Role of Finance Commission in Centre-State Financial Relations

**1. Distribution of Taxes:

• The Finance Commission (FC) recommends the distribution of central taxes between the Centre and States. For example, the 15th Finance Commission (2020-2025) recommended a 41% share for states from central tax revenues, promoting equitable distribution.

**2. Grants-in-Aid:

• The FC advises on grants-in-aid to states based on their needs. The 15th Finance Commission allocated specific grants for health and education, addressing regional disparities.

**3. Fiscal Responsibility:

• It monitors fiscal responsibility and advises on measures to improve state finances. Recent recommendations include measures for fiscal consolidation and debt management.

**4. Challenges and Criticisms:

• The FC’s recommendations may face criticism for inadequately addressing regional imbalances or failing to consider emergent needs, such as those highlighted during the COVID-19 pandemic.

**5. Impact of Recommendations:

• The FC’s recommendations influence budget allocations and fiscal policies, impacting Centre-State financial relations. For instance, the recent recommendations have sparked debates on their adequacy in addressing the challenges faced by states.