Finance Commission of India


Ajit Kumar AJIT KUMARWISDOM IAS, New Delhi.

The financial relations between the Centre and the Units came up for review in connection with
the drafting of a new Constitution for independent India. The financial provisions in the Draft
Constitution were referred by the Constituent Assembly to an Expert Committee of three under the chairmanship of Nalini Ranjan Sarkar, with V.S. Sundaram and M.Y. Rangachari as members. The Committee recommended a pattern of Union-States division of tax resources, which was broadly adopted in the Constitution of India.
 
As per Article 280 of the Constitution of India, (1) The President shall, within two years from
the commencement of this Constitution and thereafter at the expiration of every fifth year or at
such earlier time as the President considers necessary, by order constitute a Finance Commission which shall consist of a Chairman and four other members to be appointed by the President.
(2) 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.
(3) It shall be the duty of the Commission to make recommendations to the President as to-
(a) 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;
(b) the principles which should govern the grants-in-aid of the revenues of the States out of the
Consolidated Fund of India;
[(bb) 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;]
[(c) 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;]
[(d)] any other matter referred to the Commission by the President in the interests of
sound finance.
(4) 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.
The First Finance Commission was constituted under Art. 280 by a Presidential Order
dated 22 November 1951, under the chairmanship of K.C. Neogy.
 
Article 281 of the Constitution further stipulates that “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.” Based on the recommendations of the Finance Commission from time to time, the budget provisions for a year are made after earmarking the States’ share, to work out the Net Tax Revenues of the Union Government from the Gross Tax Revenues. While the Central Government provides in its Budget for the outgo from the Consolidated Fund
of India on this account, each State reflects its own share of the net divisible pool as its resources in its own budget, on the basis of advance intimation received from the Central Government.


Saturday, 13th Feb 2016, 09:01:03 PM

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