Constitutional Basis: The State Finance Commission (SFC) is established by the Governor of a State under Article 243-I and Article 243-Y of the Indian Constitution. These articles mandate the constitution of SFCs for Panchayats and Municipalities, respectively, after every five years.
Composition: The SFC comprises a Chairman and other members appointed by the Governor. The exact number of members, other than the Chairman, is not fixed by the Constitution and can vary from state to state. However, the statement suggesting a maximum of five members including the chairman is not a universally mandated constitutional provision.
Powers and Functions: SFCs are quasi-judicial bodies and are vested with certain powers similar to a civil court under the Code of Civil Procedure, 1908. This includes the power to summon witnesses, require the production of any document, and requisition public records from any court or office.
Role in Fiscal Federalism: The SFC plays a crucial role in strengthening the financial autonomy of local self-government bodies (Panchayats and Municipalities). It recommends measures to augment the consolidated fund of the state to supplement the resources of the local bodies.
Key Recommendations: The SFCs typically recommend the distribution of taxes, duties, tolls, and fees levied and collected by the State Government between the State and the local bodies, and also the allocation of such proceeds among the Panchayats and Municipalities at different tiers.
Significance for Competitive Exams: Understanding the constitutional articles, the role, powers, and the typical recommendations of the SFC is vital for exams like UPSC Civil Services, State PSCs, and other competitive examinations focusing on Indian Polity and Governance. Pay close attention to the specific articles and the nature of its powers.
