Finance Commission – Issues related to devolution of resources

Why normative recommendations of finance commissions remain on paper


From UPSC perspective, the following things are important :

Prelims level: Finance Commissions

Mains level: Finance Commissions and its role, recommendations and challenges in implementation


What is the news?

  • This article critically examines the historical outcomes of the 13th FC and underscores the need for realistic expectations regarding the forthcoming 16th FC

Central idea

  • The Finance Commissions (FC) in India play a crucial role in determining the fiscal framework for resource allocation between the Union and state governments. Established under Article 280 of the Constitution, the FCs provide recommendations on vertical devolution, horizontal distribution, and grants-in-aid. However, the effectiveness of these recommendations in achieving their intended objectives remains a matter of contention

Purpose and Scope of Finance Commissions

  • Finance Commissions are constituted under Article 280 of the Constitution and their recommendations encompass three key areas: vertical devolution, horizontal distribution, and grant-in-aid.
  • Vertical devolution focuses on Union to state transfers
  • Horizontal distribution involves the allocation of resources between states based on a specific formula.
  • Grant-in-aid, covered under Article 275, provides financial assistance to states deemed in need.
  • It is important to note the distinction between grants and grant-in-aid, as the latter operates at arm’s length and offers more flexibility in terms of control.

Recommendations of the previous Finance Commission

13th Finance Commission Recommendations:

  • Increase the number of court working hours using existing infrastructure.
  • Enhance support to Lok Adalats.
  • Provide additional funding to State Legal Services Authorities to enhance legal aid for the marginalized.
  • Promote the use of Alternative Dispute Resolution (ADR) mechanisms.
  • Enhance the capacity of judicial officers and public prosecutors through training programs.
  • Support the creation of a judicial academy in every state for training purposes.
  • Allocate funds for the setting up of specialized courts.

15th Finance Commission Recommendations:

  • Gather quantifiable data on the level of various services available in different states.
  • Collect corresponding unit cost data to estimate cost disabilities among states.
  • Fill gaps in statistical data through the efforts of the Ministry of Statistics.

Challenges encountered in the implementation of Finance Commission recommendations

  • Lack of Implementation of Homilies: The recommendations made by Finance Commissions, both at the Union and state levels, are often ignored as mere pious intentions. This indicates a lack of commitment and follow-through in translating the recommendations into concrete actions.
  • Conditionalities and Expenditure Restrictions: The objections raised by some states in the article indicate challenges related to conditionalities attached to grants. Conditionalities may restrict the expenditure options of states, creating obstacles in implementing the recommended reforms.
  • Inadequate Resource Allocation: The allocated funds for specific reforms may not be sufficient, leading to inadequate implementation. Financial constraints and competing budgetary priorities can limit the availability of resources needed to effectively execute the recommended measures.
  • Lack of Coordination: The implementation of Finance Commission recommendations requires cooperation between the Union and state governments. Any lack of coordination or disagreements between these entities can hinder the execution of reforms

Way forward: Need for realistic expectations regarding the forthcoming 16th FC

  • Acknowledging Implementation Challenges: Recognize the challenges and complexities involved in implementing Finance Commission recommendations, such as coordination issues, administrative capacity, and resistance to change. This understanding will help shape realistic expectations and strategies for addressing these challenges.
  • Strengthening Implementation Mechanisms: Focus on improving the implementation mechanisms and processes. This includes enhancing coordination and cooperation between the Union and state governments, strengthening administrative capacity at all levels, and streamlining the implementation of conditionalities to facilitate smoother execution.
  • Robust Monitoring and Evaluation: Establish effective monitoring and evaluation mechanisms to track the progress and outcomes of implemented reforms. Regular assessment will help identify implementation gaps and provide opportunities for course correction and improvement.
  • Building Stakeholder Consensus: Foster stakeholder engagement and consensus-building to ensure the buy-in and ownership of recommended reforms. Engage relevant stakeholders, including government departments, civil society organizations, and local communities, to create a shared vision and collective commitment towards implementation.
  • Learning from Past Experiences: Analyze past experiences and identify the reasons behind the limited implementation of previous recommendations. This will help inform future strategies, learning from the challenges faced and replicating successful implementation models.
  • Advocacy and Public Awareness: Create awareness among the public about the importance of Finance Commission recommendations and their impact on governance and development. Foster advocacy efforts to generate public support and hold governments accountable for implementing the recommended reforms.


  • Finance Commissions in India fulfill a critical role in determining fiscal transfers between the Union and state governments. However, the implementation of their recommendations often falls short of expectations due to various challenges and limitations. By critically analyzing the past experiences of Finance Commissions, it becomes evident that a more pragmatic approach is necessary to align expectations with the actual outcomes.

Also read:

Finance Commission and the Challenges of Fiscal Federalism

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