The importance of appointing the state finance commissions
On the last day of 2023, the President issued a gazette notification for the appointment of the 16th Finance Commission. While there was a lot of interest in the announcement, an omission in the other end of the public finance continues to attract no attention. States are not appointing finance commissions (SFC).
Both the central government appointed finance commissions and the state government appointed ones are constitutional provisions and must be constituted every five years. The former under article 280 and the latter under 243(I). The former is set up regularly – although the 16th FC has been appointed with a delay of more than a year – the latter with long gaps.
Worse, as a fairly recent National Institute of Public Finance and Policy (NIPFP) paper points out “state governments are constrained (from implementing) these recommendations on the grounds of poor quality of SFC reports". (Manish Gupta & Pinaki Chakraborty, 2019 https://www.nipfp.org.in/media/medialibrary/2019/05/WP_263_2019.pdf). It found that as per the constitutional provisions, setting up of fifth SFC became due in 2014-15 in all the states.
But even as late as in 2019, only 13 states had constituted their fifth SFC. Since many of these hadn’t still submitted their reports, not many states were in a position to set up their sixth SFCs which become due in 2019-20. Five states had constituted their fourth SFCs and there were several states that were still in their third and second SFCs.
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