The State Finance Commission (SFC) is a constitutional body established under Article 243-I of the Indian Constitution.
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Its principal objective is to recommend principles and guidelines for the equitable distribution of financial resources between the state government and local bodies such as municipalities and panchayats. The SFC is appointed by the Governor and comprises a chairman and other members with expertise in finance and administration. The commission follows specific procedures, including analyzing the financial position of the state government and local bodies, assessing expenditure requirements, and formulating recommendations for revenue sharing and grants. Moreover, the SFC evaluates the financial performance of local bodies and proposes measures to enhance their financial management. The state government must consider the SFC’s recommendations while determining the financial arrangements between the state and local bodies.