State Finance Commission

Need to set up State finance commission 

The 15th finance commission (Headed by N.K singh) recently held a detailed meeting with RBI.

Key issues that were discussed:

• Continuity of finance commission: A permanent status to finance commission and a robust expenditure planning is the need of the hour. This is required, in view of the fiscal management requirements of the states, especially given the absence of mid term reviews of awards granted by the finance commission.
• State finance commission: States have not been setting up their state finance commissions every five years as mandated by 73rd constitutional amendments act. Therefore,they discussed the necessity of SFCs to rationalize and systematize state/sub state fiscal relations in India.
• Expenditure codes: Expenditure norms vary from state to state , therefore there is a need of uniform standard expenditure codes across the country.
• Public sector Borrowing Requirement: It is defined as borrowing by not just central and state governments but also by all public sector corporations and agencies.This consolidated figure will more or less put an end to the manipulation the fiscal deficit by the government. The main issues discussed are the increasing orientation of state government's borrowing from markets , improving secondary market liquidity and cash managements.
• Important of states in the economy: The role of states in the growth of indian economy has increased given the 'Shift in composition of government finance'. States are now getting much higher share of transfer from centre, on the recommendation of 15th FC.
• Factors driving fiscal slippage: These factors include UDA,farm loan waivers and income support schemes,rising outstanding debt uas a percentage of GDP despite moderation in interest payments as a percentage of revenue receipts.

State Finance Commission:

👉The state Finance Commission created by the (SFC) is an institution created by the 73rd and 74th constitutional amendments to rationalize and systematize state/sub state  level fiscal relations in india.

👉Article 243 I of the constitution mandated the state governor to constitute a finance commission every five years.

👉Article 243 Y of the constitution states that the finance commission constituted under article 243 I shall also review the financial position of the municipalities and make recommendations to the governor.