Question

What is the primary function of the State Finance Commission itself?

• A. To act as a financial auditor for Panchayats.
• B. To serve as an advisory body recommending principles for financial devolution to local governments.
• C. To function as a court to settle financial disputes between the state and Panchayats.
• D. To directly manage the disbursement of funds from the State Consolidated Fund.

Answer 1

Answer:

B. To serve as an advisory body recommending principles for financial devolution to local governments.

State Finance Commission (SFC)

• Constitutional Mandate: The establishment of the State Finance Commission is mandated by Article 243-I and Article 243-Y of the Constitution of India.

• Primary Role: The SFC acts as a constitutional body to review the financial position of Panchayats and Municipalities.

• Key Recommendations: It recommends the principles that should govern

  • The distribution between the State government and the local bodies of the net proceeds of taxes, duties, tolls, and fees leviable by the State.

  • The allocation of such proceeds among Panchayats and Municipalities at all levels.

  • Measures to improve the consolidated fund of a State to augment the resources of Panchayats and Municipalities.

  • Grants-in-aid to local bodies.

• Advisory Nature: The recommendations of the SFC are advisory in nature. The State Legislature is not bound to accept them, though they are generally given due consideration.

• Frequency of Constitution: The SFC is constituted every five years by the Governor of the State, similar to the Finance Commission at the Union level.

• Composition: The composition of the SFC is determined by the State Legislature. It usually includes a Chairman and other members.

• Importance in Decentralization: The SFC plays a crucial role in strengthening the financial autonomy and functionality of local self-government institutions, a key aspect of democratic decentralization in India.

• Distinction from Union Finance Commission: While the Union Finance Commission deals with the division of taxes between the Union and States, the SFC focuses on the financial relationship between the State and its local government bodies.