Brief notes on the The State Finance Commission (SFC) of India


(a) This Commission endorses and reiterates the views of the Twelfth Finance Commission regarding the working of the SFCs as listed in paragraph

(b) Article 243 I (1) of the Constitution should be amended to include the phrase “at such earlier time” after the words “every fifth year”.

(c) Each State should prescribe through an Act, the qualifications of persons eligible to be appointed as Members of the State Finance Commission.


(d) SFCs should evolve objective and transparent norms for devolution and distribution of funds. The norms should include area-wise indices for backwardness. State Finance Commissions should link the devolution of funds to the level/quality of civic amenities that the citizens could expect. This could then form the basis of an impact evaluation.

(e) The Action Taken Report on the recommendations of the SFC must compulsorily be placed in the con­cerned State Legislature within six months of submission and followed with an annual statement on the devolution made and grants given to individual local bodies and the implementation of other recommen­dations through an appendix to the State budget documents.

(f) Incentives can be built into devolution from the Union to the States to take care of the need to improve devolution from the States to the third tier of governments.

(g) Common formats, as recommended by the Twelfth Finance Commission (TFC) must be adopted, and annual accounts and other data must be compiled and updated for use by the SFCs.


Capacity Building for Self-Governance

(a) Capacity building efforts in rural and urban local self-governing institutions must attend to both the organisation building requirements as also the professional and skills up gradation of individuals associ­ated with these bodies, whether elected or appointed.

Relevant Panchayat and Municipal legislations and manuals framed there under must contain clear enabling provisions in this respect. There should be special capacity building programmes for women members.

(b) State Governments should encourage local bodies to outsource specific functions to public or private agencies, as may be appropriate, through enabling guidelines and support. Outsourcing of activities should be backed by development of in-house capacity for monitoring and oversight of outsourced activi­ties. Likewise, transparent and fair procurement procedures need to be put in place by the State Govern­ment to improve fiscal discipline and probity in the local bodies.


(c) Comprehensive and holistic training requires expertise and resources from various subject matter spe­cific training institutes. This can be best achieved by ‘networking’ of institutions concerned with various subjects such as financial management, rural development, disaster management and general manage­ment. This should be ensured by the nodal agencies in State Governments.

(d) As an aid to capacity building, suitable schemes need to be drawn up under State Plans for Rural and Urban Development for documentations of case studies, best practices and evaluation with reference to the performance of the prescribed duties and responsibilities of such bodies.

(e) Training of elected representatives and personnel should be regarded as a continuing activity. Expendi­ture requirement on training may be taken into account by the State Finance Commissions while making recommendations.

(f) Academic research has a definite role to play in building long-term strategic institutional capacity for greater public good. Organisations like the Indian Council of Social Science Research must be encour­aged to fund theoretical, applied and action research on various aspects of the functioning of local bod­ies.


(g) A pool of experts and specialists (e.g. engineers, planners etc.) could be maintained by a federation/ consortium of local bodies. This common pool could be then accessed by the local bodies whenever required for specific tasks.

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