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The Finance Commission

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 02-Jul-2024

Source: The Hindu 

Introduction  

The 16th Finance Commission constituted on 31st December 2023 has started working. It was constituted on 31st December 2023 with Shri Arvind Panagariya, former Vice-Chairman, NITI Aayog as its Chairman.  

What is Finance Commission? 

  • Article 280 and Article 281 of the Constitution of India, 1950 (COI) provide for the Finance Commission. 
  • Article 280(1) of COI provides that the President shall constitute Finance Commission every fifth year or at such earlier time as the President considers necessary. 
  • The Finance Commission shall consist of a Chairman and four other members to be appointed by the President.  

What are the Duties of the Finance Commission?  

  • As per Article 280(3) of the COI the duties of Finance Commission is to make recommendations to the President with regard to: 
    • the distribution between the Union and the States of the net proceeds of taxes which are to be, or may be, divided between them under this Chapter and the allocation between the States of the respective shares of such proceeds. 
    • the principles which should govern the grants-in-aid of the revenues of the States out of the Consolidated Fund of India; 
    • the measures needed to augment the Consolidated Fund of a State to supplement the resources of the Panchayats in the State on the basis of the recommendations made by the Finance Commission of the State 
    • the measures needed to augment the Consolidated Fund of a State to supplement the resources of the Municipalities in the State on the basis of the recommendations made by the Finance Commission of the State 
    • any other matter referred to the Commission by the President in the interests of sound finance.  
  • As per Article 281 of the COI the President shall cause every recommendation made by the Finance Commission under the provisions of this Constitution together with an explanatory memorandum as to the action taken thereon to be laid before each House of Parliament. 

What are the Qualifications of Persons to be Appointed as Member of Finance Commission? 

  • Article 280 (2) of the COI provides that the Parliament may by law determine the qualifications which shall be requisite for appointment as members of the Commission and the manner in which they shall be selected. 
  • Section 3 of the Finance Commission (Miscellaneous Provisions) Act, 1951 provides that the Chairman of the Commission shall be selected from among persons who have had experience in public affairs, and the four other members shall be selected from among persons who—  
    • are, or have been, or are qualified to be appointed as Judges of a High Court; or 
    • have special knowledge of the finances and accounts of Government; or 
    • have had wide experience in financial matters and in administration; or  
    • have special knowledge of economies  

What are the Procedures and powers of the Finance Commission? 

  • Section 8 of the Finance Commission (Miscellaneous Provisions) Act, 1951 provide that the Commission shall determine their procedure and in the performance of their functions shall have all the powers of a civil court under the Code of Civil Procedure, 1908 while trying a suit in respect of the following matters, namely :—  
    • summoning and enforcing the attendance of witnesses;  
    • requiring the production of any document;  
    • requisitioning any public record from any court or office. 

Why are the changes made in Article 280 as the result of Constitution (Seventy- third Amendment) Act,1992 and the Constitution (Seventy – fourth Amendment) Act,1992  ? 

  • By way of Constitution (Seventy-third Amendment) Act, 1992, Article 280 (3)(bb) was added which provided that it shall be the duty of the of the Government to make recommendations as to the measures needed to augment the Consolidated Fund of a State to supplement the resources of the Panchayats in the State on the basis of the recommendations made by the Finance Commission of the State. 
  • By way of Constitution (Seventy- fourth Amendment) Act, 1992, Article 280 (3) (c) was added which provided that it shall be the duty of the of the Government to make recommendations as to the measures needed to augment the Consolidated Fund of a State to supplement the resources of the Municipalities in the State on the basis of the recommendations made by the Finance Commission of the State. 

Who are the Members of 16th Finance Commission? 

  • The 16th Finance Commission has Shri Arvind Panagariya as the Chairman. 
  • Other 4 members include: 
    • Shri. Ajay Narayan Jha 
    • Smt. Annie George Mathew 
    • Dr. Niranjan Rajadhyaksha 
    • Dr. Soumya Kanti Ghosh 

Conclusion 

The Finance Commission normally takes about two years to make their recommendations. Since the recommendations of 15th Finance Commission cover the six year period upto 31st March 2026, the 16th Finance Commission has been proposed to be constituted now.