India’s Urban Local Governments (ULGs) are expected to deliver increasingly complex services, even as they remain chronically under-resourced. Constrained in their ability to mobilise their Own Source Revenues (OSR), ULGs are heavily dependent on fiscal transfers recommended by the union and State Finance Commissions. Notably, transfers from state governments to local governments recommended by State Finance Commissions (SFCs) are, on average, nearly four times larger than those recommended by the Union Finance Commission (UFC), making SFCs especially consequential for local governments. Despite this, SFCs do not enjoy the same institutional credibility, consistency, or uptake as the UFC.   

In this context, the study ‘Strengthening State Finance Commissions for Empowered Local Governments’ delves into the assessment of systemic challenges that constrain the effectiveness of SFCs. The analysis draws from consultations with state government officials and SFC members, and from SFC reports and Action Taken Reports of 20 and 18 states respectively. It also draws on Janaagraha’s immersive engagement with XV and XVI Union Finance Commissions and with three SFCs – 5th Karnataka, 6th Haryana and 6th Odisha. 

The study identifies persistent challenges: delayed constitution, inadequate institutional infrastructure, weak accountability, and limited uptake of recommendations. The cumulative effect is financial weakening of local governments at a time when India’s urban transition demands predictable financing. The study proposes focused reforms: timely constitution of SFCs aligned with Union Finance Commission award cycles, strengthened institutional infrastructure with standardised procedures and well-functioning secretariats, improved accountability through comprehensive Action Taken Reports and public disclosure requirements, and an enabling ecosystem comprising shared data repositories, peer learning platforms, independent monitoring of SFC formation and functioning, and sustained policy engagement. 

The study offers state governments, Finance Commissions, and urban governance stakeholders a practical reform roadmap to reinvigorate SFCs to realise the constitutional vision of empowered local governments. 

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