Discrepancies between Normative Finance Commission Recommendations

Discrepancies between Normative Finance Commission Recommendations
Posted on 14-07-2023

Discrepancies between Normative Finance Commission Recommendations and Implementation Realities

The Finance Commission (FC) plays a vital role in allocating tax revenues between the Union and state governments and among the states themselves. However, despite the normative recommendations put forth by the FC, the actual implementation of these recommendations often falls short of expectations. This article explores the reasons behind the disconnect between the recommendations made by the FC and their actual execution.


Previous Recommendations and Outcomes

The 13th Finance Commission made recommendations in various areas, including justice delivery and the statistical system. However, expectations of improved justice delivery and statistical enhancement were not met. Plans for judicial reform and statistical improvements remained largely rhetorical, with little tangible progress observed.


Finance Commission Objectives

The Finance Commission, a constitutional body, is responsible for distributing tax revenues and grants-in-aid between the Union and state governments. Its recommendations cover vertical devolution, horizontal distribution, and grant-in-aid. Vertical devolution focuses on transfers from the Union to the states, while horizontal distribution involves allocating resources between states based on specific formulas. Grant-in-aid, governed by Article 275, provides flexibility in control and offers financial support to states based on their needs.


Recommendations Made by the 13th Finance Commission

On Justice Delivery The 13th FC recommended measures such as increasing court working hours, supporting Lok Adalats, enhancing legal aid for the marginalized, promoting Alternate Dispute Resolution (ADR), and improving the capacity of judicial officers and public prosecutors. However, the outcomes of these recommendations were far from satisfactory, and the desired improvements in the justice delivery system were not realized.

On Statistical System The 13th FC emphasized the importance of measuring cost disabilities for equitable horizontal distribution. It recommended collecting data on various services available in different states and their corresponding unit costs to estimate cost disabilities accurately. However, the government struggled to incorporate and implement these recommendations effectively.


Challenges in Implementation of FC Recommendations

Lack of Commitment One major reason for the gap between FC recommendations and implementation is the lack of commitment from both Union and state governments. Often, these recommendations are treated as pious intentions rather than concrete action plans.

States' Objection to Conditionalities Some states have objected to grants-in-aid that come with conditionalities, as they restrict the states' expenditure options. This objection hampers the comprehensive transfer framework envisioned by the FC.


Expectations from the 16th Finance Commission

As the 16th Finance Commission approaches, there is a collective hope for practical and implementable recommendations that can drive meaningful fiscal transformations. However, considering the past experiences, it is necessary to temper these expectations, understanding that the normative and prescriptive nature of FC recommendations may not always translate into effective implementation.



The recommendations of the Finance Commission hold significant importance in determining fiscal transfers between the Union and state governments. However, various constraints often hinder the effective implementation of these recommendations, leading to a gap between expectations and outcomes. Recognizing this reality, it is crucial to address the challenges and work towards a more seamless translation of FC recommendations into actionable policies.

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