Finance Commission

The Finance Commissions (IAST: Vitta Āyoga) are commissions periodically constituted by the President of India under Article 280 of the Indian Constitution to define the financial relations between the central government of India and the individual state governments. The First Commission was established in 1951 under The Finance Commission (Miscellaneous Provisions) Act, 1951. Fifteen Finance Commissions have been constituted since the promulgation of Indian Constitution in 1950. Individual commissions operate under the terms of reference which are different for every commission, and they define the terms of qualification, appointment and disqualification, the term, eligibility and powers of the Finance Commission.[1] As per the constitution, the commission is appointed every five years and consists of a chairman and four other members.

Finance Commission
Vitta Āyoga

Emblem of India
Commission overview
Formed22 November 1951 (1951-11-22)
Jurisdiction Government of India
HeadquartersNew Delhi
Commission executives
  • N. K. Singh, IAS, (Chairman)
  • Ajay Narayan Jha, IAS, (Member)
  • Prof. Anoop Singh, (Member)
  • Ashok Lahiri, (full time Member)
  • Prof. Ramesh Chand, (part time Member)
  • Arvind Mehta, IAS, (Secretary)
Websitefincomindia.nic.in
Fincom India

The most recent Finance Commission was constituted in 2017 and is chaired by N. K.Singh, a former member of the Planning Commission.[2][3][4][5]

History

As a federal nation, India suffers from both vertical and horizontal fiscal imbalances. Vertical imbalances between the central and state governments result from states incurring expenditures disproportionate to their sources of revenue, in the process of fulfilling their responsibilities. However, states are better able to gauge the needs and concerns of their inhabitants and therefore more efficient at addressing them. Horizontal imbalances among state governments result from differing historical backgrounds or resource endowments, and can widen over time.

The Finance Commission was established in 1951 by Dr. B.R. Ambedkar, the then-incumbent law minister, to address these imbalances. Several provisions to bridge the fiscal gap between the center and the states were already enshrined in the Constitution of India, including Article 268, which facilitates levy of duties by the center but equips the States to collect and retain the same. Similarly, Articles 269, 270, 275, 282 and 293, among others, specify ways and means of sharing resources between the Union and States. In addition to the above provisions, the finance commission serves as an institutional framework to facilitate Centre-State Transfers.

Article 280 of the Indian Constitution defines the scope of the commission:

  1. The President will constitute a finance commission within two years from the commencement of the Constitution and thereafter at the end of every fifth year or earlier, as the deemed necessary by him/her, which shall include a chairman and four other members.
  2. Parliament may by law determine the requisite qualifications for appointment as members of the commission and the procedure of selection.
  3. The commission is constituted to make recommendations to the president about the distribution of the net proceeds of taxes between the Union and States and also the allocation of the same among the States themselves. It is also under the ambit of the finance commission to define the financial relations between the Union and the States. They also deal with the devolution of unplanned revenue resources.

Functions
  1. Distribution of 'net proceeds' of taxes between Center and the States, to be divided as per their respective contributions to the taxes.
  2. Determine factors governing Grants-in-Aid to the states and the magnitude of the same.
  3. To make recommendations to the president as to the measures needed to augment the 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.
  4. Any other matter related to it by the president in the interest of sound finance.

The Finance Commission (Miscellaneous Provisions) Act, 1951

The Finance Commission (Miscellaneous Provisions) Act, 1951 was passed to give a structured format to the finance commission and to bring it to par with world standards, by laying down rules for the qualification and disqualification of members of the commission, and for their appointment, term, eligibility and powers.[6]

Qualifications of the members

The chairman of a finance commission is selected from people with experience of public affairs. The other four members are selected from people who:

  1. Are, or have been, or are qualified, as judges of a high court,
  2. Have knowledge of government finances or accounts, or
  3. Have had experience in administration and financial expertise; or
  4. Have special knowledge of economics

Disqualification from being a member of the commission

A member may be disqualified if:

  1. He is mentally unsound; and as follows-
  2. He is an undischarged insolvent;
  3. He has been convicted of an immoral offence;
  4. His financial and other interests are such that it hinders the smooth functioning of the commission.

Terms of office of members and eligibility for reappointment

Every member will be in office for the time period as specified in the order of the President, but is eligible for reappointment provided he has, by means of a letter addressed to the president, resigned his office.

Salaries and allowances of the members

The members of the commission shall provide full-time or part-time service to the commission, as the President specifies in his order. The members shall be paid salaries and allowances as per the provisions made by the Central Government.

List of Finance Commissions

So far 15 Finance Commissions have been appointed which are as follows:[7]

Finance Commission Year of establishment Chairman Operational duration
First 1951 K. C. Neogy 1952–57
Second 1956 K. Santhanam 1957–62
Third 1960 A. K. Chanda 1962–66
Fourth 1964 P. V. Rajamannar 1966–69
Fifth 1968 Mahaveer Tyagi 1969–74
Sixth 1972 K. Brahmananda Reddy 1974–79
Seventh 1977 J. M. Shelat 1979–84
Eighth 1983 Y. B. Chavan 1984–89
Ninth 1987 N. K. P. Salve 1989–95
Tenth 1992 K. C. Pant 1995–00
Eleventh 1998 A. M. Khusro 2000–05
Twelfth 2002 C. Rangarajan 2005–10
Thirteenth 2007 Dr. Vijay L. Kelkar 2010–15
Fourteenth[8] 2013 Dr. Y. V Reddy 2015–20
Fifteenth[9] 2017 N. K. Singh 2020–25

14th Finance Commission

Major Recommendations of 14th Finance Commission headed by Prof. Y V Reddy

  1. The share of states in the net proceeds of the shareable Central taxes should be 42%. This is 10 percentage points higher than the recommendation of 13th Finance Commission.
  2. Revenue deficit to be progressively reduced and eliminated.
  3. Fiscal deficit to be reduced to 3% of the GDP by 2017–18.
  4. A target of 62% of GDP for the combined debt of centre and states.
  5. The Medium Term Fiscal Plan (MTFP) should be reformed and made the statement of commitment rather than a statement of intent.
  6. FRBM Act needs to be amended to mention the nature of shocks which shall require targets relaxation.
  7. Both centre and states should conclude 'Grand Bargain' to implement the model Goods and Services Act (GST).
  8. Initiatives to reduce the number of Central Sponsored Schemes (CSS) and to restore the predominance of formula-based plan grants.
  9. States need to address the problem of losses in the power sector in time bound manner.

15th Finance Commission

The Fifteenth Finance Commission was constituted by the Government of India, after the approval from the President of India, through a notification in the Gazette of India in November 2017.[10][11] Nand Kishore Singh was appointed as the commission's chairman, with its full-time members being Shaktikanta Das and Anoop Singh and its part-time members being Ramesh Chand and Ashok Lahiri.[2][3][4][5] However Ajay Narayan Jha was appointed replacing Shaktikanta Das who resigned from the commission to serve as the governor of the Reserve Bank of India.

The commission was set up to give recommendations for five years commencing on 1 April 2020.[10][11] The main tasks of the commission were to "strengthen cooperative federalism, improve the quality of public spending and help protect fiscal stability".[12][13] Some newspapers like The Hindu and The Economic Times noted that commission's job was harder because of the rollout of goods and service tax (GST), as, it had taken certain powers related to taxation away from states and the Union and had given it to the GST Council.[14][15]

See also
  • Part One of the Constitution of India
  • Fiscal Responsibility and Budget Management Act, 2003

References
  1. "The Finance (Miscellaneous Provisions) Act, 1951". Retrieved 24 November 2017.
  2. "N.K. Singh heads 15th Finance Commission, Shaktikanta Das a member". Business Standard. New Delhi. 27 November 2017. Retrieved 15 January 2018.
  3. "NK Singh appointed Chairman of 15th Finance Commission". The Hindu Business Line. New Delhi. 27 November 2017. Retrieved 15 January 2018.
  4. "N.K. Singh appointed chairman of 15th Finance Commission". Livemint. New Delhi: HT Media Ltd. 27 November 2017. Retrieved 15 January 2018.
  5. "Former Planning Commission Member NK Singh Appointed 15th Finance Commission Chairman". NDTV. New Delhi. 28 November 2017. Retrieved 15 January 2018.
  6. "The Finance Commission (Miscellaneous Provisions) Act". Act No. 33 of 1951 (PDF). Retrieved 22 July 2017.
  7. "Reports of the Finance Commissions of India". Retrieved 10 July 2014.
  8. "Terms of Reference of the Fourteenth Finance Commission". Retrieved 10 July 2014.
  9. "Terms of Reference of the Fifteenth Finance Commission". Retrieved 12 June 2017.
  10. "S.O. 3755(E).—The following order made by the President is to be published for general information:— ORDER" (PDF). The Gazette of India. New Delhi: Department of Economic Affairs, Government of India. 27 November 2017. Retrieved 20 January 2018.
  11. "Constitution of Fifteenth Finance Commission Notified". Press Information Bureau of India. 27 November 2018. Retrieved 20 January 2018.
  12. "The tasks for the 15th Finance Commission". Livemint. HT Media Ltd. 6 December 2017. Retrieved 20 January 2018.
  13. Chandrasekhar, K. M. (30 October 2017). "Agenda for 15th Finance Commission". Business Standard. OCLC 496280002. Retrieved 26 March 2018.
  14. "New India formula? – on the 15th Finance Commission". The Hindu. Editorial. 6 December 2017. ISSN 0971-751X. OCLC 13119119. Retrieved 26 March 2018.
  15. Srinivas, V. (4 January 2018). "The challenges before 15th Finance Commission are many". The Economic Times. Indo-Asian News Service. OCLC 61311680. Retrieved 26 March 2018.
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