State finance commission

State finance commission

Subject : Polity

Context:

A two-day national conclave of State Finance Commissions (SFC) was organized by the National Institute of Rural Development and Panchayati Raj (NIRDPR).

Concept:

State Finance Commission

• The State Finance Commission (SFC) is an institution created by the 73rd and 74th Constitutional Amendments (CAs) to rationalize and systematize State/sub-State-level fiscal relations in India.
• It is constituted under Article 243-I of the Constitution of India by the governor of a state –every five years.
• Purpose – This is in order to decide the resource allocation between the state government and the Panchayati Raj Institutions.
• Article 243-Y also brought city councils or municipalities under the purview of the State Finance Commission.
  • Article 243Y of the Constitution states that the Finance Commission constituted under article 243 I shall also review the financial position of the Municipalities and make recommendations to the Governor.
• Role–A State Finance Commission has functions similar to that of the Central Finance Commission.
  • It allocates resources of a state to its Panchayati Raj institutions at all three levels in terms of taxes, duties and levies to be collected by the state and the local bodies.
  • A State Finance Commission reviews the financial position of the panchayats in a state and makes recommendations to the Governor about the principles that should govern the distribution of tax proceeds – taxes, duties, levies, toll fee collected by the state between the state and its Panchayati Raj Institutions at all three levels – village level, block level and district level.
  • It also recommends the following:
    • Taxes, levies and fees levied or appropriated by Panchayats themselves.
    • Grants-in-aid to Panchayati Raj Institutions from the consolidated fund of a state.
    • Ways to improve the financial position of the Panchayati Raj Institutions.
    • Measures for the overall improvement of Panchayat’s finances.
• Action Taken on State Finance Commission’s Recommendations
  • Under Article 243-I of the Indian Constitution, the governor of a state ensures the laying of a State Finance Commission’s recommendations to the table of the state legislature.
  • It also includes a memorandum of action taken by the government on the Commission’s report.

15th Finance Commission:

• Set up under Article 280 of the Constitution
• Its core responsibility is to evaluate the state of finances of the Union and State Governments, recommend the sharing of taxes between them, and lay down the principles determining the distribution of these taxes among States.
• The first Finance Commission was set up in 1951 and there have been fifteen so far.
• The Fifteenth Finance Commission was constituted on 27 November 2017 under N.K.Singh
• The Terms of Reference of the current Commission have some distinctive features, including
  • recommending monitorable performance criteria for important national flagship programmes
  • examining the possibility of setting up a permanent non lapsable funding for India’s defence needs
  • the reorganisation of the State of Jammu and Kashmir into two Union Territories – one of Jammu and Kashmir and one of Ladakh.