The Finance Commission is a constitutional agency at the heart of fiscal federalism. It was established by Article 280 of the Government with the primary function of evaluating the Union and State Governments’ finances, recommending the distribution of taxes between them, and laying down the criteria regulating the allocation of these revenues among States. Its operations are distinguished by lengthy and thorough discussions within all levels of government, thereby bolstering the notion of cooperative federalism. Its ideas also aim to improve the quality of government spending and promote budgetary stability. The very first Financial Commission was established in 1951, and there have been 15 since then. Each of them would have experienced its own set of difficulties.

Departments That Make Up The Ministry Of Finance

  •   Economic Affairs Department
  •   Expenditure Department
  •   Financial Services Department
  •   Investment and Public Wealth Management Department
  •   The Department of Public Enterprises
  •   The Finance Commission’s Membership

The Composition Of the Finance Commission

The Finance Commission of India is made up of five members: one Chairman and four other Commission members. All of these are appointed by India’s President, who also selects their terms of service. In any case, these members are subject to reappointment as needed. According to the Indian Constitution, the task of deciding the qualification and procedure of nomination for the Finance Commission’s members falls on the shoulders of Parliament. The qualifications for the Chairman and members of the Committee are set down below.

The Commission’s Chairman must be somebody with experience in public affairs. Mr. N.K. Singh, an IAS official and a member of the Planning Commission, is the current Head of the 15th Finance Commission.

The Commission’s four members are chosen from the following list:

A high court justice, or someone who has been eligible for such a position.

A person who is knowledgeable in government finance and accounting.

Any individual with diverse experience in financial and administrative concerns.

Any individual with a specialized understanding of economics and related topics.

The 15th Finance Commission has been established, with Mr. N. K. Singh as Chairman, Professor Anoop Singh, Mr. Ajay Narayan Jha,  Professor Ramesh Chand as members, Mr. Ashok Lahiri, and Mr. Arvind Mehta as Secretary.

The Finance Commission’s Roles and Responsibilities

  •   The Finance Commission of India has indeed been delegated specific powers by the President of India. The preponderance of these functions revolves around the recommendations that the Commission is meant to deliver to the President of the country. The following are the responsibilities of the Finance Commission:
  •   The Finance Commission is responsible for recommending the allocation of the net proceeds of taxes that are expected to be split between the Union and the states, as well as the inter-state distribution.
  •   The Finance Commission advises the principles that should govern the Union’s grants-in-aid to states and union territories from the Public Treasury.
  •   The Commission proposes actions that should be taken to supplement a state’s consolidated fund in order to enable the provision of necessary resources to panchayats and local bodies in order to eliminate impediments to their operations.
  •   The Commission must carry out this job in accordance with the recommendations given by the state finance commissions.
  •   After performing the responsibilities assigned to it, the Commission submits a report to the President. The President then presents this report to the Houses of Parliament, together with a memorandum that summarizes the activities done by the Committee to accomplish its tasks.
  •   It is worth noting that, before 1960, the Finance Commission would provide recommendations to the states of Assam, Bihar, Odisha, and West Bengal on the allocation of a portion of the net earnings to the export tariff on jute products. Such grants were made available for a limited time, up to ten years after the Indian Constitution was enacted.

The Finance Commission’s Position As An Advisor

The Finance Commission’s advisory role is in some ways obligatory on the President of India. The President has the option of accepting or rejecting the recommendations. Furthermore, the Union Government decides whether or not to execute the Commission’s recommendations when it comes to distributing money to states.

The advising role is neither legally obligatory nor can it result in legal beneficiaries in the state’s favor getting funds from the Union based on the Commission’s recommendations. The Indian Constitution has itself clarified this.

Conclusion

We have learned about the Finance Commission Division, A brief note on the Finance Commission Division, The composition of the Finance Commission, The purpose of the Finance Commission, The head of the Finance Commission, and all other topics related to the Finance Commission Division.

Dr. P.V. Rajamannar, Chairman of the 4th Finance Commission, correctly noted the Finance Commission’s advising role throughout his tenure. “Because the Finance Commission is a constitutional body, its recommendations should not be rejected by the Government of India unless there are extremely strong reasons,” he said. The Finance Commission’s advising role is significant since it serves as a balancing mechanism for taxation in India. Previously, the Finance Commission’s responsibilities overlapped with those of the Planning Commission. This would cause confusion in both entities, but it has been eliminated by the establishment of NITI Aayog.