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3) What are the important functions of Finance Commission? Do you think Finance Commission is functioning as an arbitrator between the Union and State governments? Critically examine.(250 words) 

Topic – Part of static series under the heading – “Finance commission and its functions”

3) What are the important functions of Finance Commission? Do you think Finance Commission is functioning as an arbitrator between the Union and State governments? Critically examine.(250 words) 

 

Key demand of the question

The first part is fairly straightforward in its demand. In the second part of your answer, the role of FC has to be evaluated from the point of view of fiscal federalism and the grievances of the state needs to be examined. A fair and balanced view on the role of FC in upholding the principles of fiscal federalism is required to be mentioned in the conclusion.

Directive word

Critically examine – When you are asked to examine, you have to probe deeper into the topic,  get into details, and find out the causes or implications if any. When ‘critically’ is suffixed or prefixed to a directive, all you need to do is look at the good and bad of something and give a fair judgement.

Structure of the answer

Introduction – Describe in brief about Finance commission including the relevant constitutional provisions.

Body

  • Discuss the important functions of FC
  • Explain how Finance Commission plays the role of an arbiter between central and state governments due to its role in arrival of an appropriate method for the devolution of the resources between them, and also helps in addressing the aspect of grants-in-aid of revenue, in the case of revenue shortfall for the states
  • Explain that with the abolition of Planning Commission, the role of finance commission as an arbiter has increased even more
  • Highlight the grievances of the states – issues raised in the ToR of 15th FC etc

Conclusion – Give a fair and balanced view on whether the role of FC be revisited in light of abolition of PC in light of principles of fiscal federalism.