Under what circumstances will an area be declared as a Union Territory of India?

When independent India was formed some of the places were not covered under India. Some places were very small to give those areas a special state status. During 1956 the state's reorganizing committee recommended them Union territory Status. Any union territory will be small in the area when compared to a state. There will not be a separate governing body for governing those areas. The Central government will rule those areas. In 1956 all these areas which were classified as Union territories were economically unbalanced, financially weak, administratively and politically unstable. That is the reason they were kept directly under the Central government.

The union territories can be merged with the States which are having a common border. That will be a good way of avoiding these union territories. But the decision has to be approved by the parliament and then the president has to accept the proposal.

Due to political and administrative reasons sometimes an area in the country can not be declared as a full fledged state and requires direct control of the central Govt. Under such situation the Govt declares it as a union territory after following the usual procedure in parliament and approval of the President. Articles 1 to 4 under Part-1 of the Constitution deals with the Union and its Territory. Further, Article 240 (2) of the Indian Constitution confers the supreme power to the President of India in regulating the affairs of all union territories.

So this is the way a region or area is controlled in the country in respect to its administration and its nomenclature can change from union territory to state or state to union territory depending on the circumstances prevailing at that moment. This leads to the salient differences between state and the union territory. In nutshell, state is an independent functional unit of the country having its own legislation and the state is supposed to take care of the functions like security, education, healthcare, governance, revenue generation etc. On the other hand the union territory is controlled by the central Govt. A Lieutenant Governor is appointed as the administrator of the union territory. He is actually the representative of the President there.

The constitution also allows that a union territory can have a legislative assembly. For example today Delhi and Puducherry are having it. They do not have the status of full state. Under this arrangement the powers are distributed between the Chief Minister and the Lieutenant Governor.

At the time of making the constitution many things are foreseen and clauses are inserted to have minimum problems in the execution. So thinking all those things the concept of states and union territories was kept.

Post independence, during the re-formation of India, there were few small areas/territories which couldn't be conferred statehood citing the lack of administrative power. Also, they were either financially weak, economically unstable or designated as union territories in order to preserve their indigenous heritage and in some cases to uphold the military prowess. One such example was Goa which marked the presence of Portuguese and their culture until 1961, 14 years after our independence. Until then, it was a composite union territory along with Daman and Diu. Later on, Goa got liberated and there was a prospect of that particular territory being able to have good administrative control and hence was granted statehood in 1987. Thus, this concept of Union Territory is much unique to India and basically to have good governance, they were headed by Central government themselves. However, as in the case of Delhi and Puducherry, it is governed both by Legislative Assembly and a Lieutenant Governor with an existing rift always between them , though. If Arvind Kejriwal's request gets honored soon, then we are likely to see the list getting narrowed down to 8 from 9.

There exists a difference between states and union territory. As per the constitutional provisions during Independance, the union territories were either not a part of India or they were too small to be formed state. In 1956, the State Reorganisation Commission was set up recommending a different category for these territories named Union - territory.
However, after certain times an imbalance was observed with respect to economy under such states leading to politically unstable and a financially weak regions. These regions need frequent consultations of the Union - government and as such the formation of the Union territories were initiated.
According to the Indian - constitution, the union territories can have a Legislative Assembly with the elected members like Delhi and Pondicherry. Article 240(2) of the Indian Constitution confers the supreme power to the President of India in the regulation of affairs of the Union Territories. Under the special provision, the powers are distributed between the governor and the chief minister, who is supposed to be an elected member. The legislative assembly looks upon the job of education and municipal functions where as the governance of security and other functions are managed by the centre under the advice of Lt Governor.