in the form of demonetization and the Goods and Services Tax (GST). The freedom of States to raise resources has been restricted by the introduction of the GST.

They now have hardly any major tax left with them to make a difference to State resources.

Demographic differences:

Using the population data of 2011 as the base for tax devolution should not reduce the allocation of resources to States that have successfully reduced their rate of population growth.

These States have incurred huge fiscal costs in order to achieve a lower population growth and healthy demographic indicators. They have made substantial investments on education, health and directly on family welfare programmes.

Many States of India today have achieved a replacement rate of growth of population or have gone below that rate in a short span of time. An immediate effect of this is a sharp rise in the proportion of elderly in the population. The care of the elderly is the responsibility of State governments.

The enhanced costs of such care must be considered by the Commission in making its awards and in deciding the population criterion to be used.

Beyond the constitutional mandate:

The current terms of reference go far beyond the constitutional mandate of the Finance Commission.

  • They intensify efforts to use the Finance Commission as an instrument of fiscal consolidation and to impose the ideological and economic agenda of the Central government on the States.
  • It is not the task of a Finance Commission to recommend “road maps for fiscal management” or to impose its perception of what policies are good for the people of the States. That is for democratically elected State governments to decide.
  • The terms of reference explicitly privilege the “committed expenditures” of the Centre.

Performance-based incentives:

The terms of reference are unprecedented in asking the 15th Finance Commission to consider proposing performance-based incentives beyond those relating to fiscal responsibility, population, and devolution to local bodies.

Protection of the States’ Interest

To protect the interest of states in financial matters, the Constitution lays down that following bills can be introduced in the Parliament only on the recommendation of President.

  • A bill which imposes or varies any tax/duty in which states are interested
  • A bill which varies the meaning of Agricultural Income (relating to Income Tax)
  • A bill which affects the principles on which money are distributed to states
  • A bill which imposes any surcharge on any specified tax or duty

Borrowing by the C & S

  • Central govt. can borrow either within India or outside upon the security of the Consolidated Fund of India or can give guarantees – limits fixed by Parliament.
  • A state can borrow within India (and not abroad) upon the security of the Consolidated Fund of State or can give guarantees – limits fixed by SL
  • Central govt. can make loans to any state or give guarantees in respect of loans raised by any state
  • A state cannot raise any loan without the consent of the Centre.

Inter-Governmental Tax Immunities

Indian Constitution contains the rule of ‘immunity from mutual taxation’ & makes the following provisions.

A. Exemption of Central Property from State Taxation

  • The property of Center is exempted from all taxes imposed by a state
  • Parliament is allowed to remove the ban
  • The property includes building, land, shares, debts, everything moveable & immovable that has a money value
  • Companies or Corporations created by the Central govt (come under separate legal entity) hence are not immune from state taxation or local taxation.

B. Exemption of State Property from Central Taxation

  • The property & income of a state is exempted from Central Taxation
  • C can tax the commercial operations of a state if Parliament so provides
  • Property & income of local authorities situated within a state are not exempted from Central taxation
  • Property & income of corporations & companies owned by a state can be taxed by the Centre
  • C can impose Custom Duty on goods imported or export by a state (or) an excise duty on goods produced/manufactured by a state.

Effects of Emergencies

A. National Emergency (Article 352)

  • President can modify the constitutional distribution of revenues between C&S
  • President can either reduce or cancel the transfer of finances (tax sharing & grants-in-aid)
  • Such modifications continue till the end of the financial year in which the emergency ceases to operate.

B. Financial Emergency (Article 360)

Centre gives directions to the states –

  1. To observe the specified canons of financial propriety
  2. To reduce the salaries & allowances of the all-class govt state employees (including HC judge)
  3. To reserve the money bills & other financial bills for the consideration of the President

Tension areas in center-state relations

  • Mode of appointment and dismissal of Governor
  • Discriminatory and partisan role of governor
  • The imposition of the president’s rule
  • Deployment of center forces in the states to maintain law and order
  • Reservation of state bills for the consideration of the president
  • Discrimination in financial allocations to the states
  • Role of NITI AYOG
  • Management of All India Services
  • Use of Electronic Media for political purposes
  • Appointment of inquiry commissions against the chief ministers
  • Sharing of finances between center and states
  • Encroachment by the center on the state list
  • Note- These are just for references.

Administrative Reform Commission – ARC

  • ARC 1966 chairmanship what Morarji Desai followed by K Hanumanthayya – to examine center and state relations
  • The ARC constituted a study team under M C Setalvad and finalized its report in 1969 – based on the study team’s report

Important recommendations are

  • Establishment of an interstate council under article 263 of the constitution
  • Appointment of persons having long experience in public life and administration and nonpartisan attitude as Governors
  • Delegation of powers to the maximum extent to the states
  • Transferring of more financial resources to the states to reduce their dependency upon the center
  • Deployment of Central armed forces in the states either on their request or otherwise

No action was taken by the central govt. on the recommendations of the ARC

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