What is the issue?
- The State Finance Commission (SFC) is a unique institution created by the 73rd and 74th Constitutional Amendments (CAs).
- But there is an undermined recognition of the potential of State Finance Commissions.
What was the mandate?
- The 73rd and 74th CAs rationalised and systematised State/sub-State-level fiscal relations in India.
- It was primarily to rectify growing horizontal imbalances in essential public services delivery.
- Article 243I of the Constitution mandated the State Governor to constitute a Finance Commission.
- This was to be done within one year of the CAs (before April 24, 1994) and thereafter every five years.
What are the concerns?
- Reports - As per the mandate, the fifth generation SFCs ought to have submitted reports by now.
- But till date, only Assam, HP, TN and Kerala have submitted their fifth SFC reports.
- Many States are yet to cross the third SFC stage.
- The large majority has violated the mandate of the Constitution with impunity.
- Role - The Union Finance Commissions (UFC) has been widely acknowledged as a professional and quasi-judicial body.
- The UFC exhibits seriousness, regularity, acceptance of recommendations and their implementation.
- But these are evidently absent when it comes to State Finance Commissions (SFCs).
- Clearly, honouring the Constitution has become a matter of convenience.
- Personnel - The SFCs' compositions are largely of serving and/or retired bureaucrats rather than academics.
- The State governments bear a large share of the blame for this.
- Overall, there has been an inadequate appreciation of the significance of SFC as an institution.
- This is the case with the Union, States as well as the professional community.
Why are SFCs crucial?
- Status - The SFC is undoubtedly modelled on the UFC created under Article 280.
- The UFC is tasked with rectifying vertical and horizontal imbalances at the Union-State level.
- The SFC has to perform the same with reference to State/sub-State-level institutions.
- The Constitution treats a local government on a par with a State government.
- This is especially the case when it comes to sharing of financial resources.
- Role - SFCs have to promote minimum essential services in rural and urban areas.
- Hence, SFC is the institutional agency to implement the golden rule of cooperative federalism.
- Accordingly, every citizen should be assured minimum public goods irrespective of her choice of residence.
- Federalism - UFC is mandated to suggest measures to augment the resources of panchayats and municipalities.
- This is essentially on the basis of the recommendations made by the SFCs.
- This affirms the organic link between local governments and SFCs to fiscal federalism.
- As UFC reduces inter-State disparities, the SFCs reduce intra-State disparities through balanced distribution criteria.
- It is only with both the UFC and the SFCs that Indian federation becomes sustainable and inclusive.
What are the limitations for SFCs?
- Task - The task of SFCs to correct horizontal imbalances is extremely burdensome than the UFC.
- This is because SFCs have to consider nearly 2.5 lakh local governments.
- Data - The financial reporting system of the Union and States is well laid down.
- On the other hand, local governments with no proper budgetary system are in deep disarray.
- So SFCs face a crucial problem of reliable data.
- Support - Several sufficient conditions remain unfulfilled in the case of SFCs.
- SFCs have not been provided with the necessary environment to play their rightful role in Indian fiscal federalism.
- Perception - Unlike UFCs, the SFCs face attitudinal limitation from within.
- SFCs and local governments are seen to be of inferior constitutional status than the UFC.
- This is a prevailing notion among several politicians, policy makers and even experts.
What is the way forward?
- The federalist development state of India can grow only through a process of evolutionary policy making.
- The States are tasked with empowering local governments to discharge constitutional obligations.
- SFCs - Unlike the UFC, no SFC can easily ignore the following:
- Articles 243G and 243W - planning “for economic development and social justice”
- Article 243ZD - mandates that every State constitute a district planning committee for spatial panning and environmental conservation at the sub-State level
- UFC - UFCs have failed to play a central role in ensuring decentralised governance.
- No UFC has done its homework in reading and analysing SFC reports.
- The UFC has to present a consolidated account of the reality at the sub-State level.
- It should also highlight which report went wrong, where and how.
- These are essential for the UFC to legitimately guide States and contribute to improving the goals of constitutional amendments.
Source: The Hindu