The Finance Commission in India is a constitutional body that plays a crucial role in the fiscal federalism of the country. It is constituted by the President of India every five years or at such intervals as deemed necessary. The primary responsibility of the Finance Commission is to recommend the distribution of financial resources between the central government and the states, as well as among the states themselves. Here's an overview of the Finance Commissions in India:
Key Functions of the Finance Commission:
1. Tax Revenue Sharing: The Finance Commission recommends the principles that govern the distribution of tax revenues between the central government and the states.
2. Grants-in-Aid: It recommends the extent of grants to be given to states from the central government's divisible pool of taxes. These grants are meant to address the revenue gap of states in providing essential services.
3. Debt Relief: The Finance Commission suggests measures to augment the consolidated fund of a state to make it more sustainable and less reliant on borrowings.
4. Resource Allocation: It suggests the distribution of resources among the states, keeping in mind the principles of equity and efficiency.
Composition:
The Finance Commission is typically composed of a chairman and four other members who are experts in public finance, economics, and related fields. The members are appointed by the President of India.
Recent Finance Commissions:
1. 15th Finance Commission (2020-2025):
o Chairman: N.K. Singh
o Recommendations: The 15th Finance Commission submitted its report covering the period from 2020 to 2025. It recommended changes in the criteria for the distribution of funds between the center and the states, addressing issues related to the Goods and Services Tax (GST), and proposing grants for local bodies.
2. 14th Finance Commission (2015-2020):
o Chairman: Y.V. Reddy
o Recommendations: The 14th Finance Commission increased the share of states in the divisible pool of central taxes from 32% to 42%, enhancing the fiscal autonomy of states.
3. 13th Finance Commission (2010-2015):
o Chairman: Vijay Kelkar
o Recommendations: The 13th Finance Commission focused on fiscal consolidation, providing grants for local bodies, and improving the efficiency of public spending.
4. 12th Finance Commission (2005-2010):
o Chairman: C. Rangarajan
o Recommendations: The 12th Finance Commission emphasized fiscal responsibility and debt management, recommending measures for fiscal consolidation.
Each Finance Commission's recommendations are crucial in shaping the fiscal relationship between the central government and the states, contributing to the overall economic and fiscal health of the country. The periodic review and recommendations by the Finance Commission aim to ensure a fair and equitable distribution of resources for balanced regional development.
