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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.
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FAQs on Finance Commission - Indian Polity for UPSC CSE

1. What is the Finance Commission?
Ans. The Finance Commission is a constitutional body in India that is responsible for the distribution of financial resources between the central government and the state governments.
2. How is the Finance Commission constituted?
Ans. The Finance Commission is constituted by the President of India every five years. It consists of a Chairman and four other members who are appointed by the President.
3. What is the role of the Finance Commission?
Ans. The main role of the Finance Commission is to make recommendations to the President on the distribution of tax revenues between the central government and the state governments. It also recommends grants-in-aid to states from the Consolidated Fund of India.
4. How does the Finance Commission determine the distribution of resources?
Ans. The Finance Commission determines the distribution of resources based on various factors such as population, area, income levels, fiscal discipline, and other relevant factors. It aims to achieve a balance between the needs of the central government and the states.
5. What is the significance of the Finance Commission in India?
Ans. The Finance Commission plays a crucial role in ensuring the fiscal federalism in India. It helps in maintaining a fair and equitable distribution of financial resources between the central government and the state governments, thereby promoting balanced regional development.
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