Role of the Finance Commission | Public Administration Optional for UPSC (Notes) PDF Download

Introduction

The Finance Commission of India holds a significant position as a constitutionally mandated body established by the President of India. Its primary responsibility is to provide recommendations on Centre-State financial relations. Under Article 280 of the Constitution, the Finance Commission evaluates the financial state of the Union and State Governments, suggesting the share of taxes between them and formulating principles for tax allocation among the States. Through extensive consultation with various levels of government, the Finance Commission promotes corporate federalism and aims to improve public spending quality and fiscal stability.

Who is the Finance Commission of India?

The Finance Commission of India is established by the President under Article 280 of the constitution. Its core function is to offer recommendations on the distribution of tax revenue between the Union and State, as well as among the States themselves. The Commission addresses two crucial aspects: rectifying the vertical imbalance in the powers and expenditures of the center and State, and equalizing public services across all states.

Composition of the Finance Commission

The Finance Commission consists of a Chairman and four other members, all appointed by the President. The qualifications and selection process for these members are determined by the elected parliament through appropriate laws. The current composition of the Fifteenth Finance Commission includes notable individuals from diverse backgrounds, such as former members of parliament, government officials, and experts in finance and economics.

Qualifications of Finance Commission Members

The qualifications for appointment and selection of members of the Finance Commission include the following criteria:

• The Chairman and members must possess experience in public affairs.
• Members must have expertise in finance, accounts, economics, and administration.
• They should be qualified to be appointed as Judges of a High Court.
• Disqualification for Being a Member of the Finance Commission
• Certain conditions disqualify individuals from being appointed as, or being a member of the Finance Commission. These conditions include being of unsound mind, an undischarged insolvent, convicted of an offense involving moral impropriety, or having financial or other interests that may unlawfully affect their function as a member of the Commission.

Functions of the Finance Commission

The Finance Commission performs various functions to facilitate financial distribution and resource allocation. These functions include:

• Distribution of tax proceeds between the Union and States, as well as among the States themselves.
• Management of grants-in-aid for state revenues from the Consolidated Fund of India.
• Enhancing resources for Panchayats and Municipalities based on Commission recommendations.
• Addressing any other financial matters referred to the Commission by the President in the interest of sound finance.

Role of the Finance Commission in India

The Finance Commission plays a crucial role in the financial landscape of India. 

• It acts as an executor, determining the division of divisible taxes between the State and Union Governments, and formulating principles for such allocations. 
• The Commission also regulates grants-in-aid for state revenues from the consolidated fund. 
• Furthermore, it considers any issues referred to it by the President in the interest of sound finance.

Legal Status of the Finance Commission

The Finance Commission of India is established by the President under Article 280 of the Constitution. 

• It consists of a Chairperson and five members, and its recommendations are implemented for a period of five years. 
• The implementation of recommendations related to Union taxes and duties is carried out by the President's order, while executive orders are employed for other recommendations, including profit sharing, mode of central assistance, and debt relief.

Execution of the Finance Commission's Suggestions

The suggestions put forth by the Finance Commission are executed in two ways:

• Suggestions to be executed by the President's order: This includes the allocation of Union taxes and duties and grants-in-aid.
• Suggestions to be executed by executive orders: Other recommendations made by the Commission according to its terms of reference fall under this category.

Conclusion

The Finance Commission of India serves as an essential constitutional body, shaping the financial relations between the Union and the States. It acts as an advisory body, providing recommendations to improve the financial landscape and resource distribution. While the recommendations of the Finance Commission are not binding, they hold significant influence in shaping fiscal policies and promoting equitable financial practices in I