FINANCE
COMMISSION - POLITY
News:
Process to set up
Sixteenth Finance Commission set to kick off soon
What's
in the news?
●
The Government will soon kick off the
process to set up the Sixteenth Finance
Commission, with the Finance Ministry likely to notify the terms of
references for the constitutional body, tasked
with recommending the revenue sharing formula between the Centre and States and
their distribution among States, towards the latter half of this year.
Key
takeaways:
Fifteenth
Finance Commission:
●
The Fifteenth Finance Commission was set
up in November 2017 with a mandate to make recommendations for the five-year
period from 2020-21.
●
While the Constitution requires a Finance
Commission (FC) to be set up every five years, the 15th FC’s mandate was extended by a year till 2025-26, breaking the
cycle.
●
The last time an FC was granted a six-year
time frame was for the 9th Finance Commission, formed in June 1987.
●
The Commission is usually granted about
two years to deliberate on its terms of reference, consult States and frame its
recommendations, and the government should ideally have its report by October
2025 to consider it in time for Budget 2026-27 - where it will have to place
its action taken on the Commission’s report.
Finance
Commission:
●
Article
280
of the Constitution of India provides for a Finance Commission as a Quasi Judicial Body.
●
It is constituted
by the President of India every fifth year or at such an earlier time as he
considers necessary.
Composition:
●
The Finance Commission consists of a
chairman and four other members to be appointed by the president.
●
They hold office for such a period as
specified by the president in his order.
●
They are eligible for reappointment.
Qualification:
●
The Constitution authorises the Parliament to determine the qualifications
of members of the commission and the manner in which they should be
selected.
●
Accordingly, the Parliament has specified
the qualifications of the chairman and members of the commission.
●
The chairman should be a person having experience
in public affairs and the four other members should be selected from amongst
the following:
○
A judge of the high court or one qualified
to be appointed as one.
○
A person who has specialised knowledge of
finance and accounts of the government.
○
A person who has wide experience in
financial matters and in administration.
○
A person who has special knowledge of
economics.
Functions:
The Finance Commission is
required to make recommendations to the president of India on the following
matters.
●
The distribution of the net proceeds of
taxes to be shared between the Centre and the states, and the allocation
between the states of the respective shares of such proceeds.
●
The principles that should govern the
grants-in-aid to the states by the Centre (i.c., 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 and
the municipalities in the state on the basis of the recommendations made by the
State Finance Commission.
●
Any other matter referred to it by the
President in the interests of sound finance.
Advisory
role:
●
The recommendations made by the Finance
Commission are only of advisory nature and hence, not binding on the government.
Other
Provisions:
●
The commission submits its report to the President.
●
He lays it before both the Houses of
Parliament along with an explanatory memorandum as to the action taken on its
recommendations.