What is National Finance Commission (NFC) in Indian?

What is the National Finance Commission

The National Finance Commission (NFC) is a prominent Authority set up under the Indian Constitution under the purview of Article 280. Through this, it stands out as a body designed to oversee a just sharing of financial resources between the federal government and the governments of the states.

NFC is a vital constituent of federal structure, that will bring about balanced development India. The commission recommends on how tax revenue is to be shared and grants-in-aid which enables balanced and healthy financial position of states that are strong compared to the weaker ones than.

Functions of the National Finance Commission

NFC has wide variety of duties as specified in the Constitution which provide it with overall financial authority. These include:

  • Distribution of Tax Revenue: The NFC recommends the central government and the states to share equally the net tax proceeds collected by the central government as it ensures the maintenance of the inter-governmental fiscal stability. This contingency will facilitate states policies to attain economic development without undermining the welfare entitlements.
  • Allocation of Grants-in-Aid: The commission puts forth the striking out principles guiding the ts at the hands of the states by the central government. They assist with the unavoidable shortfall in the budget for the states with less income which helps them maintain and even promote their development plans.
  • Strengthening Panchayats and Municipalities: NFC not only deals with central-state financial relations but is part of a broader economic policy aspect. It further stipulates ways of the additional financial support to the panchayats (village councils) and municipalities at the level of community. It helps in the creation of resourceful local governments that ultimately strengthen delivery of critical services.
  • Sound Financial Management: The NFC can be endowed with a more elaborate mandate, under the supervision of the President of India regarding the soundness of financial practices. Thus, the fiscal council obtains a great power to respond as soon as possible to the appearing problems in India’s fiscal matters.

The capacity of the National Finance Commission for the verse of the sum total account.

Every five years or even before, the President of India appoints the National Finance Commission to determine the revenue sharing formula between the Center and the States, as well as the respective roles and responsibilities. The commission typically comprises:

  • Chairperson: A person, to exemplify, is an expert in public finance or economy.
  • Members: capable individuals of good reputation who work at managerial, financial or economics department can be appointed as independent members of NGOs.

Balanced and autonomous workforce will ensures the executive arm of the anti-corruption commission can make objective and unbiased decisions.

The findings of the National Finance Commission should be resolved. The provisions of the Fiscal Responsibility Act envisage that NFC recommendations should go to the President of India after the appraisal of the financial situation of the Union and State Governments respectively. The recommendations are not mandatory, but in most cases the change their authorities make to the recommendations are minor bespoke changes.

The NFC's recommendations typically cover a period of five years, encompassing:

  • Vertical Devolution: The parameters for the central government to xxx and share the net tax revenue with the states.
  • Horizontal Devolution: The payment of the share of the central government among its unitary components. Criteria such as population size, percentage of people under poverty line, and the financial conditions of the applicable entity are taken into consideration by the commission when it redistributes resources.
  • Grants-in-Aid: The idea of grants issued by the Center for sustainable development outlining its fundamental principles directed on the emphasis of types and amounts of grants provided to states. These grants may be made for particular functionality or the whole through its allotment or general grants.
  • Debt Relief Measures: As one of the possibilities, it is debating debt restructuring options or debt relief processes to tackle fiscal obligation of the states with a high debt level.

What is the relevance and effect of the National Finance Commission?

The National Finance Commission plays a vital role in India's federal system by:

  • Promoting Balanced Development: The NFC in essence is made to facilitate the equal distribution of financial resources at the national level so as to bridge the gap between states in terms of development. This way, job opportunities will be spread in all parts of the country ensuring all round development.
  • Strengthening Fiscal Federalism: The ability of the NFC to establish recommendations builds the integrity of states to undertake their own responsibilities, which is healthy and allows for a proper representation of the two principal arms of government.
  • Ensuring Fiscal Responsibility: The board attempts to motivate the federal government and the states to organize their funds cautiously.
  • Promoting Social Justice: An interesting fact about the NFC is that its primary objective is to develop uneconomically distant states and balance economic inequalities in the country.


The National Finance Commission plays the role of the pillar to the federal structure of India. Through its contribution to balanced and fair distribution of the state’s financial resources, it performs a very essential task in strengthening the nation’s social justice, maintaining the responsibility of individual budget spenders, and also in supporting the nation’s balanced development. NFC's recommendations have now become the primary factor to reckon with India's economic shape and further development of a fair society into the future.