<–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;
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Centre-State Fiscal Relationship
The centre-state fiscal relationship in India is the financial arrangement between the central government and the state governments. The central government collects taxes and distributes them to the state governments, which in turn use the funds to provide Services to their citizens. The Finance Commission is a body that is appointed every five years to recommend the sharing of central taxes between the central government and the state governments.
The central government collects taxes on income, corporate profits, customs duties, and excise duties. The state governments collect taxes on land revenue, sales tax, and octroi. The central government also collects taxes on other items, such as entertainment tax, stamp duty, and Wealth tax.
The Finance Commission is a body that is appointed every five years to recommend the sharing of central taxes between the central government and the state governments. The Finance Commission takes into account a number of factors, such as the Population of each state, the revenue generated by each state, and the needs of each state, when making its recommendations.
The Financial aspects of 73rd and 74th Constitutional amendments
The Financial aspects of 73rd and 74th Constitutional amendments refer to the changes that were made to the Indian Constitution in 1992 to provide for greater devolution of power to local governments. The 73rd Amendment deals with the Panchayati Raj system, while the 74th Amendment deals with the Municipal Corporation system. Both amendments provide for the establishment of elected local governments and for the transfer of funds and functions from the central and state governments to these local governments.
The 73rd Amendment provides for the establishment of three-tier Panchayati Raj institutions at the village, block, and district levels. The 74th Amendment provides for the establishment of Municipal Corporation institutions at the city and town levels.
The central and state governments are required to transfer funds to these local governments on a regular basis. The funds are used by these local governments to provide services to their citizens, such as water supply, sanitation, Education, and Health care.
The 73rd and 74th Constitutional amendments have had a significant impact on the devolution of power to local governments in India. These amendments have led to the establishment of elected local governments in all parts of the country and have also led to the transfer of funds and functions from the central and state governments to these local governments.
The impact of these amendments has been positive in many ways. The establishment of elected local governments has led to greater accountability and transparency in the delivery of services. The transfer of funds and functions to these local governments has also led to greater efficiency in the delivery of services.
However, there have also been some challenges in implementing these amendments. One challenge has been the lack of capacity at the local level to manage the funds and functions that have been transferred to them. Another challenge has been the lack of coordination between the central, state, and local governments.
Despite these challenges, the 73rd and 74th Constitutional amendments have been a major step forward in the devolution of power to local governments in India. These amendments have led to the establishment of elected local governments in all parts of the country and have also led to the transfer of funds and functions from the central and state governments to these local governments. The impact of these amendments has been positive in many ways, leading to greater accountability, transparency, and efficiency in the delivery of services.
Centre-State fiscal relationship
What is the Centre-State fiscal relationship?
The Centre-State fiscal relationship is the financial arrangement between the central government and the state governments in India. It is governed by the Constitution of India, which allocates certain taxes and duties to the central government and others to the state governments. The central government also provides grants-in-aid to the state governments to help them meet their expenditure.What is the role of the Finance Commission?
The Finance Commission is a constitutional body that is appointed every five years to recommend the sharing of taxes and duties between the central government and the state governments. It also recommends grants-in-aid to the state governments and the principles on which central assistance should be given to them.What are the financial aspects of the 73rd and 74th Constitutional amendments?
The 73rd and 74th Constitutional amendments, which were passed in 1992, devolved power to the local governments in India. The amendments provided for the establishment of Panchayati Raj Institutions (PRIs) at the village, block, and district levels, and Nagarpalika Institutions (NPIs) at the municipal level. The amendments also provided for the devolution of financial resources to the PRIs and NPIs.
Role of Finance Commission
What is the role of the Finance Commission?
The Finance Commission is a constitutional body that is appointed every five years to recommend the sharing of taxes and duties between the central government and the state governments. It also recommends grants-in-aid to the state governments and the principles on which central assistance should be given to them.What are the functions of the Finance Commission?
The functions of the Finance Commission are as follows:To recommend the principles on which the net proceeds of taxes, duties, tolls, and fees shall be shared between the central government and the state governments.
- To recommend the principles on which grants-in-aid shall be given to the state governments.
- To review the financial position of the states and to make recommendations for improving it.
- To make recommendations on any other matter referred to it by the President.
Financial aspects of 73rd and 74th Constitutional amendments
What are the financial aspects of the 73rd and 74th Constitutional amendments?
The 73rd and 74th Constitutional amendments, which were passed in 1992, devolved power to the local governments in India. The amendments provided for the establishment of Panchayati Raj Institutions (PRIs) at the village, block, and district levels, and Nagarpalika Institutions (NPIs) at the municipal level. The amendments also provided for the devolution of financial resources to the PRIs and NPIs.What are the sources of revenue for the PRIs and NPIs?
The sources of revenue for the PRIs and NPIs are as follows:Taxes: The PRIs and NPIs can levy taxes on property, professions, and trades.
- Duties: The PRIs and NPIs can levy duties on goods and services.
- Fees: The PRIs and NPIs can levy fees for services rendered.
- Grants-in-aid: The central government and the state governments can give grants-in-aid to the PRIs and NPIs.
Loans: The PRIs and NPIs can raise loans from financial institutions.
What are the challenges faced by the PRIs and NPIs in mobilizing revenue?
The challenges faced by the PRIs and NPIs in mobilizing revenue are as follows:Lack of financial autonomy: The PRIs and NPIs do not have complete financial autonomy. They are dependent on the central government and the state governments for grants-in-aid.
- Lack of capacity: The PRIs and NPIs lack the capacity to collect taxes and duties effectively.
- Lack of transparency: The PRIs and NPIs are not transparent in their financial dealings.
Corruption: There is a lot of corruption in the PRIs and NPIs.
What are the measures that can be taken to address the challenges faced by the PRIs and NPIs in mobilizing revenue?
The measures that can be taken to address the challenges faced by the PRIs and NPIs in mobilizing revenue are as follows:Increase financial autonomy: The PRIs and NPIs should be given more financial autonomy. They should be allowed to raise their own resources through taxes, duties, and fees.
- Build capacity: The PRIs and NPIs should be given the capacity to collect taxes and duties effectively. They should be provided with training and resources.
- Promote transparency: The PRIs and NPIs should be made more transparent in their financial dealings. They
- The Finance Commission is a constitutional body that is appointed every five years to review the financial relations between the Union and the States. The Commission is responsible for making recommendations on the following matters:
(a) The distribution of net proceeds of taxes between the Union and the States;
(b) The grants-in-aid to the States;
(c) The allocation of resources between the Centre and the States for Plan and non-Plan purposes;
(d) The principles governing the grants-in-aid to local bodies; and
(e) Any other matter referred to it by the President.
The Finance Commission is composed of a Chairman and four other members, who are appointed by the President. The Chairman is a person who has held office as a Judge of The Supreme Court or of a High Court for at least five years. The other members are persons who have special knowledge of finance or economics or Public Administration.
The Finance Commission submits its report to the President, who places it before both Houses of Parliament. The recommendations of the Finance Commission are binding on the Union and the States.
The 73rd and 74th Constitutional Amendments, which were enacted in 1992, have made significant changes to the financial arrangements between the Centre and the States. The Amendments have provided for the establishment of a three-tier system of Local Government, namely, the Panchayati Raj Institutions (PRIs) at the village and block levels, the Municipal Corporations at the city level, and the Metropolitan Councils at the metropolitan level.
The Amendments have also provided for the devolution of financial resources to the PRIs and the Municipal Corporations. The devolution of financial resources is to be done on the basis of the recommendations of the Finance Commission.
The 73rd and 74th Constitutional Amendments have ushered in a new era of local self-government in India. The Amendments have empowered the PRIs and the Municipal Corporations to plan and implement development schemes in their respective areas. The Amendments have also made the PRIs and the Municipal Corporations accountable to the people.
The following are some of the benefits of the 73rd and 74th Constitutional Amendments:
(a) The Amendments have led to the devolution of financial resources to the PRIs and the Municipal Corporations. This has enabled the PRIs and the Municipal Corporations to plan and implement development schemes in their respective areas.
(b) The Amendments have made the PRIs and the Municipal Corporations accountable to the people. This has led to greater Transparency and Accountability in the functioning of the PRIs and the Municipal Corporations.
(c) The Amendments have ushered in a new era of local self-government in India. This has led to greater participation of the people in the development process.
- The following are some of the challenges faced by the PRIs and the Municipal Corporations:
(a) The PRIs and the Municipal Corporations are often plagued by corruption and inefficiency.
(b) The PRIs and the Municipal Corporations often lack the necessary financial resources to implement development schemes.
(c) The PRIs and the Municipal Corporations often lack the necessary technical expertise to implement development schemes.
(d) The PRIs and the Municipal Corporations often lack the necessary political will to implement development schemes.
- The following are some of the measures that can be taken to address the challenges faced by the PRIs and the Municipal Corporations:
(a) The PRIs and the Municipal Corporations should be made more accountable to the people. This can be done by strengthening the Panchayati Raj Institutions Act and the Municipal Corporation Act.
(b) The PRIs and the Municipal Corporations should be provided with the necessary financial resources to implement development schemes. This can be done by increasing the devolution of financial resources to the PRIs and the Municipal Corporations.
(c) The PRIs and the Municipal Corporations should be provided with the necessary technical expertise to implement development schemes. This can be done by providing training to the members of the PRIs and the Municipal Corporations.
(d) The PRIs and the Municipal Corporations should be provided with the necessary political will to implement development schemes. This can be done by creating a conducive Environment for the PRIs and the Municipal Corporations to function effectively.