Finance Commission

Article 280 of the Constitution of India provides for a Finance Commission as a quasi judicial body. It is constituted by the president of India every fifth year or at such earlier time as he considers necessary.

Composition:

  • The Finance Commission consists of a chairman and four other members to be appointed by the president. They hold office for such period as specified by the president in his order. They are eligible for reappointment.
  • The Constitution authorises the Parliament to determine the qualifications of members of the commission and the manner in whichthey should be selected. Accordingly, the Parliament has specified the qualifications of the chairman and members of the commission.
  • The chairman should be a person having experience in public affairs and the four other members should be selected from amongst the following:
  1. A judge of high court or one qualified to be appointed as one.
  2. A person who has specialised knowledge of finance and accounts of the government.
  3. A person who has wide experience in financial matters and in administration.
  4. A person who has special knowledge of economics.

Functions:

  1. The distribution of the net proceeds of taxes to be shared between the Center and the states, and the allocation between the states of the respective shares of such proceeds.
  2. The principles that should govern the grants-in-aid to the states by the Center (i.e., out of the consolidated fund of India).
  3. The measures needed to augment the consolidated fund of a state to supplement the resources of the panchayats and the municipalities in the state on the basis of the recommendations made by the state finance commission.
  4. Any other matter referred to it by the president in the interests of sound finance.
  5. The commission submits its report to the president. He lays it before both the Houses of Parliament along with an explanatory memorandum as to the action taken on its recommendations.
  6. It must be clarified here that the recommendations made by the Finance Commission are only of advisory nature and hence, not binding on the government. It is up to the Union government to implement its recommendations on granting money to the states.
  7. The functions of Finance commission was undermined by the planning commission which was a non-constitutional& non-statutory body. (In 2015 Planning commission was replaced by NITI Aayog)

Articles Related to Finance Commission:

  • 280 – Finance Commission
  • 281 – Recommendations of the Finance Commission

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