Yes, it is true that the Finance Commission (FC) has been instrumental in lending financial strength to local bodies (Panchayats and Municipalities) in India. This role became particularly significant after the 73rd and 74th Constitutional Amendment Acts of 1992, which constitutionalized local self-governments and mandated the establishment of State Finance Commissions (SFCs).

Here's an argument in favour of this statement:

1. Constitutional Mandate and Recommendations for Grants-in-Aid: Article 280 of the Indian Constitution mandates the Union Finance Commission to recommend measures needed to augment the Consolidated Fund of a State to supplement the resources of the Panchayats and Municipalities in the State on the basis of the recommendations made by the State Finance Commission. This constitutional backing ensures that the financial needs of local bodies are regularly assessed and addressed at the national level.

2. Direct Grants to Local Bodies: Subsequent Finance Commissions (from the 10th FC onwards) have consistently recommended specific grants-in-aid for local bodies. These grants are typically untied, allowing local bodies the flexibility to use funds for various local development priorities, such as sanitation, water supply, infrastructure, and capacity building. For instance, the 14th Finance Commission made a significant departure by recommending direct transfers of grants to local bodies, bypassing the state governments, which further empowered them financially.

3. Incentivizing State Finance Commissions (SFCs): The Union Finance Commissions often provide incentives or link grants to states with the timely constitution and implementation of recommendations of their respective State Finance Commissions. SFCs are constitutionally mandated (Article 243I and 243Y) to review the financial position of local bodies and recommend measures for their financial strengthening. By encouraging states to empower SFCs, the Union FC indirectly strengthens the financial autonomy and resource base of local bodies.

4. Bridging the Fiscal Gap: Local bodies often have limited own-source revenues and significant expenditure responsibilities. The grants recommended by the Finance Commission help bridge this fiscal gap, enabling them to undertake essential public services and development projects that they might otherwise be unable to fund. This support is crucial for grassroots development and effective decentralization.

5. Promoting Fiscal Decentralization: The Finance Commission's recommendations contribute to the broader goal of fiscal decentralization by ensuring a flow of funds from the Union to the local level. This empowers local self-governments to function more effectively as institutions of self-governance and local planning, thereby strengthening grassroots democracy.

In conclusion, through its constitutional mandate, direct grant recommendations, and encouragement of State Finance Commissions, the Union Finance Commission plays a vital and increasingly significant role in enhancing the financial strength and viability of local bodies across India, thereby fostering decentralized governance and inclusive development.