STRUCTURE:

INTRODUCTION – A short 2 lines introduction that gives insight to Finance commission

BODY

Divided to 2 parts

1.Explain the functions of FC

2.Examine the significance of FC

CONCLUDE

Conclude as how FC maintains its significance in upholding its duties of federal balance

Finance commission of India is a constitutional body set up under article 280 of Indian constitution. It was first constituted in 1951.

The functions of Finance commission can be summarized as follows:

• Vertical Distribution of Taxes: Recommend the distribution of the net proceeds of taxes between the Union (central government) and the states, and among the states themselves.
• Horizontal Distribution: Recommends the principles governing the grants-in-aid to states and other local authorities from the Consolidated Fund of India.
• Reviews the financial position of the states and the Union, taking into consideration various factors such as population, area, infrastructure, and economic development.
• Suggests measures to augment the consolidated fund of a state to supplement the resources of local bodies.
• Other Matters as asked by the Union Government

In the federal structure of Indian governance, Finance commission holds a major significance, which can be summarized as follows:

• Promotes fiscal federalism by ensuring a fair and equitable distribution of financial resources between the central government and the states. The 15th Finance Commission has played a key role in fostering fiscal federalism by increasing tax devolution to states from 32% to 41%, boosting their fiscal capacity
• Aids in the allocation of resources to states based on their needs and performance. The 15^th FC emphasized sector-specific, performance-based grants of Rs 4.36 lakh crore for health, education, rural connectivity, and water conservation
• Encourages decentralization and empowers local governance structures. 15^TH FC allocated 31% of the divisible pool to local governments, providing over Rs 2 lakh crore to urban and rural local bodies, strengthening decentralization and enhancing local governance capacity.
• Contributes to the fiscal autonomy of states by recommending the principles governing the grants and allocations, reducing dependency on the central government

It can be summarized that, The Finance Commission of India is vital for promoting fiscal federalism and decentralization. Its recommendations ensure the fair distribution of resources between the Union, states, and local bodies, fostering balanced regional development