Part IX & IXA - Panchayats & Municipalities • Article

Article 243I Simplified: Constitution of Finance Commission to review financial position

Article 243I mandates the Governor of every state to constitute a State Finance Commission (SFC) every five years. The SFC reviews the financial position of the Panchayats and recommends principles for sharing tax revenues between the state and Panchayats, assigning local taxes, and distributing state grants-in-aid.

Official Text

(1) 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— (a) the principles which should govern— (i) 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; (ii) the determination of the taxes, duties, tolls and fees which may be assigned to, or appropriated by, the Panchayats; (iii) the grants-in-aid to the Panchayats from the Consolidated Fund of the State; (b) the measures needed to improve the financial position of the Panchayats; (c) any other matter referred to the Finance Commission by the Governor in the interests of sound finance of the Panchayats. (2) The Legislature of a State may, by law, provide for the composition of the Commission, the qualifications which shall be requisite for appointment as members thereof and the manner in which they shall be selected. (3) The Commission shall determine their procedure and shall have such powers in the performance of their functions as the Legislature of the State may, by law, confer on them. (4) The Governor shall cause every recommendation made by the Commission under this article together with an explanatory memorandum as to the action taken thereon to be laid before the Legislature of the State.

Simple Meaning

Explain Like Ten

Every five years, the Governor appoints a special group called the Finance Commission. Their job is to look at village finances and recommend how much money the state should give them.

Student Mode

Article 243I constitutionalizes the State Finance Commission (SFC). The Governor must constitute the SFC within one year of the 73rd Amendment's commencement and every five years thereafter. The SFC makes recommendations on: (1) tax revenue distribution between the State and Panchayats, (2) assignment of taxes to Panchayats, (3) grants-in-aid, and (4) improving Panchayat financial health. Its recommendations and action-taken reports must be laid before the State Legislature.

Example

Every five years, the Governor of Uttar Pradesh appoints a State Finance Commission. The commission examines local government audits and submits a report advising the government on how much state tax revenue should be allocated to village panchayats.

Key Takeaway

Article 243I ensures systematic and periodic review of local government finances through a constitutionally mandated State Finance Commission.

FAQs

How often is the State Finance Commission constituted?

It is constituted every five years by the Governor of the State.

Who determines the qualifications and composition of the State Finance Commission?

The State Legislature determines the commission's composition and the requisite qualifications for its members by law.

Are State Finance Commission recommendations binding?

No, they are advisory. However, the Governor must lay the commission's recommendations and an explanatory memorandum of action taken before the State Legislature, ensuring legislative oversight.

Quiz

Who constitutes the State Finance Commission under Article 243I?

Answer: The Governor of the State

State Finance Commission recommendations and action-taken reports must be laid before:

Answer: The State Legislature