To strengthen and empower the economy of Indian states, an important institution is the Finance Commission of India. In this article, we will focus on various aspects of the Finance Commission of India, understand their functions and impact and understand its importance.
What is Finance Commission?
The Finance Commission of India is a constitutional body appointed by the President under Articles 280 and 281 of the Indian Constitution. Finance Commission is a semi-judicial and advisory body. Its primary role involves recommending the allocation of tax revenue between the central and state governments. Additionally, it lays down the guiding principles for grants-in-aid of the Central Government to the States. The inaugural Finance Commission dates back to 1951, and there have been fifteen commissions so far. How. Niyogi was the inaugural Chairman of the Finance Commission of India. For a comprehensive understanding, see the detailed information given in the article about Finance Commission of India.
Why is Finance Commission needed?
The federal system of India allows division of power and functions between the Center and the States and on this basis the powers of taxation are also divided between the Center and the States.
The state legislature is empowered to delegate some of its taxation powers to local bodies. The central government collects the majority of tax revenue and contributes to the economy at large through the collection of certain taxes.
Because of their close knowledge of local issues and needs, it is the responsibility of the states to take care of the public interest in their areas. However, due to all these reasons, sometimes the expenditure of the state exceeds the revenue it receives. Furthermore, due to vast regional disparities some states are unable to avail of adequate resources compared to others.
To correct these imbalances, the Finance Commission recommends limits on central funds to be shared with the states.
Composition of Finance Commission
The Finance Commission consists of a Chairman who has experience in public affairs and four members. Parliament determines the qualifications of the members of the Commission and the methods of their selection. All four members must be or have been qualified as judges of a High Court, or be knowledgeable in finance, or be experienced in financial matters and administration, or have knowledge in economics. All appointments are made by the President of India under Article 280(1).
Functions of Finance Commission
The Finance Commission of India adjusts its functions in various areas so that it can help in strengthening the economy of the country. It shall be the duty of the Finance Commission to make recommendations to the President in respect of:
- To determine the consolidated funds of the States and the factors controlling their quantum.
- To make recommendations to the President regarding measures necessary for augmenting the Consolidated Fund of the State to supplement the resources of the Municipalities and Panchayats in the State on the basis of recommendations made by the State Finance Commission.
- Any other matter referred to the Commission by the President in the interest of sound finances.
- Distribution of 'net proceeds' of taxes between the Center and the States, allocated according to their respective contributions to taxes.
15th finance commission
The 15th Finance Commission was constituted in 2017. Its recommendations will cover a five-year period from 2021-22 to 2025-26. So far 14 Finance Commissions have been constituted. The recommendations of the 14th Finance Commission are valid till the financial year 2019-20. Chairman of the first Finance Commission, K.C. Was Niyogi. It is noteworthy that on November 27, 2017, Shri N.K. Singh has been appointed Chairman of the 15th Finance Commission. Shri N.K. Singh is a former Secretary to the Government of India and has also been a member of the Rajya Sabha from Bihar from 2008-2014.
Chairman of Finance Commission
Its chairman is former Planning Commission member N.K. Is a lion. The details of four other members of the 15th Finance Commission are as follows:
- Shaktikanta Das (Former Secretary to the Government of India)
- Dr. Anoop Singh (Assistant Professor, Georgetown University, Washington D.C., USA)
- Dr. Ashok Lahiri (Chairman, Bandhan Bank) (Part-Time)
- Dr. Ramesh Chandra (Member, NITI Aayog) (Part-Time)
State Finance Commission
The State Finance Commission (SFC) has been created by the 73rd and 74th Constitutional Amendments (CA) to rationalize and organize fiscal relations at the local level in India.
- articles of the constitution 243I It mandated the Governor of the state to constitute a Finance Commission every five years.
- articles of the constitution 243Y It states that the Finance Commission constituted under Article 243 will also review the financial position of the municipalities and make recommendations to the Governor.
However, states are not regularly constituting their State Finance Commission as mandated by the constitutional amendment.
List of Chairman of Finance Commission
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