Report on Datasets for State Finance Commissions (2026)

The Ministry of Panchayati Raj (MoPR) released the Report on Datasets for State Finance Commissions (SFCs) in June 2026. The report identifies major data gaps affecting the functioning of State Finance Commissions and proposes measures to strengthen the local government data ecosystem for evidence-based fiscal devolution.

Key Findings of the Report

Systemic Bottlenecks in Data Management

The report highlights that State Finance Commissions face serious difficulties due to fragmented and non-integrated data systems across different government departments. The absence of consolidated accounts makes it difficult to determine sector-wise expenditure on services such as sanitation, roads, and drinking water, thereby limiting the assessment of actual improvements in public service delivery.

Local Capacity Deficits

A major challenge identified is the shortage of trained accounting personnel at the Gram Panchayat level, which results in incomplete, non-standardized, and inconsistent financial records. This weakens the quality of data available for fiscal planning and resource allocation.

Chronic Delays in SFC Reports

The 15th Finance Commission observed an average delay of 16 months in the submission of State Finance Commission reports. Consequently, states often rely on outdated recommendations, reducing the effectiveness of fiscal decentralisation and local governance.

Poor Quality and Lack of Uniformity

The report notes significant variations in methodologies, data standards, and reporting practices across states. The 16th Finance Commission found many SFC reports unsuitable for formulating recommendations on local body transfers because of their inconsistent quality and limited comparability.

Recommendation for Constitutional Amendment

Given these persistent challenges, the 16th Finance Commission recommended amending Articles 280(3)(bb) and 280(3)(c) of the Constitution, which currently require the Central Finance Commission to base its recommendations for local bodies on the reports of State Finance Commissions.

Existing Data Sources and Their Limitations

eGramSwaraj Portal

Although the eGramSwaraj Portal serves as a major platform for local governance data, inconsistent data entry practices across states have affected the reliability and usability of the information.

Panchayat Advancement Index (PAI 2.0)

The Panchayat Advancement Index (PAI 2.0) facilitates performance comparisons among Panchayats, but its indicators are not yet organised according to fiscal criteria such as needs, performance, or backwardness, limiting its usefulness for resource devolution.

Census and SECC 2011 Data

The continued dependence on Census 2011 and Socio-Economic Caste Census (SECC) 2011 data poses significant challenges because these datasets no longer reflect present socio-economic realities and local development needs.

CAG Audit Reports and AuditOnline

The CAG Audit Reports and AuditOnline platform provide credible audit information, but they lack consistent Gram Panchayat-level granularity, reducing their effectiveness for local fiscal planning and monitoring.

Key Recommendations of the Report

Data Standardisation and Digital Infrastructure

Restructuring the Panchayat Advancement Index

The report recommends that PAI indicators should be classified according to the needs, performance, and backwardness of Panchayats to facilitate objective and equitable fiscal devolution. It also suggests state-wise disaggregation of data for more precise analysis.

Creation of Gram Panchayat-Level Databases

State governments should establish time-series databases containing Gram Panchayat-level financial information to accurately assess revenue capacities and expenditure patterns over time.

Transition to Gram Panchayat-Level Reporting

The Ministry of Panchayati Raj should collaborate with MoSPI to shift from revenue village-based statistics to Gram Panchayat-level data collection using the Local Government Directory (LGD) framework.

Institutional and Auditing Reforms

CAG Performance Audit

The report recommends that the Comptroller and Auditor General (CAG) conduct a performance audit on the implementation of the 73rd Constitutional Amendment Act, 1992, to assess the actual extent of functional and financial decentralisation achieved by Panchayati Raj Institutions.

Permanent State Finance Commission Cells

States should establish permanent SFC Cells within their Finance or Planning Departments to continuously maintain and update local government data, rather than relying solely on periodic commission cycles.

Institutional Forum for SFCs

A permanent institutional mechanism should be created to facilitate interaction, peer learning, and knowledge sharing among current and former State Finance Commissions.

Budgetary and Reporting Reforms

Standardised Accounting Heads

Uniform accounting heads should be introduced to record all financial transfers to local bodies, enabling better transparency and comparability across states. The CAG may assist in developing these standards.

Supplementary Budget Documents

State budgets should include a supplementary statement detailing all forms of fiscal transfers, including those from the Union Finance Commission, State Finance Commission, and Centrally Sponsored Schemes, down to the individual Gram Panchayat level.

Common Reporting Format

The report recommends adopting the common reporting format proposed by the 13th Finance Commission (2010–15) to ensure greater uniformity and comparensibility among SFC reports.

Capacity Building and Institutional Coordination

Role of NIRDPR

The National Institute of Rural Development and Panchayati Raj (NIRDPR) should organise training programmes, document best practices, and revive the publication of comprehensive Panchayat statistics.

Preparation of an SFC Manual

The National Institute of Public Finance and Policy (NIPFP) should develop a detailed manual to guide future State Finance Commissions regarding methodology, data requirements, and best practices.

Reviving the Local Statistics Initiative

An expert group comprising representatives from MoPR, MoSPI, Ministry of Urban Development (MoUD), and NITI Aayog should be constituted to revive the Government of India's Local Statistics initiative and strengthen local data systems.

State Finance Commission (SFC)

About

The State Finance Commission (SFC) is a constitutional body established to promote fiscal decentralisation and strengthen local self-governance in India. It was introduced through the 73rd and 74th Constitutional Amendment Acts, 1992.

Its primary function is to review the financial position of Panchayati Raj Institutions (PRIs) and Urban Local Bodies (ULBs) and recommend principles for the equitable distribution of state financial resources.

Constitutional Provisions

Article 243-I

Article 243-I mandates that every Governor shall constitute a State Finance Commission within one year of the commencement of the 73rd Constitutional Amendment and thereafter every five years to review the financial position of Panchayats.

Article 243-Y

Article 243-Y extends the powers of the State Finance Commission to Municipalities and requires it to make recommendations regarding their financial position as well.

Article 280

Article 280 requires the Central Finance Commission to recommend measures for augmenting the Consolidated Fund of States to supplement the resources of Panchayats and Municipalities based on the recommendations of the State Finance Commissions.

Composition

Unlike the Central Finance Commission, whose composition is specified in the Finance Commission Act, 1951, the Constitution leaves the composition, qualifications, and appointment procedures of State Finance Commissions to individual state legislatures.

The recommendations of the SFC, along with the action taken report, must be laid before the State Legislature by the Governor.

Functions of the State Finance Commission

The State Finance Commission recommends the principles governing the vertical and horizontal distribution of taxes, duties, tolls, and fees between the State Government and local bodies.

It determines which taxes and fees may be assigned to Panchayats and Municipalities and recommends grants-in-aid from the Consolidated Fund of the State.

The Commission also suggests measures to strengthen the overall financial position and autonomy of local self-governments.

Significance

Strong State Finance Commissions are essential for achieving cooperative federalism and grassroots democracy. Reliable, granular, and standardised data can enable evidence-based fiscal devolution, improve accountability, strengthen local institutions, and contribute to the achievement of the Sustainable Development Goals (SDGs).

As envisioned by Mahatma Gandhi, effective self-governance begins at the village level, making robust local fiscal institutions a cornerstone of democratic development in India.