Discussion and Analysis of Finance Commission

Finance Commission is a quasi-judicial body under Article 280 of the Constitution of India.

The President of India constitutes the Finance Commission every fifth year or earlier as he deems fit.

• The Finance Commission states the financial relations between the Center and the state governments.

• The first Finance Commission was formed in 1951 under the Finance Commission (Miscellaneous Provisions) Act, 1951 and there have been 15 so far from the promulgation of the Constitution of India in 1950.
• The present Finance Commission or the 15th FC was constituted in 2017 and is headed by N.K. Singh, who has formerly been a member of the Planning Commission.
• The backdrop in which the 15th Finance Commission was constituted is important because the Planning Commission was dissolved in 2014 and later in 2017 the introduction of GST (Goods and Services Tax) which has overhauled the fiscal relations of the Centre-state took place.

Composition of the Finance Commission

The Finance Commission is constituted of a chairman and four other members and they are appointed by the President.

The members of the Finance Commission hold the office for a period as the President specifies and the members are also eligible for reappointment.

Qualifications

The Parliament of India has been invested with the power to determine the qualifications necessary for the members of the Finance Commission and the manners in which the members are to be selected, by the Constitution of India.

Accordingly, through the Finance Commission Act 1951, the Parliament of India has defined the qualifications of the Chairman of the commission and the other members. 

The Chairman of the Finance Commission is a person who has good experience in dealing with public affairs.

The other 4 members of the commission are selected from:

1.  A current Judge from a High Court or such a person who is qualified to be appointed as judge of the high court.
2. A person having specialized knowledge of accounts of the government and matters related to finance.
3.  A person with a variety of experience in administration and in financial subjects.
4.  A person with specialized knowledge of economics

Article 280

Article 280 has set out the scope of the Finance Commission as it reads,

1.  The President shall constitute a Finance Commission within two years of the inception of the Constitution and after that, The President shall constitute the commission having a chairman and 4 members after every 5 years or earlier as he deems necessary.
2. The Commission will have to fulfill the duty to recommend the President on:

The allocation between Centre and the States of the net proceeds of taxes, as well as the allocation of respective shares of such proceeds between the States;

the principles that should govern grants from the Consolidated Fund of India to States in aid of their revenues;

the matters referred by the President to the commission regarding finance

The Finance Commission will also see to the distribution of unplanned revenue.

Functions of the Finance Commission

The functions of the Finance Commission are given in Article 280 (3) and it will advise the President of India on the following matters:

• The Finance Commission is responsible for deciding the basis on which the taxes are divisible between the Center and the state, and to define the principles which form the basis of the grants-in-aid provided to the states every 5 years.
• The commission also decides upon how much grants-in-aid has to be devolved to the states from the Consolidated Fund of India by the Union government.
• The Finance Commission can exercise the powers of a civil court as it can demand any document or records of matter to be produced before it 

Role of the Finance Commission

The Article 280 provides for constituting a Finance Commission every 5 years by the President Indian Polity and Constitution. Apart from stating the basis of the distribution of the grants-in-aid from the Consolidated Fund of India, the commission also handles the responsibility to advise on the methods for augmenting the resources possessed by a state and also suggests the measures to supplement the resources of Tier-III govt i.e., the municipalities and the panchayats.

• But it is important to make it clear here that the recommendations forwarded by the Finance Commission of India are not binding on the government and they are only advisory in nature.
• That means it is on the Center to decide whether to accept the recommendations of the commission on providing grants to the states.

• That being said, in the Indian Polity and Constitution a state doesn’t have a legal right to necessarily receive the benefit recommended towards it by the Finance Commission. The Constitution of India nowhere mentions that the advice of the commission is binding on the Union.

However, the Finance Commission is a constitutional body and is quasi-judicial in structure so the recommendations of the Commission are considered by the Government of India.

Conclusion

The Finance Commission is a constitutional body and it has certain rules and regulations governing the fiscal issues of the country. It is important to go through the provisions and general questions related to the Finance Commission as it is an essential chapter in the Indian Polity and Constitution.