Finance Commission

<–2/”>a >Under the Constitution the financial Resources of the State are very limited though they have to do many works of social uplift under directive principles. In order to cope with their ever-expanding needs, the Central Government makes grants-in-aid to the States. Grant- in-aid to States , through it Central Government exercises a strict control over the States because grants are granted subject to certain conditions.

The Indian constitution provides for a federal framework with powers divided between the Centre and the states. The Financial powers entrusted by the Constitution reflect a clear asymmetry between the Taxation powers and the functional responsibili-ties, with the Centre being assigned taxes with higher revenue potential and States being entrusted with more functional responsibilities. The Constitution provides, under ARTICLE 280, the institutional mechanism of Finance Commission and other enabling provisions for the transfer of resources from the Centre.

The Role of the Finance Commission under Indian Constitution are to make recommendation to the President with regard to following matters:
a) To determine the scheme that governs the matters relating to the distribution of net proceeds of taxes which are in the divisible pool, between the Centre and States.
b) To make recommendations, to determine the principle that would regulate or govern the revenues to the States from the Central Revenue in the form of Grant in Aid to the needy States
c) This function of the Commission is included by the way of 73rd and 74 Constitutional Amendment to strengthen the financial Status of the local bodies by providing the supplement to the resources of the Panchayats And Municipalities in the States on the basis of the recommendation of State Finance Commission from the Consolidated fund of the State.
d) The last function of the Commission as provided by the Constitution under Article 280 3(d) is very vast any matter relating to the Fiscal interest between the intergovernmental bodies can be referred to the Commission by the President, These function or Terms of Reference, which broadly fixed by the Constitution itself; while at the same time an element of flexibility is built into these terms of reference under sub clause (d) of Article 280(3). Under this Clause the President has a power to refer any matter to the Commission ‘in the interests of Sound finance.

The 73rd and 74th Constitutional Amendment Acts, 1992, which gave Constitutional status to Panchayati Raj institutions (PRIs) and Urban Local Bodies (ULBs) respectively, in both letter and spirit in order to bring about greater decentralisation and increase the involvement of the community in planning and implementing schemes and, thus, increase accountability.

The Amendments left important matters such as implementation, service delivery (including local capacity building) and transfer of responsibilities and powers to rural local bodies at the discretion of the state legislatures. Consequently, while expenditure responsibilities of local bodies are extensively enhanced, there is no law to ensure a corresponding assignment of funds to match the additional responsibilities.

The State Finance Commissions are required to recommend financial support from the state and principles for determination of taxes, tolls and fees that could be assigned to or appropriated by the local bodies

Article 243I of the Indian Constitution prescribes that the Governor of a State shall, as soon as may be within one year from the commencement of the Constitution (Seventy-third Amendment) Act, 1992, and thereafter at the expiration of every fifth year, constitute a Finance Commission to review the financial position of the Panchayats and to make recommendations to the Governor as to

The principles which should govern

The distribution between the State and the Panchayats of the net proceeds of the taxes, duties, tolls and fees leviable by the State, which may be divided between them under this Part and the allocation between the Panchayats at all levels of their respective Shares of such proceeds;
The determination of the taxes, duties, tolls and fees which may be assigned as, or appropriated by, the Panchayats;
The grants-in-aid to the Panchayats from the Consolidated Fund of the State;

The Finance Commission is a constitutional body in India that is responsible for making recommendations to the central government on the distribution of financial resources between the central government and the state governments. The Finance Commission is constituted every five years. The current Finance Commission is the Fifteenth Finance Commission, which was constituted in 2020.

The Finance Commission is composed of a chairman and four members. The chairman is a retired judge of The Supreme Court of India. The members are experts in the fields of economics, finance, and Public Administration.

The terms of reference of the Finance Commission are to make recommendations on the following matters:

The distribution of net proceeds of taxes between the central government and the state governments;
The principles governing grants-in-aid to the states;
The measures needed to augment the consolidated fund of a state;
The measures needed to improve the financial position of the panchayats and municipalities; and
Any other matter referred to it by the President.

The Finance Commission has the following functions:

To collect data and information on the finances of the central government and the state governments;
To analyze the data and information collected;
To make recommendations on the distribution of net proceeds of taxes between the central government and the state governments;
To make recommendations on the principles governing grants-in-aid to the states;
To make recommendations on the measures needed to augment the consolidated fund of a state;
To make recommendations on the measures needed to improve the financial position of the panchayats and municipalities; and
To make any other recommendations that it deems necessary.

The Finance Commission submits its report to the President of India. The President then places the report before both Houses of Parliament. The central government and the state governments are required to take into account the recommendations of the Finance Commission while formulating their budgets.

The recommendations of the Finance Commission have a significant impact on the finances of the central government and the state governments. The recommendations of the Finance Commission have also had a positive impact on the development of the country.

However, the Finance Commission has been criticized for being too bureaucratic and for not being responsive to the needs of the states. The Finance Commission has also been criticized for not being transparent in its functioning.

The Finance Commission has been reformed several times in the past. The most recent reform was in 2000. The 2000 reform made the Finance Commission more independent and more responsive to the needs of the states.

The Finance Commission is expected to play a vital role in the development of the country in the years to come. The Finance Commission is expected to make recommendations that will help to improve the finances of the central government and the state governments. The Finance Commission is also expected to make recommendations that will help to improve the development of the country.

The following are some of the key recommendations of the Fifteenth Finance Commission:

The Finance Commission has recommended a total devolution of â¹8.2 trillion to the states over the five-year period from 2021-22 to 2025-26. This is an increase of 14.2% over the devolution recommended by the Fourteenth Finance Commission.
The Finance Commission has recommended that the share of the states in the net proceeds of taxes be increased from 42% to 44%. This is the highest share of taxes that has ever been recommended for the states.
The Finance Commission has recommended that the central government provide a grant of â¹1.5 trillion to the states over the five-year period from 2021-22 to 2025-26. This grant is to be used by the states for the development of Infrastructure-2/”>INFRASTRUCTURE and social sectors.
The Finance Commission has recommended that the central government provide a special assistance package of â¹100 billion to the northeastern states over the five-year period from 2021-22 to 2025-26. This package is to be used by the northeastern states for the development of infrastructure and social sectors.
The Finance Commission has recommended that the central government provide a special assistance package of â¹100 billion to the three hill states of Jammu and Kashmir, Ladakh, and Himachal Pradesh over the five-year period from 2021-22 to 2025-26. This package is to be used by the hill states for the development of infrastructure and social sectors.

The recommendations of the Fifteenth Finance Commission are expected to have a significant impact on the finances of the central government and the state governments. The recommendations are also expected to have a positive impact on the development of the country.

What is the Finance Commission?

The Finance Commission is an independent body constituted by the President of India to review the financial relations between the Union and the States. It is also responsible for making recommendations on the distribution of taxes between the Union and the States, as well as on the grants-in-aid to be given to the States.

What are the functions of the Finance Commission?

The functions of the Finance Commission are as follows:

To review the financial relations between the Union and the States;
To make recommendations on the distribution of taxes between the Union and the States;
To make recommendations on the grants-in-aid to be given to the States;
To make recommendations on the principles governing grants-in-aid to local bodies;
To make recommendations on any other matter referred to it by the President in connection with the financial relations between the Union and the States.

How is the Finance Commission constituted?

The Finance Commission is constituted by the President of India. It consists of a Chairman and four other members. The Chairman is a person who has held office as a Judge of the Supreme Court or of a High Court for at least five years. The other members are persons who have special knowledge of finance or economics or public administration.

What is the term of the Finance Commission?

The term of the Finance Commission is five years. However, the President may extend the term of the Commission for a further period of one year.

What are the recommendations of the 15th Finance Commission?

The 15th Finance Commission has made a number of recommendations, including the following:

The share of the States in the net proceeds of taxes to be increased from 42% to 44%.
The grants-in-aid to the States to be increased from Rs. 3.1 lakh crore in 2020-21 to Rs. 4.5 lakh crore in 2025-26.
The devolution of funds to local bodies to be increased from 2.5% to 3% of the gross state domestic product (GSDP).
The introduction of a new system of revenue sharing between the Union and the States, based on the principle of “devolution”.
The introduction of a new system of grants-in-aid to the States, based on the principle of “need”.

What is the impact of the recommendations of the Finance Commission?

The recommendations of the Finance Commission have a significant impact on the finances of the Union and the States. The recommendations on the distribution of taxes and grants-in-aid have a direct impact on the revenue and expenditure of the Union and the States. The recommendations on the devolution of funds to local bodies have a direct impact on the finances of local bodies.

What are the challenges faced by the Finance Commission?

The Finance Commission faces a number of challenges, including the following:

The increasing demand for resources from the States.
The need to ensure fiscal discipline at the Central and State levels.
The need to ensure that the recommendations of the Finance Commission are implemented in a timely and effective manner.
The need to address the issue of inter-State disparities in terms of resources and development.

Sure. Here are some MCQs on the topics of Union Budget, PUBLIC FINANCE, and Fiscal Policy:

The Union Budget is a statement of the estimated receipts and expenditure of the Government of India for a financial year. It is presented by the Finance Minister in the Lok Sabha on the last working day of February every year.
Public finance is the study of the role of government in the economy. It includes the study of government revenues, expenditures, and debt.
Fiscal policy is the use of government spending and taxation to influence the economy. It is one of the main tools that governments use to manage the economy.

Here are some MCQs on the topic of Union Budget:

The Union Budget is presented in the Lok Sabha by the:
(a) Prime Minister
(b) Finance Minister
(c) President
(d) Justice-of-india/”>Chief Justice of India
The Union Budget is for a period of:
(a) 6 months
(b) 1 year
(c) 2 years
(d) 3 years
The Union Budget is divided into two parts:
(a) Revenue and expenditure
(b) Capital and revenue
(c) Plan and non-Plan
(d) All of the above
The main sources of revenue for the Union Government are:
(a) Taxes
(b) Non-tax revenue
(c) Borrowings
(d) All of the above
The main items of expenditure for the Union Government are:
(a) Defence
(b) Interest payments
(c) Subsidies
(d) All of the above

Here are some MCQs on the topic of Public Finance:

Public finance is the study of:
(a) The role of government in the economy
(b) Government revenues
(c) Government expenditures
(d) All of the above
The main sources of revenue for the government are:
(a) Taxes
(b) Non-tax revenue
(c) Borrowings
(d) All of the above
The main items of expenditure for the government are:
(a) Defence
(b) Interest payments
(c) Subsidies
(d) All of the above
The objectives of public finance are:
(a) To raise resources for the government
(b) To allocate resources efficiently
(c) To redistribute income
(d) All of the above
The tools of public finance are:
(a) Taxes
(b) Subsidies
(c) Transfer Payments
(d) All of the above

Here are some MCQs on the topic of Fiscal Policy:

Fiscal policy is the use of government spending and taxation to:
(a) Influence the economy
(b) Raise revenue
(c) Reduce expenditure
(d) All of the above
The main tools of fiscal policy are:
(a) Taxes
(b) Subsidies
(c) Transfer payments
(d) All of the above
The objectives of fiscal policy are:
(a) To achieve full EMPLOYMENT
(b) To maintain price stability
(c) To achieve economic Growth
(d) All of the above
The types of fiscal policy are:
(a) Expansionary fiscal policy
(b) Contractionary fiscal policy
(c) Discretionary fiscal policy
(d) All of the above
The instruments of fiscal policy are:
(a) Taxes
(b) Subsidies
(c) Transfer payments
(d) All of the above