The Finance Commission of India
Article 280 Clause (1) of the Constitution of India provides for a Statutory Finance Commission. The Finance Commission of India came into existence in 1951, being set up every five years, to recommend the rules that should govern the devolution of funds from Centre to the States and their distribution among the states. Since the institution of the first finance commission, stark changes have occurred in the Indian economy causing changes in the macroeconomic scenario. This has led to major changes in the Finance Commission's recommendations over the years. Till date, Thirteen Finance Commissions have submitted their reports.
Functions of Finance Commission:
The President will constitute a Finance Commission within two years from the commencement of the Constitution and thereafter at the end of every fifth year or earlier, as the deemed necessary by him/her, which shall include a chairman and four other members.The Commission is constituted to make recommendations to the president about the distribution of the net proceeds of taxes between the Union and States and also the allocation of the same amongst the States themselves. It is also under the ambit of the Finance Commission to define the financial relations between the Union and the States. They also deal with devolution of non-plan revenue resources. The functions of the Finance Commission are to make recommendation to the President in regard to the following
- The distribution of net proceeds of taxes to be shared between the Union and the States and the allocation of shares of such proceeds among the States.
- The principles which should govern the payment of the Union grants-in-aid to the revenues of the States.
- The continuance or modification of any argument entered into between the Centre and any of the States
- Any of the matter referred to it.
Under the provision of Constitution, Fourteen Finance Commissions have been constituted so far. The specific term of reference of each of Finance Commissions have been entrusted with the primary task of
- Determining the share of net tax revenue of Centre.
- Determining the principles of grants-in-aid to the States.
Qualifications of the members:
The Chairman of the Finance Commission is selected among people who have had the experience of public affairs. The other four other members are selected from.
- Who Are, or have been, or are qualified, as judges of High Court, or
- Who Have knowledge of Government finances or accounts, or
- Who Have had experience in administration and financial expertise; or
- Who Have special knowledge of economics
Procedure and Powers of the Commission:
The Commission has the power determine their own procedure.
- Has all powers of the civil court as per the Court of Civil Procedure, 1908.
- Can summon and enforce the attendance of any witness or ask any person to deliver information or produce a document, which it deems relevant.
- Can ask for the production of any public record or document from any court or office.
- Shall be deemed to be a civil court for purposes of Sections 480 and 482 of the Code of Criminal Procedure, 1898
Terms of Office of Members and eligibility for Reappointment:
Every member will be in office for the time period as specified in the order of the president, but is eligible for reappointment provided he has, by means of a letter addressed to the president, resigned his office.
Salaries and Allowances of the members:
The members of the Commission shall provide full- time or part- time service to the Commission, as the president specifies in his order. The members shall be paid Salaries and Allowances as per the provisions made by the Central Government. So far, 13 Finance commissions Chairman V. Kelkar have submitted their recommendations. All of them have been accepted by the Union Government.
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Finance Commission Periods So Far
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Periods
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Finance Commission
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Chairman of Finance Commission
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1952-57
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First
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K.C.
Neogy
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1957-62
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Second
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K. Santhanam
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1962-66
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Third
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A.K.
Chanda
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1966-69
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Fourth
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P.V. Rajamannar
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1969-74
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Fifth
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Mahaveer
Tyagi
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1974-79
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Sixth
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k. Brahmananda Reddy
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1979-84
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Seventh
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J.M.
Shelat
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1984-89
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Eight
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Y.B. Chavan
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1989-95
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Ninth
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N.K.P.
Salve
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1995-2000
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Tenth
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K.C. Pant
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2000-2005
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Eleventh
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A.M.
Khusro
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2005-2010
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Twelfth
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C. Rangarajan
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2010-2015
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Thirteenth
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Dr.
Vijay L. Kelkar
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2015-2020
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Fourteenth
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Dr. Y.V. Reddy
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Major Recommendations of 13th Finance Commission:
- The share of states in the net proceeds of the shareable Central taxes should be 32%.This is 1.5% higher than the recommendation of 12th Finance Commission.
- Revenue deficit to be progressively reduced and eliminated, followed by revenue surplus by 2013–14.
- Fiscal deficit to be reduced to 3% of the GDP by 2014–15.
- A target of 68% of GDP for the combined debt of centre and states.
- The Medium Term Fiscal Plan(MTFP)should be reformed and made the statement of commitment rather than a statement of intent.
- FRBM Act need to be amended to mention the nature of shocks which shall require targets relaxation.
- Both centre and states should conclude 'Grand Bargain' to implement the model Goods and Services Act(GST).To incentivise the states, the commission recommended a sanction of the grant of Rs500 billion.
- Initiatives to reduce the number of Central Sponsored Schemes(CSS)and to restore the predominance of formula based plan grants.
- States need to address the problem of losses in the power sector in time bound manner.
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