1. Overview of the Finance Commission

  • Constitutional Basis: Article 280 of the Indian Constitution establishes the Finance Commission as a quasi-judicial body, constituted every five years (or earlier if necessary) by the President of India.
  • Role and Purpose: The Finance Commission’s primary role is to recommend financial distribution between the central government and state governments, ensuring a balanced fiscal federalism.

2. Composition

  • Structure: The Finance Commission includes a chairman and four members appointed by the President of India.
  • Qualifications:
    • Chairman: Must have experience in public affairs.
    • Members: Must have backgrounds in law, finance, administration, or economics as specified in the Finance Commission Act of 1951.

3. Functions

The Finance Commission provides recommendations on the following areas:

  • Distribution of Tax Revenues: Advises on sharing net tax proceeds between the Centre and states and allocation among states.
  • Grants-in-Aid Principles: Suggests guidelines for grants-in-aid from the Centre to states.
  • Support to Local Bodies: Recommends ways to augment state funds to support panchayats and municipalities.
  • Additional Duties: The President may refer additional matters related to fiscal management.

Historical Note: Until 1960, the Commission recommended specific grants to Assam, Bihar, Odisha, and West Bengal due to a temporary export duty on jute.

4. Advisory Role

  • Non-Binding Nature: The recommendations of the Finance Commission are advisory and not legally binding on the government.
  • Government Discretion: The Union government has the discretion to accept or reject the recommendations, although they are generally respected unless strong reasons exist otherwise.

5. Evolution and Challenges

  • Quasi-Judicial Expectations: The Commission is expected to function as an impartial constitutional body. According to Dr. P. V. Rajamannar, its recommendations should ideally not be rejected without compelling reasons.
  • Conflict with Planning Commission: Historically, the role of the Finance Commission in fiscal relations was undermined by the Planning Commission, which had overlapping functions until it was replaced by NITI Aayog in 2015.

6. Finance Commissions to Date

The document provides a timeline of the 15 Finance Commissions, detailing the chairman, year of appointment, report submission, and implementation period. For example:

  • First Finance Commission (1951-1957): Chaired by K.C. Neogy.
  • Fifteenth Finance Commission (2020-2026): Chaired by N.K. Singh, with recommendations submitted in 2019 and 2020.

7. Relevant Constitutional Articles

  • Article 280: Establishes the Finance Commission.
  • Article 281: Discusses the submission of recommendations from the Finance Commission.