Finance Commission is constituted to define financial relations between the center and the states. Under the provision of Article 280 of the Constitution, the President appoints a Finance Commission for the specific purpose of devolution of non-plan revenue resources. It was formed in 1951. Shri Ajay Narayan Jha recently joined the Fifteenth Finance Commission as its member. The 15th Finance Commission has released a report titled ‘Finance Commission in COVID Times’ on 1st February 2021.
Article 280 of the Indian Constitution
- After two years of the commencement of the Indian Constitution and thereafter every 5 years, President has to constitute a Finance Commission of India.
- It shall be the duty of the Commission to make recommendations to the President concerning the:
- The distribution between the Union and the States of the net proceeds of taxes which are to be, or maybe, divided between them and the allocation between the States of the respective shares of such proceeds;
- The principles which should govern the grants in aid of the revenues of the States out of the Consolidated Fund of India;
- Any other matter referred to the Commission by the President in the interests of sound finance
- The Commission shall determine their procedure and shall have such powers in the performance of their functions as Parliament may by law confer on them
Article 281 of the Indian Constitution
- It is related to the recommendations of the Finance Commission:
- The President has to lay the recommendation made by the Finance Commission and its explanatory memorandum before each house of Parliament
Functions of Finance Commission
The Finance Commission makes recommendations to the president of India on the following issues:
- The net tax proceeds distribution will be divided between the Centre and the states, and the allocation between states.
- The principles governing the grants-in-aid to the states by the Centre out of the consolidated fund of India.
- The steps required to extend the consolidated fund of a state to boost the resources of the panchayats and the municipalities of the state are based on the recommendations made by the state Finance Commission.
- Any other matter referred to it by the president in the interests of sound finance.
- The Commission decides the basis for sharing the divisible taxes by the center and the states and the principles that govern the grants-in-aid to the states every five years.
- Any matter in the interest of sound finance may be referred to the Commission by the President.
- The Commission’s recommendations along with an explanatory memorandum concerning the actions done by the government on them are laid before the Houses of the Parliament.
- The FC evaluates the rise in the Consolidated Fund of a state to affix the state Panchayats and Municipalities resources.
- The FC has sufficient powers to exercise its functions within its activity domain.
- As per the Code of Civil Procedure 1908, the FC has all the powers of a Civil Court. It can call witnesses, ask for the production of a public document or record from any office or court.
Finance Commission Chairman and Members
- Chairman: Heads the Commission and presides over the activities. He should have had public affairs experience.
- Four Members.
- The Parliament determines legally the qualifications of the members of the Commission and their selection methods.
Qualifications of Finance Commission Chairman and Members
- The 4 members should be or have been qualified as High Court judges, or be knowledgeable in finance or experienced in financial matters and are in administration, or possess knowledge in economics.
- All the appointments are made by the President of the country.
- Grounds of disqualification of members:
- found to be of unsound mind, involved in a vile act, if there is a conflict of interest
- The tenure of the office of the Member of the Finance Commission is specified by the President of India and in some cases, the members are also re-appointed.
- The members shall give part-time or service to the Commission as scheduled by the President.
- The salary of the members is as per the provisions laid down by the Constitution.
