Finance Commission of India GK Notes

Finance Commission UPSC Notes

The Finance Commission of India is a constitutional body established under Article 280 of the Indian Constitution. Its primary function is to recommend the distribution of financial resources between the central government and the state governments in India. The Finance Commission plays a crucial role in ensuring fiscal federalism and the equitable sharing of financial resources among different levels of government in the country.

Article 280 related to Finance Commission of India

• The primary function of the Finance Commission is to recommend the distribution of financial resources between the central government and the state governments of India.
• This includes recommendations related to the sharing of central tax revenues, grants-in-aid to states, and measures to improve fiscal discipline.
• The Finance Commission submits its recommendations to the President periodically, typically every five years.
• These recommendations are used to determine the sharing of financial resources for that specific period, known as the Finance Commission’s award period.
• In addition to its primary functions, the President can also refer any other financial matter to the Finance Commission for its advice.

Composition of Finance Commission

1. Chairman: The Finance Commission is headed by a Chairman who is typically a person with extensive experience and expertise in finance and economics. The Chairman is responsible for leading the Commission’s activities and discussions.
2. Members: In addition to the Chairman, the Finance Commission consists of four other members. These members are also individuals with relevant knowledge and expertise in finance, economics, and related fields.

Functions of Finance Commission of India

1. Distribution of Taxes: The Finance Commission recommends the sharing of central tax revenues (such as income tax, corporate tax, and customs duties) between the central government and the state governments. It determines the proportion of taxes that should go to the states, which helps in maintaining fiscal federalism.
2. Grants-in-Aid: The Commission suggests grants to be provided to states from the central government’s resources. These grants can be either conditional, tied to specific purposes, or unconditional, depending on the financial needs and priorities of the states.
3. Fiscal Discipline: It provides recommendations and measures to improve the fiscal responsibility and financial management of both the central and state governments. This includes guidelines for budgetary management and financial stability.
4. Any Other Financial Matter: The President of India can refer any other financial matter to the Finance Commission for its advice. This gives the Commission flexibility to address emerging financial issues or challenges.
5. Review and Assessment: The Finance Commission reviews the financial position of the central and state governments, including their revenue and expenditure patterns. It assesses the impact of various fiscal policies on the fiscal stability of the nation.
6. Award Period: The recommendations made by the Finance Commission are typically applicable for a specific period known as the “Finance Commission’s award period.” These awards are generally valid for five years.
7. Advisory Role: The Finance Commission serves as an advisory body to the President and the government on financial matters, especially those related to intergovernmental fiscal relations.
8. Consultation: The Commission consults with various stakeholders, including state governments, union territories, and other experts in finance and economics, to gather inputs and insights for its recommendations.
9. The Finance Commission acts as the institutional framework for determining the financial relationship i.e., the Center-State relationship.

Important Points to Remember: Finance Commission of India

01. In 2013 the Fourteenth Finance Commission was formed under the presidency of Y. V. Reddy (whose term lasted from 2015 to 2020).

02. At present (2022 Oct), the 15th Finance Commission has been constituted under the chairmanship of Nanda Kishor Singh, whose term started in 2020.

List of Chairman in Finance Commission

FAQs: Finance Commission:

UPSC sample Questions

Describe the criteria and factors considered by the Finance Commission while making recommendations for the distribution of central tax revenues among states.

What is the Finance Commission of India, and what are its primary functions as per the Indian Constitution?