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Fiscal federalism revolves around the Finance Commission, a constitutionally authorised authority. Its constitutional mandate is charged with evaluating federal and state budgets and recommending how taxes should be shared among them to ensure that the federal government is not overburdened by its budget. Cooperative federalism is reinforced by its wide and comprehensive interactions with all levels of government. Improving the quality of public spending and promoting budgetary stability is also among the goals of its recommendations. It was the first of fifteen Finance Commissions that was established in 1951. Individually, they have encountered obstacles.
The following are the conditions for a member:
- If there is a conflict of interest, and if they are considered to be of unsound mind, then they will be disqualified.
- In India, the President specifies the term of office for each member of the Finance Commission, and in some situations, those members are reappointed for additional terms.
- Those who serve on the Commission are expected to devote a portion of their time and effort to it, as determined by the President.
- The requirements of the Constitution determine members’ salaries.
Functions of Finance Commission
The Finance Commission advises the President on the following matters:
- Distribution of net tax proceeds between the federal and state governments and the allotment of funds among states.
- Allocation of grants-in-aid to the states from a consolidated central fund.
- On the procedures necessary to increase the allocation of resources to panchayats and municipalities.
- Any crucial or emergency financial decisions must be made across the country.
- Deciding every five years on how federal and state income taxes should be divided and how state aid should be distributed.
Explanatory memorandums detailing the government’s implementation of commission recommendations are presented in Parliament. The FC has the authority of a Civil Court under the Code of Civil Procedure of 1908. The FA has the power to summon any office or court to produce any public document or witnesses.
What are the roles of the Finance Commission?
Article 280 of the Constitution mandates the President to appoint a financial commission every five years. Its primary role is to advise the federal government on how to distribute the taxes it collects from the states. These suggestions are meant to be implemented over five years.
It also specifies how the federal government should distribute grants from its Consolidated Fund to the states. It’s also necessary to make recommendations on boosting state budgets and panchayats’ and municipalities’ budgets.
Recommendation-making body: Finance Commission advises the president on how to run the country. After that, the president mulls over the recommendation before making a financial decision. The commission’s recommendations are not binding on the president. If the president chooses, he can accept or reject the offers.
The president’s receipt of the Finance Commission’s report is conclusive. It does not fall under the jurisdiction of the courts.
Intergovernmental Fiscal Management and the Role of Finance Commissions
Regarding fiscal imbalances, federations aren’t any different from other countries. Shared taxes and grants-in-aid are instruments provided by the Indian Constitution to redress such inequalities and an institutional process to resolve such imbalances. It examines how 14 FCs have fulfilled their constitutional responsibilities and reinforced the fabric of fiscal federalism in India through this research study. It also looks at how the job of FCs was expanded with additional conditions for solid financial management. For example, it shows how FCs have addressed one of the primary fiscal challenges, restoring the budget’s balance and preserving the economy’s macroeconomic stability.
Overview of the Finance Commission
As far back as the 1990s, it’s been advocating for local governments to raise their taxes.
Since the 7th FC mandated the use of the 1971 population for horizontal devolution, one must remember that the 6th FC used the 1971 population but was not mandated to do so.
The 14th FC used 2011 and 1971 population data to make their decision.
Conclusion
Obstacles to the XV-suggestion FC’s have been numerous, including the global economic slump and the economic devastation caused by the Coronavirus outbreak. Allocative demands will need to rise in the future to meet these new expectations. In addition, the government would have to focus more on several policy concerns, such as streamlining the GST and the Direct Tax Code and enhancing the results of spending in general. India’s diversity also entails respecting the different growth trajectories that each state has taken. The Finance Commission must support variety and a democratic growth path. Justice and equity must be adhered to when transferring resources between federal and state governments.
