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

Manish Gupta () and Pinaki Chakraborty ()
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Manish Gupta: National Institute of Public Finance and Policy
Pinaki Chakraborty: National Institute of Public Finance and Policy

Working Papers from National Institute of Public Finance and Policy

Abstract: 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 be-tween 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 govern-ments 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 gov-ernments are constrained to implement these recommendations on the grounds of poor quality of SFC reports.

Keywords: Fiscal Decentralisation; Local governments; State Finance Commissions (search for similar items in EconPapers)
JEL-codes: H7 (search for similar items in EconPapers)
Pages: 23
Date: 2019-04
New Economics Papers: this item is included in nep-bec
Note: Working Paper 263, 2019
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Handle: RePEc:npf:wpaper:19/263