Topic: Appointment to various Constitutional posts, powers, functions and responsibilities of various Constitutional Bodies
Q3. Examine the constitutional role of the Finance Commission in maintaining fiscal balance within the Union. Evaluate the emerging challenges to its effectiveness. Suggest measures to strengthen the institution. (15 M)
Difficulty Level: Medium
Reference: TH
Why the question
The Finance Commission remains the cornerstone of India’s fiscal federal framework, but emerging developments such as GST, cesses and surcharges, and changing Centre–State fiscal relations have raised questions regarding its effectiveness and future role.
Key Demand of the question
The question requires an examination of the constitutional functions of the Finance Commission in maintaining fiscal balance within the Union and an evaluation of the contemporary challenges affecting its effectiveness. It also demands suitable reforms to strengthen the institution and improve fiscal federalism.
Structure of the Answer:
Introduction
Brief context on the Finance Commission as a constitutional mechanism for balancing fiscal federalism and cooperative governance.
Body
- Constitutional role in fiscal balance: Explain how the Finance Commission addresses vertical and horizontal fiscal imbalances and supports federal financial stability.
- Emerging challenges to effectiveness: Analyse issues such as shrinking divisible pool, GST-related changes, increasing centralisation and disputes over devolution criteria.
- Measures to strengthen the institution: Suggest reforms relating to transparency, institutional capacity, predictable transfers and stronger federal coordination.
Conclusion
Conclude by emphasising that a stronger and more credible Finance Commission is essential for sustaining cooperative federalism and balanced national development.
