- Introduction
A State Finance Commission (SFC) is a constitutional body constituted by the Governor of a state every five years to recommend the distribution of the net proceeds of taxes between the state and the local bodies, and to determine the principles governing the grants-in-aid to the local bodies by the state.
- Functions
The main functions of a SFC are:
- To recommend the distribution of the net proceeds of taxes between the state and the local bodies.
- To determine the principles governing the grants-in-aid to the local bodies by the state.
- To suggest measures to improve the financial position of the local bodies.
- To advise the state government on matters relating to the financial relations between the state and the local bodies.
- Composition
A SFC consists of a chairman and four other members, who are appointed by the Governor of the state. The chairman is a person who has had experience in public affairs or finance, and the other members are experts in the fields of taxation, economics, local government, and law.
- Process
The SFC conducts extensive consultations with the state government, local bodies, and other stakeholders before making its recommendations. The recommendations of the SFC are binding on the state government.
- Significance
The SFC plays an important role in ensuring that the local bodies have adequate financial resources to carry out their functions. The recommendations of the SFC also help to improve the financial relations between the state and the local bodies.
- Recent developments
The 15th SFC, which was constituted in 2021, has made a number of important recommendations, including:
- Increasing the share of the local bodies in the net proceeds of taxes.
- Introducing a new system of grants-in-aid to the local bodies.
- Strengthening the financial powers of the local bodies.
The recommendations of the 15th SFC are expected to have a significant impact on the financial position of the local bodies in India.