The Finance Commission, established under Article 280 of the Constitution, serves to distribute revenues between the Centre and the States. It is an essential tool for coordinating federal finances. The Commission is constituted by the President every five years or as needed, with Parliament defining the qualifications and selection process for its members. The Commission’s duties include recommending tax revenue division, allocation among states, principles for grants-in-aid, and addressing financial matters referred by the President. It can set its procedures and powers as granted by Parliament. Article 281 mandates that the President presents the Commission’s recommendations and actions taken to both Houses of Parliament.
What Is the Finance Commission of India?
The Finance Commission, established under Article 280 of the Indian Constitution by the President of India in 1951, serves as a constitutional body with the primary role of apportioning specific revenue resources between the Union and State Governments. Its fundamental purpose is to delineate the financial interactions and arrangements between the central and state authorities.
Article 280 of the Indian Constitution and Finance Commission
The Finance Commission, established according to Article 280 of the Constitution, for the purpose of distribution of revenues between the Centre and the States is a novel innovation in the sphere of federal finance. The framers of the Constitution conceived of this independent commission to play an important role in the development of center-state coordination and cooperation.
Composition of the Finance Commission of India?
Article 280 of the Constitution provides that (1) the President shall, within two years from the commencement of this Constitution and thereafter at the expiration of every fifth year or at such earlier time as the President considers necessary, by order constitute a Finance Commission which shall consist of a chairman and four other members to be appointed by the President.
- Chairman: Leads the Commission and presides over its activities, with a requisite background in public affairs.
- Four Members: Serve on the Commission alongside the Chairman.
- Qualifications and selection methods of Commission members are legally determined by the Parliament.
Qualifications of Finance Commission Chairman and Members
- Qualifications for Members:
- Qualified as High Court judges or
- Knowledgeable in finance or experienced in financial matters and are in administration or
- Possess knowledge in economics.
- Appointments:
- All appointments are made by the President of the country.
- Grounds of Disqualification:
- Members can be disqualified if found to be of unsound mind, involved in a vile act, or if there is a conflict of interest.
- Tenure:
- The tenure of the office of the Member of the Finance Commission is determined by the President of India, and in some cases, members may be re-appointed.
- Service Commitment:
- Members shall provide part-time or service to the Commission as scheduled by the President.
- Salary:
- The salary of the members is determined according to the provisions laid down by the Constitution.
(2) Parliament may by law determine the qualifications which shall be requisite for appointment as members of the Commission and the manner in which they shall be selected.
(3) It shall be the duty of the Commission to make recommendations to the President as to:
- (a) 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 revenue of the states out of the Consolidated Fund of India
- ; (b) Any other matter referred to the Commission by the President in the interest of sound finance.
(4) The Commission shall determine their procedures and shall have such powers in the performance of their functions as Parliament may by law confer on them.
Functions of the Finance Commission
- Recommendations to the President of India on:
- Division of net tax proceeds between the Centre and the states, and their allocation among states.
- Principles governing grants-in-aid to states from the consolidated fund of India.
- Extending the consolidated fund of a state to enhance resources for panchayats and municipalities based on state Finance Commission recommendations.
- Any other financial matters referred by the President.
- Decides basis for sharing divisible taxes and grant principles every five years.
- Handles matters related to sound finance referred by the President.
- Submits recommendations and explanatory memoranda to Parliament regarding government actions on them.
- Evaluates the increase in a state’s Consolidated Fund to allocate resources to state Panchayats and Municipalities.
- Empowered with the necessary authority to carry out its functions.
- Possesses powers equivalent to a Civil Court under the Code of Civil Procedure 1908, including the ability to summon witnesses and request the production of public documents or records from offices or courts.
Article 281 of the Constitution provides that the President shall cause every recommendation made by the Finance Commission under the provisions of this Constitution together with an explanatory memorandum as to the actions taken thereon to be laid before each House of Parliament.
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Advisory Role of the Finance Commission of India
The recommendations put forth by the Finance Commission are advisory in nature and are not obligatory for the government to follow. The implementation of these recommendations regarding financial grants to the states is at the discretion of the government. In other words, the Constitution does not mandate that the Commission’s recommendations must be binding on the Government of India, nor do they create a legal entitlement for recipient states to receive the recommended funds