<–2/”>a >Under the Constitution the financial Resources of the State are very limited though they have to do many works of social uplift under directive principles. In order to cope with their ever-expanding needs, the Central Government makes grants-in-aid to the States. Grant- in-aid to States , through it Central Government exercises a strict control over the States because grants are granted subject to certain conditions.
The Indian constitution provides for a federal framework with powers divided between the Centre and the states. The Financial powers entrusted by the Constitution reflect a clear asymmetry between the Taxation powers and the functional responsibili-ties, with the Centre being assigned taxes with higher revenue potential and States being entrusted with more functional responsibilities. The Constitution provides, under ARTICLE 280, the institutional mechanism of Finance Commission and other enabling provisions for the transfer of resources from the Centre.
The Role of the Finance Commission under Indian Constitution are to make recommendation to the President with regard to following matters:
a) To determine the scheme that governs the matters relating to the distribution of net proceeds of taxes which are in the divisible pool, between the Centre and States. 
b) To make recommendations, to determine the principle that would regulate or govern the revenues to the States from the Central Revenue in the form of Grant in Aid to the needy States
c) This function of the Commission is included by the way of 73rd and 74 Constitutional Amendment to strengthen the financial Status of the local bodies by providing the supplement to the resources of the Panchayats And Municipalities in the States on the basis of the recommendation of State Finance Commission from the Consolidated fund of the State.
d) The last function of the Commission as provided by the Constitution under Article 280 3(d) is very vast any matter relating to the Fiscal interest between the intergovernmental bodies can be referred to the Commission by the President, These function or Terms of Reference, which broadly fixed by the Constitution itself; while at the same time an element of flexibility is built into these terms of reference under sub clause (d) of Article 280(3). Under this Clause the President has a power to refer any matter to the Commission ‘in the interests of Sound finance.
The 73rd and 74th Constitutional Amendment Acts, 1992, which gave Constitutional status to Panchayati Raj institutions (PRIs) and Urban Local Bodies (ULBs) respectively, in both letter and spirit in order to bring about greater decentralisation and increase the involvement of the community in planning and implementing schemes and, thus, increase accountability.
The Amendments left important matters such as implementation, service delivery (including local capacity building) and transfer of responsibilities and powers to rural local bodies at the discretion of the state legislatures. Consequently, while expenditure responsibilities of local bodies are extensively enhanced, there is no law to ensure a corresponding assignment of funds to match the additional responsibilities.
The State Finance Commissions are required to recommend financial support from the state and principles for determination of taxes, tolls and fees that could be assigned to or appropriated by the local bodies
Article 243I of the Indian Constitution prescribes that the Governor of a State shall, as soon as may be within one year from the commencement of the Constitution (Seventy-third Amendment) Act, 1992, and thereafter at the expiration of every fifth year, constitute a Finance Commission to review the financial position of the Panchayats and to make recommendations to the Governor as to
The principles which should govern
- The distribution between the State and the Panchayats of the net proceeds of the taxes, duties, tolls and fees leviable by the State, which may be divided between them under this Part and the allocation between the Panchayats at all levels of their respective Shares of such proceeds;
- The determination of the taxes, duties, tolls and fees which may be assigned as, or appropriated by, the Panchayats;
- The grants-in-aid to the Panchayats from the Consolidated Fund of the State;
,
Center-state financial relations are the financial arrangements between the central government and the state governments in India. These relations are governed by the Constitution of India, which provides for a Division of Powers between the two levels of government. The central government has exclusive powers over certain matters, such as defense, foreign affairs, and currency, while the state governments have exclusive powers over other matters, such as Education, Health, and agriculture.
The Constitution also provides for a system of grants-in-aid from the central government to the state governments. These grants are made to help the state governments meet their expenditure on certain essential Services. The Finance Commission is a statutory body that is appointed every five years to review the financial relations between the central government and the state governments. The Finance Commission makes recommendations on a number of matters, including the sharing of taxes between the central government and the state governments, the grants-in-aid to the state governments, and the borrowing powers of the state governments.
The 15th Finance Commission was appointed in 2017 and submitted its report in 2020. The Commission made a number of recommendations, including the following:
- The central government should share 42% of its net tax revenues with the state governments.
- The central government should provide a grant of â¹2.86 lakh crore to the state governments for the development of Infrastructure-2/”>INFRASTRUCTURE.
- The central government should increase the borrowing limits of the state governments.
The recommendations of the 15th Finance Commission are being implemented by the central government. However, there are a number of issues that need to be addressed in order to improve the center-state financial relations. These issues include the following:
- The central government should provide more grants-in-aid to the state governments to help them meet their expenditure on essential services.
- The central government should increase the borrowing limits of the state governments so that they can invest more in Infrastructure Development.
- The central government should simplify the procedures for the release of grants-in-aid to the state governments.
- The central government should improve the coordination between the central government and the state governments in order to ensure that the recommendations of the Finance Commission are implemented effectively.
The reforms in the center-state financial relations should be aimed at improving the efficiency and effectiveness of the financial arrangements between the central government and the state governments. The reforms should also be aimed at ensuring that the state governments have adequate resources to meet their expenditure on essential services.
Here are some frequently asked questions and short answers about the topic of Center State Financial Relations:
- What are the sources of revenue for the central government?
The central government’s revenue comes from a variety of sources, including taxes, duties, and other levies. The most important source of revenue is Income tax, which accounts for about 40% of the central government’s total revenue. Other important sources of revenue include Corporate tax, excise duty, and customs duty.
- What are the sources of revenue for the state governments?
The state governments’ revenue comes from a variety of sources, including taxes, duties, and other levies. The most important source of revenue is sales tax, which accounts for about 40% of the state governments’ total revenue. Other important sources of revenue include state excise duty, motor vehicle tax, and stamp duty.
- How are the central government’s revenues and expenditures distributed among the states?
The central government distributes its revenues among the states through a variety of mechanisms, including the Finance Commission, the Planning Commission, and the Centrally Sponsored Schemes. The Finance Commission is a constitutional body that is appointed every five years to recommend the distribution of central taxes among the states. The Planning Commission is a non-statutory body that was set up to formulate and implement the country’s economic plans. The Centrally Sponsored Schemes are a group of centrally-funded schemes that are implemented by the states.
- What are the main issues in center-state financial relations?
The main issues in center-state financial relations are the sharing of central taxes, the devolution of powers to the states, and the financing of centrally sponsored schemes. The sharing of central taxes is a contentious issue, as the states are not satisfied with the current formula. The devolution of powers to the states is also a contentious issue, as the states want more autonomy. The financing of centrally sponsored schemes is a contentious issue, as the states feel that they are not getting enough funds from the central government.
- What are the reforms that have been proposed to improve center-state financial relations?
A number of reforms have been proposed to improve center-state financial relations. These include the introduction of a new formula for the sharing of central taxes, the devolution of more powers to the states, and the introduction of a new system for financing centrally sponsored schemes.
Here are some frequently asked questions and short answers about the topic of the latest Finance Commission:
- When was the 15th Finance Commission constituted?
The 15th Finance Commission was constituted on January 1, 2020.
- Who is the chairman of the 15th Finance Commission?
N. K. Singh is the chairman of the 15th Finance Commission.
- What are the terms of reference of the 15th Finance Commission?
The terms of reference of the 15th Finance Commission are to recommend the principles that should govern the sharing of the net proceeds of taxes between the central government and the state governments for the period 2021-2026. The Commission is also to recommend the principles that should govern the devolution of funds to the local bodies.
- What are the key issues that the 15th Finance Commission is likely to consider?
The key issues that the 15th Finance Commission is likely to consider include the sharing of central taxes, the devolution of powers to the states, and the financing of centrally sponsored schemes.
- What are the likely recommendations of the 15th Finance Commission?
The likely recommendations of the 15th Finance Commission are to increase the share of central taxes that are devolved to the states, to devolve more powers to the states, and to introduce a new system for financing centrally sponsored schemes.
Which of the following is not a source of revenue for the Central Government?
(A) Income Tax
(B) Corporation Tax
(C) Sales Tax
(D) Excise DutyWhich of the following is not a source of revenue for the State Government?
(A) Sales Tax
(B) Excise Duty
(C) Land Revenue
(D) Income TaxThe Finance Commission is constituted every
(A) 5 years
(B) 6 years
(C) 7 years
(D) 8 yearsThe Finance Commission is responsible for
(A) Distribution of taxes between the Centre and the States
(B) Grants-in-aid to the States
(C) Loans to the States
(D) All of the aboveThe 15th Finance Commission was constituted in
(A) 2017
(B) 2018
(C) 2019
(D) 2020The Chairman of the 15th Finance Commission is
(A) N.K. Singh
(B) Vijay Kelkar
(C) Y.K. Alagh
(D) Vijay L. KelkarThe 15th Finance Commission has recommended a total devolution of â¹7.5 lakh crore to the States over the period 2021-22 to 2025-26.
(A) True
(B) FalseThe 15th Finance Commission has recommended a 14.2% increase in the share of the States in the divisible pool of taxes.
(A) True
(B) FalseThe 15th Finance Commission has recommended a new formula for the distribution of Central taxes between the Centre and the States.
(A) True
(B) FalseThe 15th Finance Commission has recommended a new formula for the distribution of Central grants-in-aid to the States.
(A) True
(B) False