UPSC Essentials | Mains answer practice — GS 2 : role of the Finance Commission and Self-Help Groups (Week 149)

QUESTION 2

Discuss the role of Self-Help Groups (SHGs) in promoting women’s empowerment and participatory governance in India.

QUESTION 1: How does the evolving role of the Finance Commission reflect the changing priorities of Indian federalism?

Relevance: The topic reflects the shift from cooperative to increasingly conditional and centralised fiscal federalism. The question links static constitutional provisions with current debates on state autonomy and fiscal space. Aspirants should also read about Article, 275, 280, and 282 of the Constitution of India.

Note: This is not a model UPSC answer. It only provides you with a thought process which you may incorporate into the answers.

Introduction:

— The Sixteenth Finance Commission was constituted by the President of India in pursuance of clause (1) of article 280 of the Constitution.

— The recommendations of the Sixteenth Finance Commission (SFC) for the period 2026-31, which have been accepted by the Union government, have raised serious concerns about the future of federal balance.

Body:

You may incorporate some of the following points in your answer:

— The changes in the horizontal criteria, discontinuation of statutory grants, and tacit approval to the shrinking of the divisible pool have tilted the scales toward greater central leverage through discretionary transfers. This shift has come at the expense of statutory equity, further compounded by the doubling of transfers to the third tier. In making these unprecedented changes, SFC has taken liberties with the constitutional framework, thereby weakening the statutory backbone of fiscal federalism in India.

— Even though the SFC retained the share of states at 41 per cent, it has overseen a reduction in their effective share from around 36 per cent to around 32 per cent. Further, by tweaking the devolution formula, 14 states, mostly the smaller states, have got a lower share in taxes than in the previous commission. The share in tax devolution, for example, of all northeastern states is 15.5 per cent lower than under the Fifteenth FC. This could have a crippling effect on the region.

— Instead of abolishing the revenue deficit grants, the SFC should have redesigned gap-filling as equalising grants by replacing the single deficit criterion with multiple criteria, including SC/ST population or rural consumption patterns. The Commission has also remained largely agnostic to GST Council dynamics, IGST settlement issues, and cost-of-collection variations, missing an opportunity to align horizontal distribution with the current consumption-based indirect tax regime.

— The SFC has used Article 282 to dramatically double the grants to the third tier — panchayats and urban local bodies. This compositional shift — from tax shares and Article 275 statutory grants towards Article 282 discretionary mechanisms and third-tier focus — has three problematic dimensions. First, the move from criteria-based entitled transfers to more condition-based discretionary ones. Second, from statutory predictable flows charged on the Consolidated Fund to non-statutory flows with hardly any accountability. Third, from equity-driven (based on need, backwardness, social welfare) to efficiency-oriented (based on performance, GDP contribution) criteria.

— The SFC has, contrary to the Constitution, made local bodies effectively another stakeholder, besides the states, in the scheme of vertical distribution. Consequently, the horizontal distribution has been bifurcated: Formula-driven tax devolution primarily for the second tier (states), with grants increasingly tailored for the third tier (local bodies). This move of treating the two levels at par doesn’t sit well with the basic structure of the Constitution.

Conclusion:

— States are fundamental constituent units of the Union of India with a direct constitutional status under Part VI of the Constitution. In contrast, local bodies (panchayats and municipalities) which gained constitutional recognition only through the 73rd and 74th amendments (1992), remain subordinate to the states. Their powers, functions, and finances are devolved by state legislatures, not directly granted by the Constitution.

(Source: Finance commission strengthens local bodies, but at the cost of states)

Points to Ponder

How does the balance between vertical and horizontal devolution reflect changing national priorities?

Do Finance Commission recommendations adequately address regional disparities and equity concerns?

Related Previous Year Questions

Examine the evolving pattern of Centre-State financial relations in the context of planned development in India. How far have the recent reforms impacted the fiscal federalism in India? (2025)

‘‘The states in India seem reluctant to empower urban local bodies both functionally as well as financially.’’ Comment. (2023)

How have the recommendations of the 14th Finance Commission of India enabled the States to improve their fiscal position? (2021)

QUESTION 2: Discuss the role of Self-Help Groups (SHGs) in promoting women’s empowerment and participatory governance in India.

Relevance: The topic captures the intersection of gender, governance, and grassroots democracy—core GS-2 areas. The question connects the static SHG framework with current climate governance. The question is relevant, as UPSC can focus on participatory governance and women-led development.

Note: This is not a model UPSC answer. It only provides you with a thought process which you may incorporate into the answers.

Introduction:

— Self-Help Groups (SHGs) in India are small, community-based financial intermediaries (often 10-20 persons) that promote savings, give microloans, and support income-generating activities.

— SHGs are informal groups, and registration under the Societies Act, State Cooperative Act, or partnership business is not required. The members of a SHG confront similar issues. They help each other solve their problems. SHGs encourage little savings among its members. The savings are kept at the bank. This is the common fund in the SHG’s name.

Body:

You may incorporate some of the following points in your answer:

Role of Self-Help Groups (SHGs)

— SHGs aim to improve the functional ability of the impoverished and marginalised sections of society in the areas of employment and income generation.

— SHGs facilitate conflict resolution through communication and mediation among the parties involved.

— They play a crucial role in providing Microfinance services to the impoverished and needy members of society.

— SHGs serve as a voice for the disadvantaged and weaker segments of society.

— SHGs empower women and help the nation’s efforts to achieve gender equality.

Examples

— Jharkhand, which is home to 8.3 per cent of India’s tribal population, are on the frontlines of a climate emergency that threatens both livelihood and culture. And yet, some of the most decisive responses are emerging not from state capitals or climate summits, but from women sitting together in self-help groups talking about water, crops and survival.

— With close to three lakh SHGs across the state, facilitated by the Jharkhand State Livelihood Promotion Society (JSLPS), this network has evolved beyond financial inclusion to become one of the densest platforms for women’s collective action in the country. Nationally, over 90 million women are mobilised through SHGs, making this one of the largest grassroots institutional networks globally.

— These groups are not only strengthening livelihoods, but are also emerging as institutions of social transformation and have the potential to become the living backbone of community-led climate action.

— The Deen Dayal Upadhyaya Antyodaya Yojana–National Urban Livelihoods Mission (DAY-NULM) has been working to address urban poverty and create economic opportunities. Many women-led self-help groups (SHGs) have pursued small businesses under their aegis, ranging from candle-making and millet cookies to bags, jewellery, and other crafts.

— In Punjab, Lakhpati Didi is a scheme implemented by the Ministry of Rural Development that aims to empower women by helping them to start micro enterprises. It provides interest subvention, loans, financial support and so on.

Conclusion:

— For women, particularly those from rural and forest-dependent communities, climate change is not an abstract concern. Gender and climate are deeply interconnected, with women and girls often bearing a disproportionate share of the impacts of climate change.

— By empowering women to understand, articulate and respond to climate challenges, the gender and climate module does more than build awareness; it produces the kind of informed, grounded leadership that community resilience actually depends on.

(Source: Women coming together in self-help groups are powering Jharkhand’s climate response, Crochet, clay, and chores: The untold story of urban women blending work, art, and survival, From village self-help group to ‘lakhpati didi’: how Bathinda native Rupinder Kaur’s initiative changed many women’s lives)

Points to Ponder

Are Self-Help Groups merely financial intermediaries or emerging as governance actors?

Are SHGs capable of addressing emerging challenges such as climate change and livelihood vulnerability?

Related Previous Year Question

“Micro-Finance as an anti-poverty vaccine, is aimed at asset creation and income security of the rural poor in India”. Evaluate the role of the Self Help Groups in achieving the twin objectives along with empowering women in rural India. (2020)

Previous Mains Answer Practice

UPSC Essentials: Mains answer practice — GS 3 (Week 148)

UPSC Essentials: Mains answer practice — GS 3 (Week 149)

UPSC Essentials: Mains answer practice — GS 2 (Week 148)

UPSC Essentials: Mains answer practice — GS 2 (Week 147)

UPSC Essentials: Mains answer practice — GS 1 (Week 148)

UPSC Essentials: Mains answer practice — GS 1 (Week 147)

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