Sad State of SFC's

The Union Finance Commission is the entity that recommends how to split the tax pool between states and the center. Less well known are the State Finance Commissions (SFC) that were constituted in 1992 to decide on the next level – how to split the tax pool between the state and local governments.

 

Few states have bothered to reconstitute SFC’s every 5 years, as called for in the 73rd and 74th amendments to the constitution. Further, the recommendations of the SFC are delayed, on average, by 16 months. Worse, SFC members are usually serving politicians and bureaucrats, which means bias is almost certain. If SFC’s recommend increasing the money given to local governments, then the recommendations are always rejected by (who else) the state government.

 

The problem, as Pranay Kotasthane says starts with those constitutional amendments:

“These amendments left the devolution of funds and functions to local governments at the discretion of the state government. And public choice theory will tell you that no government wants to reduce its own powers. Hence we have enfeebled local governments.”

While states (rightly) complain about the center v/s state split of the tax money, they are no different when it comes to state v/s local government split. This reminded me of fractals – the same pattern repeats itself at different scales.

“‘Everyone Wants Decentralisation, But Only up to Their Own Level”

 

This is a topic we should all care about. After all, it is the one that affects us most directly:

“The next time you crib about the potholes on your street or the erratic power supply, look up what your latest SFC is up to.”

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