41. Finance Commission

Question 0

Composition of the Finance Commission:

Answer 0

Chairman and 4 other members appointed by president.

They hold office for such period as specified by the president in his order.

They are eligible for reappointment.

Qualification and selection criteria to be decided by the Parliament. Accordingly, the parliament has specified the same:

• Chairman should be a person having experience in public affairs,

and 4 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 a specialised knowledge of finance and accounts of the government.
3. A person who has wide experience in financial matters and administration.
4. A person who has special knowledge of economics.

Question 1

What is a Finance Commission?

Answer 1

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 5th year or at such earlier time as he considers necessary.

Question 2

Functions: Finance Commission

Answer 2

The finance commission is required to make recommendations to the president of India on the following matters:

1. The DISTRIBUTION of the NET PROCEEDS OF TAXES to be shared between the CENTRE and the STATES, and the ALLOCATION BETWEEN the STATES of the respective shares of such proceeds.
2. The PRINCIPLE THAT SHOULD GOVERN the GRANT-IN-AID to the STATES by the centre (i.e. Out of the CONSOLIDATED FUND of India)
3. The MEASURES NEEDED TO AUGMENT THE CONSOLIDATE FUND of STATES to supplement the resources of the panchayats and the municipalities of 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 interest of sound finance.

The commission submits its report to the president and president lays it in front of the houses of the parliament along with an explanatory memorandum as to the action taken on its recommendations.

Question 3

Note on the advisory role of the finance commission:

Answer 3

Recommendations made by the finance commission are ONLY ADVISORY IN NATURE therefore NOT BINDING ON THE GOVERNEMNT. (*it up to the Union govt to implement its recommendations on granting money to the states)

Question 4

What is the impact of formation of the Planning Commission on the scope of Finance Commission?

Answer 4

1. Duplication and overlapping of functions and responsibilities.
   - As the entire plan, with regard to both policy and programme comes within the purview of the planning commission and
   - As the assistance to be given by the centre for plan projects either by way of grants or loans is practically dependent on the recommendations of the planning commission it is obvious that the body like finance commission cannot operate in the same field .

The main functions of the finance commission now consist in determining the revenue gap of each state and providing for filling up the gap by a scheme of devolution, partly by a distribution of taxes and duties and partly by grants-in-aid.