Strengthening India's State Finance Commissions: Essential for 'Co-Operative Federalism'

49 Pages Posted: 12 Aug 2016

See all articles by Mukul G. Asher

Mukul G. Asher

National University of Singapore - Lee Kuan Yew School of Public Policy

Shahana Sheikh

Centre for Policy Research, New Delhi

Date Written: August 12, 2016

Abstract

The 73rd and 74th Amendments in 1992 to India’s Constitution resulted in the establishment of the third-tier of government comprising of urban local bodies (ULBs) and Panchayati Raj Institutions (PRIs). The amendments mandated the establishment of the State Finance Commissions (SFCs) at every five years to recommend allocation and devolution of States’ fiscal resources between, and among, ULB and PRIs, with the view to improving accessibility of public amenities and services. This paper has developed a framework for assessing the role of SFCs in India over the last two decades. The framework focuses on the criteria involving processes and outputs of the SFCs. The analysis strongly suggests that SFCs have, so far, had an extremely limited impact on improving fiscal arrangements within states, enhancing the accountability of State governments, as well as that of ULBs and PRIs, in addressing vertical and horizontal fiscal imbalances, and in increasing access to public amenities. The evolving dynamics of Union - State relations in India implies there is an urgent need to address challenges of rapid urbanization, the changing nature of PRIs, rising aspirations of people across the country - particularly in terms of good quality public amenities. These strongly SFCs need to undergo a transformative change. The work of forthcoming SFCs and responses of State governments to their recommendations require much greater attention by all the stakeholders, including the researchers. The challenge after more than two decades is to enhance the role which the third tier of government plays in India in improving accessibility, quality and affordability of public amenities to citizens, and making them more accountable.

Keywords: India, Intergovernmental Fiscal Relations, State Finance Commission, Co-Operative Federalism, Urban Local Bodies (ULB), Panchayati Raj Institution (PRI)

JEL Classification: H1, H61, H7, H83

Suggested Citation

Asher, Mukul G. and Sheikh, Shahana, Strengthening India's State Finance Commissions: Essential for 'Co-Operative Federalism' (August 12, 2016). Lee Kuan Yew School of Public Policy Research Paper No. 16-15. Available at SSRN: https://ssrn.com/abstract=2822091 or http://dx.doi.org/10.2139/ssrn.2822091

Mukul G. Asher (Contact Author)

National University of Singapore - Lee Kuan Yew School of Public Policy ( email )

Singapore 117591
Singapore
(65) 6778 1020 (Fax)

Shahana Sheikh

Centre for Policy Research, New Delhi ( email )

Dharma Marg
Chanakyapuri
New Delhi, 110022
India

Register to save articles to
your library

Register

Paper statistics

Downloads
62
Abstract Views
456
rank
348,875
PlumX Metrics