The Finance Commission

The Finance Commission of India came into existence in 1951. It was established under Article 280 of the Indian Constitution by the President of India. It was formed to define the financial relations between the centre and the state. The Finance Commission Act of 1951 states the terms of qualification, appointment and disqualification, the term, eligibility and powers of the Finance Commission.

The commission is appointed every five years and consists of a chairman and four other members. Since the institution of the first finance commission, stark changes have occurred in the Indian economy causing changes in the macroeconomic scenario. This has led to major changes in the Finance Commission’s recommendations over the years. Till date, Thirteen Finance Commissions have submitted their reports.

The First Finance Commission was appointed by the president on 20 November 1951, which was chaired by Mr. K.C. Neogy for the period 1952-1957. 13th Finance Commission is established in the year 2007 headed by Vijay kelkar for the period 2010-15. The Operational duration for the finance commission is five years.

The Thirteenth Finance Commission recommendations relating to urban local bodies inter alia aim at strengthening municipal finances and urban governance in India. The 13th FC, making a departure from the previous Finance Commissions, divided the grants to be distributed to the states for local bodies into two parts – general basic grant and general performance grant. The performance grant can be accessed only if the state complies with nine conditions, which in other words can be called reforms.

Functions of the Finance Commission:

• Distribution of net proceeds of taxes between Centre and the States, to be divided as per their respective contributions to the taxes.
• Determine factors governing Grants-in Aid to the states and the magnitude of the same.
• To make recommendations to president as to 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.

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.

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 amongst 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 devolution of non-plan revenue resources.

The 14 Finance Commission would suggest measures for maintaining a stable and sustainable fiscal environment consistent with equitable growth.

source : ias.org.in