Finance Commission of India: A Pillar of Fiscal Federalism
Indian Polity
- It is a constitutional body pivotal to India’s fiscal federalism.
- It aims to ensure equitable growth by recommending a fair distribution of financial resources between the Center and the States.
- Constituted by the President of India, it is established every five years or sooner if needed.
- Constitutional Provisions
- Article 280: Establishes the Finance Commission and its functions.
- Article 281: Outlines the recommendations of the Finance Commission.
- The FCI operates under the Constitution of India, making it a quasi-judicial body.
- Composition
- Appointment: Chairman and Four Members are appointed by the President of India.
- Qualifications of Members
- The Finance Commission Act of 1951 sets forth the qualifications:
- Chairman: Must have experience in public affairs.
- Four Members:
- A High Court judge or one eligible to be appointed.
- A person with expertise in government finance and accounts.
- An individual experienced in financial administration.
- A person with specialized knowledge of economics.
- The Chairman and members serve for a term specified by the President and are eligible for reappointment.
- Functions of the Finance Commission
- Tax Distribution: Recommends the division of tax proceeds between the Center and the States, as well as among the States.
- Grants-in-Aid: Suggests principles for grants from the Central to State governments.
- Resource Augmentation for Local Bodies: Proposes ways to supplement the resources of Panchayats and Municipalities based on State Finance Commission recommendations.
- Other Financial Matters: Provides guidance on additional fiscal topics referred by the President.
- Key Aspects of Recommendations
- Vertical Devolution: Determines the share of States in central tax revenue to enhance fiscal autonomy.
- Horizontal Distribution: Equitable Allocation among States based on a formula to support balanced development.
- Grants-in-Aid: Targeted grants to specific states or sectors in need of support or reform, e.g., justice delivery systems or statistical infrastructure improvements.
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Reports of the Finance Commission
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