State Finance Commissions: How successful have they been in Empowering Local Governments?

Interesting paper on one of the least known aspect of Indian fiscal federalism: Working of State Finance Commissions.

It is written by Manish Gupta and Pinaki Chakraborty of NIPFP:

While the Constitution provides for setting up of SFCs at regular intervals, this has not been adhered to by the states. The paper reviews the reports of the latest SFCs of 25 states in India. This involves examining the status of constitution of SFCs, their functioning and the approach adopted by them in carrying out their task and the principles adopted by them in allocating resources to local governments both vertically and horizontally. It also quantifies the devolution recommended by the SFCs in order to get a comparative picture of funds devolved by them across states. It is observed that there is huge variation
in the recommended per capita devolution across States.

We do not find any relation between the recommended per capita devolution and per capita income of States, but per capita devolution is in general very low across states in India. Is it that the state governments arbitrarily reject the recommendations or are the SFCs themselves to be blamed for non-acceptance of their recommendations? The paper also examines the quality of SFC reports from the point of view of their implementability and finds that at times state governments are constrained to implement these recommendations on the grounds of poor quality of SFC report.

Karnataka has consistently devolved the highest…

Lots of other interesting points in the paper.

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