The Indian Government lists some of the reasons for the classification as a territory which include "Unique history - geographical size/location - cultural heritage - Inter-State disputes - need for territories administered by the Union Government." http://mha.nic.in/unio.htm "India has 28 states* and 7 union territories. At the state level, some legislatures are bicameral, patterned after the two houses of the national parliament. The states' chief ministers are responsible to the legislatures in the same way the prime minister is responsible to Parliament. Each state also has a presidentially appointed governor, who may assume certain broad powers when directed by the central government. The central government exerts greater control over the union territories than over the states, although some territories have gained more power to administer their own affairs. Local governments in India have less autonomy than their counterparts in the United States. Some states are trying to revitalize the traditional village councils, or panchayats, to promote popular democratic participation at the village level, where much of the population still lives. Over half a million panchayats exist throughout India." http://www.state.gov/r/pa/ei/bgn/3454.htm You may already know that Canada has a similar system with their Provinces and Territories (Yukon, Northwest Territories, Nunavut).