State Finance Commission- UPSC Notes

State Finance Commission

State Finance Commission aims to maintain fiscal federalism between state Government and Local bodies. The State Finance Commission is constituted based on the Constitutional requirement in Article-243 (I) and 243 (Y). For the success of the local government, besides functional devolution, fiscal devolution was felt necessary to maintain the fiscal independence of this institution. Without fiscal independence, Local bodies like Panchayati Raj institutions and municipalities will not be able to work efficiently. In this aspect, the State Finance Commission plays a vital role in sub-state decentralization.

Composition and Appointment of State Finance Commission

Appointment of the State Finance Commission:

According to Article -243 (I), the Governor of the State constitutes the Finance Commission at the expiration of every 5 Years. However, there is no fixed term of its working, and it ceases to exist as soon as it submits its report. The experience of most states indicates that a State Finance Commission generally works for a period of one year to one and a half years.

Composition of the State Finance Commission:

As per 243(I)(2), the Legislature of a State may provide for the composition of the Commission through a law. However, there is no uniformity in the composition. It varies from State to State. It consists of a Chairman and a few members.