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Posted 16 Nov 2024

2 min read

About State Finance Commission (SFCs) 

  • Constitution: Article 243I requires Governor to constitute SFC within one year from the commencement of the Constitution (73rd Amendment) Act, 1992.
  • Tenure: Every 5 years. 
  • Mandate: SFCs to review the financial position of Panchayats (243 I) and municipalities (Article 243 Y) and make suggestions to the Governor about-
    • Distribution of taxes between State and Local Bodies (Panchayats/Municipalities), 
    • Determination of taxes, duties, etc., which may be assigned to or appropriated by State and Local Bodies (LBs), and
    • Grants in aid to LBs by the State.

Concerns associated with the SFC

  • Many states haven't established required SFCs on time. E.g. Only 15 States have set up the 5th or the 6th SFCs (15th Finance Commission or FFC report of 2020
  • Lacks data: States don't provide accurate data about LBs leading to ad-hoc recommendations.
  • Delay in Action-taken report (ATR): States frequently fail to draft ATRs that are presented by Governors to legislature.
  • Unlike central Finance Commission recommendations, states reject basic SFC requests.

Measure

  • FFC in 2020 report recommended that those states not complying with the Constitutional provisions in respect of the SFCs would not be released grants after March 2024. 
    • Following this now all states, except Arunachal Pradesh, have SFCs.
  • Tags :
  • Finance Commission
  • Fiscal Federalism
  • SFCs
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