Discuss the constitutional mandate and functions of State Finance Commissions vis-à-vis the Union Finance Commission.

India's fiscal federalism runs on a two-tier commission architecture: Article 280 creates the Union Finance Commission (UFC) for Centre-State transfers, while the 73rd and 74th Constitutional Amendment Acts, 1992 inserted Articles 243-I and 243-Y to create State Finance Commissions (SFCs), extending devolution to the third tier [1].

Constitutional mandate of SFCs

• Article 243-I requires the Governor to constitute an SFC within one year of the 73rd Amendment's commencement and every fifth year thereafter, to review panchayat finances [1].
• Article 243-Y extends the same body's remit to municipalities; the UFC in turn must, under Article 280(3)(bb) and (c), recommend measures to augment State funds for local bodies on the basis of SFC recommendations [1].
• The State Legislature prescribes composition, qualifications and selection; the Governor must lay every recommendation, with an action-taken memorandum, before the House [1].

Functions

• Distribution between State and local bodies of the net proceeds of State taxes, duties, tolls and fees, and their inter se allocation.
• Determination of taxes assignable to panchayats and municipalities.
• Grants-in-aid from the Consolidated Fund of the State.
• Measures to improve local bodies' financial position — e.g. Tamil Nadu's 7th SFC (constituted May 2025, chaired by K. Allaudin) covers rural and urban bodies for the award period from 1 April 2027, its tenure extended to 31 December 2026 [2].

Comparison with the Union Finance Commission

• Parallel design: both are quinquennial, recommendatory, and use vertical-plus-horizontal devolution formulae; the 16th FC retained the States' share at 41% of the divisible pool [3].
• Divergence in practice: the UFC is constituted punctually, whereas SFCs suffer delayed constitution, thin secretariats and non-tabling of reports — prompting the 15th FC to make local body grants conditional on States complying with SFC provisions [4].

Thus the SFC is the constitutional hinge completing the devolution chain from Union to gram panchayat. Timely constitution, permanent SFC cells and mandatory tabling of action-taken reports would let the third tier realise the self-government promise of the 73rd and 74th Amendments.