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About Finance Commission

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13 views

About Finance Commission

Uploaded by

Saket Singh Tomar
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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About Finance Commission

• Constitutional Mandate: It is provided by Article 280 of the constitution as a


quasi-judicial body.
• Appointing Authority: The President of India constitutes a Finance
Commission every fifth year or at such a time that is considered necessary.
• Composition: It consists of a chairman and four other members, all
appointed by the president.
• Tenure: The members of the commission are appointed for the duration
specified in presidential order.
•
o Members are eligible for reappointment.
• Qualifications: The Parliament has been authorized by the constitution to
determine the qualifications of the members and the manner in which they
are to be appointed.
o Based on these powers, the Parliament has given the following
specifications for appointing the members.
o The chairman must have experience in public affairs while the other
four members should be selected from amongst the following criteria:
▪ A High Court judge or one qualified to become one;
▪ An individual having specialized knowledge of finance and
accounts of the government;
▪ A person who possesses experience in financial matters and
administration;
▪ A person who has special knowledge of economics.
• Removal: Members can be removed in the following cases:
o If they are found to be of unsound mind;
o If they are involved in a vile act;
o If there is a conflict of interest.
Powers of the Finance Commission
• Powers of Civil Court: Based on the Code of Civil Procedure 1908, the
Finance Commission has all the powers of a Civil Court.
• Evidence Demand: The commission has powers to call witnesses, and ask
for the production of a public document or record from any office or court.

Functions of the Finance Commission:


• Existing Functions: It is tasked with making recommendations to the
President on the following matters:
o Tax Distribution: Distributing shares of net proceeds of tax between
the Union and the States and the allocation between the States of the
respective shares of such proceeds;
o Rules for grants-in-aid: The rules that govern grant-in-aid to the
states by the centre from Consolidated Fund of India;
o Tax Devolution at State Level: Augmenting the consolidated fund of
the state to supply resources to panchayats and municipalities based
on recommendations of the state finance commission;
o Miscellaneous Matter: Any other matter referred by the President to
the Commission in the interests of sound finance.
o Submit Report: A report is submitted to the President, who lays it before
both houses of the Parliament. The report is followed by an explanatory
memorandum on the actions taken on its recommendations.
• Previous Functions:
o Grants for Specific States: Previously the Finance Commission used
to suggest grants to the states of Assam, Bihar, Odisha, and West
Bengal regarding the sharing of net proceeds of export duties imposed
on jute products. This was valid for only 10 years.

Criticism of Finance Commission


• Advisory Nature: The recommendations are only advisory in nature and not
binding on the government.
o However, the government must have compelling reasons for turning
down the recommendations of the commission.
• Discretion of the Union Government: The union government
has discretionary powers to implement its recommendations on granting
money to states.

State Finance Commission


State Finance Commission

• The State Finance Commission (SFC) is an institution created by the 73rd


and 74th Constitutional Amendments (CAs) to rationalize and
systematize State/sub-State-level fiscal relations in India.
• It is constituted under Article 243-I of the Constitution of India by the
governor of a state –every five years.
• Purpose – This is in order to decide the resource allocation between the
state government and the Panchayati Raj Institutions.
• Article 243-Y also brought city councils or municipalities under the purview
of the State Finance Commission.
o Article 243Y of the Constitution states that the Finance Commission
constituted under article 243 I shall also review the financial
position of the Municipalities and make recommendations to
the Governor.
• Role–A State Finance Commission has functions similar to that of the
Central Finance Commission.
o It allocates resources of a state to its Panchayati Raj institutions
at all three levels in terms of taxes, duties and levies to be collected
by the state and the local bodies.
o A State Finance Commission reviews the financial position of the
panchayats in a state and makes recommendations to the
Governor about the principles that should govern the distribution of
tax proceeds – taxes, duties, levies, toll fee collected by the state
between the state and its Panchayati Raj Institutions at all three
levels – village level, block level and district level.
o It also recommends the following:
▪ Taxes, levies and fees levied or appropriated by Panchayats
themselves.
▪ Grants-in-aid to Panchayati Raj Institutions from the
consolidated fund of a state.
▪ Ways to improve the financial position of the Panchayati Raj
Institutions.
▪ Measures for the overall improvement of Panchayat’s
finances.
• Action Taken on State Finance Commission’s Recommendations
o Under Article 243-I of the Indian Constitution, the governor of a
state ensures the laying of a State Finance Commission’s
recommendations to the table of the state legislature.
o It also includes a memorandum of action taken by the government
on the Commission’s report.

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