Finance Commission is a quasi-judicial body established under Article 280 of the Indian Constitution. President of India constitutes the finance commission every fifth year or earlier as he considers necessary. It’s a constitutional body, which gives its recommendation on the distribution of tax revenues between the Union and the States and allocation of it between the States.
Composition of the Finance Commission
Finance Commission consists of a Chairman and four other members. All the Members of the Commission, including the chairman, are appointed by the President of India.
Term of Office
The Members of the Finance Commission hold the office for the period as specified by President in his order. They are also eligible for reappointment.
Qualification of the Finance Commission Chairman and Members
The Constitution of India authorizes the Parliament to determine the qualification of members of the commission and their selection method. Accordingly, the Parliament of Indian has specified the qualifications of members and the chairman as follow:
- The chairman should be a person who has experience in public affairs.
- The four other members should be selected from amongst the following:
- Judge of High Court or one qualified to be appointed as one.
- A person who has specialized knowledge of finance and accounts of the government.
- A person who has experience in financial matters and also in administration.
- A person who has special knowledge of economics.
Disqualification from being a member of the commission
- A member may be disqualified if:
- He is an undischarged insolvent;
- He is found to be of unsound mind;
- He has been convicted of an immoral offense;
- His financial and other interests are such that it hinders the smooth functioning of the commission.
Functions of the Finance Commission
Functions
The Finance Commission makes the recommendations to the President of Indian on the following matters:
- The distribution of net proceeds of taxes to be divided between the Centre and the States, and the allocation between the States of the respective shares of such proceeds.
- The principles governing the grants-in-aid to the States by the Centre out of the Consolidated Fund of India.
- The measures required to augment the Consolidated Fund of a State to supplement resources of the panchayats and municipalities in the State on the basis of recommendations made by the State Finance Commission.
- Any other matter referred to it by the President in the interest of sound finance.
Report of the Finance Commission
Finance Commission submits its report to the President of India. The President lays down it before both the Houses of Parliament, along with a memorandum explaining the action taken on the commission’s recommendations.
Advisory Role
The recommendations made by the Finance Commission are only of advisory nature and are not binding on the government. It is up to the Union Government to implement the commission recommendations on granting money to the States. In other words, it is nowhere laid down in the Constitution of India that the recommendations of the Finance Commission shall be binding upon the Indian government or that it would give rise to a legal right favoring the recipient States to receive the money recommended to be provided to them by the commission.
Constitutional Provisions
- Article 280 of the Indian Constitution provided for:
- The President of India shall, within the two years of the commencement of the Constitution and thereafter at the end of every fifth year or such earlier time as President considers necessary, constitute a Finance Commission by order, which shall include Chairman and four other members.
- Parliament may by law determine the qualifications requisite for the appointment for the members of the commission and the procedure of selection.
- It shall be the duty of commission to make recommendations to the President about the distribution of net proceeds of taxes between the Centre and States and the allocation of the same among the states. (Article 280 lays down the functions of the Finance Commission)
- The Commission shall determine their procedure and shall have such powers in the performance of their functions, as Parliament may by law confer on them.
- Article 281 of the Indian Constitution provided for the recommendations of the Finance Commission. The President shall cause every recommendation made by the Finance Commission, along with an explanatory memorandum as to the action taken thereon, to be place before both Houses of Parliament.
The Constitution of India envisages the Finance Commission as the balancing wheel of fiscal federalism in India.
List of Finance Commissions
So far, 15 Finance Commissions has been constituted, which are as follow:
| Finance Commission | Chairman | Year of Appointment | Submitted Report in | Period of Implementation of Report |
|---|---|---|---|---|
| First | K. C. Neogy | 1951 | 1952 | 1952-1957 |
| Second | K. Santhanam | 1956 | 1957 | 1957-1962 |
| Third | A. K. Chanda | 1960 | 1961 | 1962-1966 |
| Fourth | Dr. P. V. Rajamannar | 1964 | 1965 | 1966-1969 |
| Fifth | Mahavir Tyagi | 1968 | 1969 | 1969-1974 |
| Sixth | Brahamananda Reddy | 1972 | 1973 | 1974-1979 |
| Seventh | J. M. Shelat | 1977 | 1978 | 1979-1984 |
| Eighth | Y. B. Chavan | 1982 | 1984 | 1984-1989 |
| Ninth | N. K. P. Salve | 1987 | 1989 | 1989-1995 |
| Tenth | K. C. Pant | 1992 | 1994 | 1995-2000 |
| Eleventh | A. M. Khusro | 1998 | 2000 | 2000-2005 |
| Twelfth | Dr. C. Rangarajan | 2002 | 2004 | 2005-2010 |
| Thirteenth | Dr. Vijay Kelkar | 2007 | 2009 | 2010-2015 |
| Fourteenth | Y. V. Reddy | 2013 | 2014 | 2015-2020 |
| Fifteenth | N. K. Singh | 2017 | 2020 | 2020-2026 |