Finance Commission-1 | Indian Polity for UPSC CSE PDF Download

Composition

• Art 280 provides for Finance Commission as a Quasi-judicial body.
• It is constituted by Prez every 5th year or even earlier as required.
• Consists of a Chairman & other members who hold office for such period as specified by Prez. They are eligible for reappointment.
• Constitution authorises Parliament to determine qualifications for office. Accordingly, Chairman should be a person having experience in public affairs while 4 other members should be selected from following :
  ≫ A judge of HC or a judge qualified to be one.
  ≫ A person having specialised knowledge of finance & accounts.
  ≫ A person having wide experience in financial matters & in administration
  ≫ A person having special knowledge of economics.

Functions

• Finance Commission is required to make recommendations to President on following matters :
  ≫ Distribution of net proceeds of taxes to be shared by Centre & States & the allocation of shares between states.
  ≫ Principles that should govern Grants-in-Aid to the States by Centre.
  ≫ Measures required to augment the Consolidated Fund of States to supplement resources of Panchayats & Municipalities on the basis of recommendations by State Finance Commission.
  ≫ On other matters referred to by the President.
• Commission submits its report to the President, who lays it before the Parliament with a memorandum as to the actions taken so far.

Advisory Role

• Recommendations made by the commission are only of an advisory nature.
• It is upto Union Govt to accept the recommendation to share revenue from taxes with States.
• However, since the Finance Commission is a Constitutional body of Quasi-judicial nature, its recommendations should not be turned down by the Govt unless there are very compelling reasons.
• Constitution of India envisages the Finance Commission of playing a very important role in ensuring the fiscal balance between Centre & States & among the States themselves.
• However, due to the establishment of the Planning Commission, now replaced by the NITI Aayog, the role of Finance Commission has been diminished to a certain degree with many planning functions overlapping between the two organisations.