The composition of the Finance Commission and the functions performed by it

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QuestionDescribe in detail the composition of the Finance Commission and the functions performed by it, as mentioned in the Constitution of India. – 14 January 2022

Answer –

The Finance Commission of India was constituted by the President in 1951 under Article 280 of the Constitution of India. This commission was created to define the financial relationship between the center and the state. The Finance Commission is appointed every five years. A total of 15 Finance Commissions have been appointed so far. The maximum tenure of the Finance Commission is 5 years.

Requirement of Finance Commission:

  • The federal system of India allows for the division of power and functions between the center and the states, on the basis of which the taxation powers are also divided between the center and the states.
  • State legislatures are empowered to delegate some of their taxation powers to local bodies.
  • The Center collects the majority of the tax revenue and contributes to the economy at large through the collection of certain taxes.
  • Knowing closely the local issues and needs, it is the responsibility of the states to take care of the public interest in their areas.
  • However, due to all these reasons, sometimes the expenditure of the state exceeds the revenue received by them.
  • In addition, some states are unable to take advantage of adequate resources more than others due to vast regional disparities. To address these imbalances, the Finance Commission recommends setting limits on central funds to be shared with the states.

Functions of Finance Commission

  • To recommend to the President of India how to distribute the net proceeds of taxes between the Union and the States, and the allocation of such proceeds between the States.
  • To decide whether grants/aids should be given to the States out of the Consolidated Fund under Article 275.
  • To recommend necessary steps for augmenting the Consolidated Fund of the State for the supply of resources to the Panchayats and Municipalities on the basis of the recommendations made by the State Finance Commission.
  • Any other specific direction given by the President, which is in the interest of sound finance of the country.

Composition of 15th Finance Commission

  • Under Article 280(1), there shall be a Finance Commission consisting of a Chairman and four other members to be appointed by the President.
  • On November 27, 2017, NK Singh was appointed as the chairman of the 15th Finance Commission. NK Singh has also been a former Secretary to the Government of India and a member of Rajya Sabha from Bihar from 2008-2014.
  • Apart from these, the other 4 members are Shaktikanta Das (Former Secretary to the Government of India) and Dr. Anoop Singh (Assistant Professor, Georgetown University, Washington DC, US) Whole Time Members and Dr. Ashok Lahiri (Chairman, Bandhan Bank) and Dr. Ramesh Chandra (Member, NITI Aayog) has been nominated as its part time member.

The 15th Finance Commission has recommended allocation of resources among the states keeping in mind the 2011 Census. Using the latest census data seems appropriate, but this brings up the most serious point of contention between the northern and southern states. The socio-political sector may face many challenges due to the change in the basis of census. This is more likely to hurt southern states, which have been doing better at controlling their populations for decades. Their low population growth is inherently linked to ‘low fertility rates’, a result of better education, health services and development. In such a situation, due to success in development related works, they may have to suffer loss in allocation of funds, which is being considered as a penalty.

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