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FINANCE COMMISSION | POLITY

Introduction | FINANCE COMMISSION | POLITY

  • Finance Commission is a constitutional body for the purpose of allocation of certain revenue resources between the Union and the State Governments.
  • It was established under Article 280 of the Indian Constitution by the Indian President.
  • It was created to define the financial relations between the Centre and the states. It was formed in 1951.

Functions Of The Finance Commission

  • It is the duty of the Commission to make recommendations to the President as to:
  • the distribution between the Union and the States of the net proceeds of taxes which are to be, or may be, 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;
  • the 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 Finance Commission of the State;
  • any other matter referred to the Commission by the President in the interests of sound finance.
  • The Commission determines its procedure and have such powers in the performance of their functions as Parliament may by law confer on them.

Composition of Finance Commission

  • 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.

Functions of Finance Commission

  • The Finance Commission makes recommendations to the president of India on the following issues:
  • The net tax proceeds distribution to be divided between the Centre and the states, and the allocation of the same 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 on the basis of 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 centre 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 with regard to 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 in order to affix the resources of the state Panchayats and Municipalities.
  • 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.

Why is there a need for a Finance Commission?

  • The Indian federal system allows for the division of power and responsibilities between the centre and states.
  • Correspondingly, the taxation powers are also broadly divided between the centre and states.  State legislatures may devolve some of their taxation powers to local bodies.

 

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Indian Polity

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