AP STATE FINANCE COMMISSION

            Article 243I of the Indian Constitution prescribes that the Governor of a State shall, as soon as may be within one year from the commencement of the Constitution (Seventy-third Amendment) Act, 1992, and thereafter at the expiration of every fifth year, constitute a Finance Commission to review the financial position of the Panchayats and to make recommendations to the Governor as to

1. The principles which should govern
1. The distribution between the State and the Panchayats of the net proceeds of the taxes, duties, tolls and fees leviable by the State, which may be divided between them under this Part and the allocation between the Panchayats at all levels of their respective shares of such proceeds;
2. The determination of the taxes, duties, tolls and fees which may be assigned as, or appropriated by, the Panchayats;
3. The grants-in-aid to the Panchayats from the Consolidated Fund of the State;
2. The measures needed to improve the financial position of the Panchayats;
3. Any other matter referred to the Finance Commission by the Governor in the interests of sound finance of the Panchayats.

            Article 243Y of the Constitution further provides that the Finance Commission constituted under Article 243 I shall make similar recommendation vis-a-vis municipalities.

            The Governor is required to cause every recommendation made by the State Finance Commission together with an explanatory memorandum as to the action taken thereon to be laid before the Legislature of the State.

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A comparison between central and State finance commissions:

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RBI Recommendations (2009) for strengthening SFCs

1.     Provide a uniform template to the SFCs so that there are not constituted in a casual manner

2.     Incentivise the State Governments to set up a data warehouse for the local bodies.

3.     Set up a central pool of fiscal experts from which the State Governments may select at least one member of SFC.

4.     Provide a time line to the State Governments in link to the release of share in central taxes for making progress in the arena of SFC.

Way Forward:

1.     In line with constitutional requirements, the states should constitute SFCs in a periodic manner

2.     It is important to acknowledge the role of SFCs. It is important to rectify the notion the SFCs are less important the UFC and that local governments are insignificant. The Constitution treats a local government on a par with a State government, especially when it comes to sharing of financial resources.

3.     The information of responsibilities and funds allocated to local bodies should be recorded properly so as to provide reliable data to the SFCs

4.     The composition of SFCs should incorporate representatives from the intellectual civil society/academicians and not solely comprise of bureaucrats

5.     To make India a sustainable and inclusive country, it is important that the UFC reduce inter-state disparity and then only SFCs can reduce intra-state disparity by using horizontal distribution criteria

6.     It is an urgent need to strengthen the SFCs to promote cooperative federalism and strengthen participatory democracy.

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