Finance Commission in India UPSC

Finance Commission of India

Finance Commission of India holds second consultation with economists in  Pune | FactsToday

  • The Finance Commission is a quasi-judicial body established by Article 280 of the Indian Constitution. It is established by the President of India every fifth year or sooner if he deems it necessary.
  • A chairman and four additional members are selected by the president to the Finance Commission. They serve for the length of time indicated by the president in his order. They have a chance to be re-appointed.

The Constitution gives Parliament the authority to decide on the qualifications of commission members and how they should be chosen. As a result, the chairman and members of the commission’s qualifications have been set by Parliament. The chairperson should have prior experience in public affairs, while the other four members should be chosen from the following list:
1. A high court judge or someone who is qualified to be appointed as one.
2. A person with specialized understanding of government finance and accounting.
3. A person with extensive competence in financial and administrative matters.
4. A person who is well-versed in economics.

The Finance Commission is tasked with making recommendations to India’s president on the following topics:
1. The distribution of net tax proceeds to be shared between the Centre and the states, as well as the allocation of proportionate shares of such proceeds among the states.
2. The principles that should govern the Centre’s grants-in-aid to states (i.e., from the India Consolidated Fund).
3. The actions required to supplement the state’s consolidated fund in order to supplement the resources of the state’s panchayats and municipalities, based on the state finance commission’s recommendations.
4. Any other matter that the president refers to it in the interest of prudent financial management.

The commission also recommended grants to the states of Assam, Bihar, Odisha, and West Bengal in place of assignment of any share of the net earnings of the export tariff on jute and jute products in each year till 1960. These grants were to be awarded for a ten-year period beginning with the Constitution’s inception.

The president receives the commission’s report. He presents it to both Houses of Parliament, together with an explanation of the actions done in response to its recommendations.

Advisory Role
It is important to note that the Finance Commission’s recommendations are primarily advisory in nature and hence do not obligate the government. It is up to the Union government to put its suggestions on money distribution to the states into action.

To put it another way, “the recommendations of the committee are nowhere given down in the Constitution as binding upon the Government of India or as giving birth to a legal claim in favor of the beneficiary states to receive the money suggested to be offered to them by the Commission.”

“Since the Finance Commission is a constitutional body supposed to be quasijudicial, its recommendations should not be turned down by the Government of India unless there are extremely compelling reasons,” said Dr. P.V. Rajamannar, Chairman of the Fourth Finance Commission.

The Finance Commission is envisioned in the Indian Constitution as the balance wheel of fiscal federalism. However, the former Planning Commission, a non-constitutional and non-statutory organization, undermined its function in the Centre-state fiscal ties until 2014. In federal fiscal transfers, Dr. P.V. Rajamannar, Chairman of the Fourth Finance Commission, underlined the overlap of tasks and responsibilities between the Finance Commission and the former Planning Commission. The Planning Commission was superseded in 2015 by the National Institution for Transforming India (NITI Aayog).


Finance Commissions Appointed so far

Finance Commission Chairman Appointed in Submitted Report in Period of implementation of Report
First K.C. Neogy 1951 1952 1952–57
Second K. Santhanam 1956 1957 1957–62
Third A.K. Chanda 1960 1961 1962–66
Fourth Dr. P.V. Rajamannar 1964 1965 1966–69
Fifth Mahavir Tyagi 1968 1969 1969–74
Sixth Brahamananda Reddy 1972 1973 1974–79
Seventh J.M. Shelat 1977 1978 1979–84
Eighth Y.B. Chavan 1982 1984 1984–89
Ninth N.K.P. Salve 1987 1989 1989–95
Tenth K.C. Pant 1992 1994 1995–2000
Eleventh A.M. Khusro 1998 2000 2000–2005
Twelfth Dr. C. Rangarajan 2002 2004 2005–2010
Thirteenth Dr. Vijay Kelkar 2007 2009 2010–2015
Fourteenth Y.V. Reddy 2013 2014 2015–2020
Fifteenth N.K. Singh 2017 2020 (expected) 2020–2026


 Articles Related to Finance Commission at a Glance
Article-No. Subject-matter
280. Finance Commission
281. Recommendations of the Finance Commission

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