Eleanor Finch
The Finance Commission of India is a constitutional body that serves as the cornerstone of the country's fiscal federalism. It is constituted by the President of India under Article 280 of the Constitution, which outlines the financial relations between the central government and the individual state governments. The Commission consists of a Chairman and four other members, appointed by the President, and makes recommendations to the President on matters such as the distribution of financial resources between the Union Government and State Governments, including the allocation of tax proceeds and grants-in-aid. These recommendations are advisory and not binding on the government. The tenure of the office of the Members of the Finance Commission is specified by the President, and they are eligible for reappointment. The Finance Commission is typically constituted every five years, with the most recent one being the 16th Finance Commission, chaired by Dr. Arvind Panagariya.
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What You'll Learn
- The Finance Commission of India is constituted by the President of India under Article 280 of the Constitution
- The Commission includes a chairperson and four other members
- Members are appointed for a period specified by the President and are eligible for reappointment
- The Commission makes recommendations to the President on the distribution of financial resources between the Union and State Governments
- The recommendations are not binding on the Government
The Finance Commission of India is constituted by the President of India under Article 280 of the Constitution
The Finance Commission of India is a cornerstone of the country's fiscal federalism. It is a quasi-judicial body constituted by the President of India under Article 280 of the Constitution. The Finance Commission is appointed every five years or earlier, as deemed necessary by the President. It consists of a Chairman and four other members, appointed by the President, who hold office for a period specified by the President and are eligible for reappointment.
The First Finance Commission was constituted in 1951 under the chairmanship of Shri K.C. Neogy. Since then, sixteen Finance Commissions have been constituted. The Fifteenth Finance Commission, chaired by Nand Kishore Singh, was constituted in 2017 and was tasked with strengthening cooperative federalism, improving the quality of public spending, and protecting fiscal stability. The Sixteenth Finance Commission, chaired by Dr Arvind Panagariya, was constituted in 2023 and is tasked with submitting its report by 31 October 2025.
The primary function of the Finance Commission is to make recommendations to the President on the distribution of financial resources between the Union Government and the State Governments. It advises the President on financial matters, including the distribution of net tax proceeds between the Union and the States, and the allocation of these proceeds among the States. The Commission also recommends the principles governing the grants-in-aid to states, which promotes social welfare and empowers state governments by providing them with financial autonomy.
The Finance Commission also plays a role in addressing contemporary fiscal challenges and the changing dynamics of the Indian Economy, such as the introduction of the Goods and Services Tax (GST). It serves as an institutional framework to facilitate Centre-State transfers and ensures a balanced and fair distribution of financial resources between the Centre and the States, fostering cooperation and dialogue between the two levels of government.
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The Commission includes a chairperson and four other members
The Finance Commission of India is constituted by the President of India under Article 280 of the Indian Constitution. The Commission includes a chairperson and four other members, who are appointed by the President and hold office for a period specified by the President. The chairperson and other members of the Commission are eligible for reappointment. The qualifications of the members of the Commission are outlined by the Parliament.
The chairperson of a finance commission should be a person with experience in public affairs. The other four members are selected based on the following criteria:
- Are, or have been, or are qualified, as judges of a high court
- Have knowledge of government finances or accounts
- Have had experience in administration and financial expertise
The Fifteenth Finance Commission was constituted in November 2017, with Nand Kishore Singh appointed as its chairperson. The full-time members of the Fifteenth Finance Commission were Shaktikanta Das, Anoop Singh, and Ajay Narayan Jha, who replaced Shaktikanta Das after his resignation. The part-time members were Ramesh Chand and Ashok Lahiri.
The Sixteenth Finance Commission, constituted in 2022, is chaired by Dr. Arvind Panagariya. The full-time members of the Sixteenth Finance Commission include the former Finance Secretary and a member of the Fifteenth Finance Commission, as well as the former Special Secretary of the Department of Expenditure, Ministry of Finance.
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Members are appointed for a period specified by the President and are eligible for reappointment
The Finance Commission of India is constituted by the President of India under Article 280 of the Indian Constitution. The President appoints the Chairman and four other members of the Commission. The members of the Finance Commission are appointed for a period specified by the President of India and are eligible for reappointment. The Finance Commission is constituted to make recommendations to the President about the distribution of the net proceeds of taxes between the Union and State governments. It also defines the financial relations between the Union and the State governments.
The Finance Commission is a quasi-judicial body that ensures equitable growth across the country through a balanced and fair distribution of financial resources between the Centre and the States. It is not a permanent body and is constituted by the President every five years or earlier, as deemed necessary. The First Finance Commission was constituted in 1951, and since the promulgation of the Indian Constitution in 1950, fifteen Finance Commissions have been constituted.
The Chairman of the Finance Commission is selected from among those with experience in public affairs. The other four members are selected based on their qualifications as judges of a high court, knowledge of government finances or accounts, experience in administration and financial expertise, or other relevant fields. The members of the Finance Commission are required to resign their office before they can be reappointed for another term.
The Finance Commission plays a crucial role in addressing contemporary fiscal challenges and the changing dynamics of the Indian economy. It also aids in the devolution of unplanned revenue resources and the allocation of funds among the States themselves. The Commission's recommendations are advisory and not binding upon the government. However, they serve as an essential guide for the distribution of financial resources and the empowerment of State governments.
The Finance Commission of India is an essential body that ensures fiscal federalism and equitable growth in the country. By providing a structured format for the distribution of financial resources and defining the financial relations between the Centre and the States, the Finance Commission contributes to a balanced and fair system. The appointment of members by the President for specified periods, with the option of reappointment, ensures the continuity and stability of the Commission's work.
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The Commission makes recommendations to the President on the distribution of financial resources between the Union and State Governments
The Finance Commission of India (FCI) is a constitutional body that ensures a balanced and fair distribution of financial resources between the Union and State Governments. It is a cornerstone of the country's fiscal federalism, promoting equitable growth across the country. The President of India constitutes the Finance Commission every fifth year or earlier, as per the requirements. The Commission consists of a Chairman and four other members appointed by the President, who hold office for a period specified by the President.
The primary function of the Finance Commission is to make recommendations to the President on the distribution of financial resources between the Union and State Governments. These recommendations are advisory in nature and cover various aspects of fiscal federalism. The Commission takes into account factors such as population, area, economic backwardness, etc., to ensure equitable distribution of resources.
Vertical Devolution refers to the share of States in the divisible pool of Central taxes, promoting fiscal autonomy among States. Horizontal Distribution, on the other hand, refers to the allocation of resources among States based on a formula to ensure balanced development across regions. Grants-in-aid are additional transfers to specific states or sectors in need of assistance or reform, such as grants for improving the justice delivery system or infrastructure.
The Commission also recommends the principles governing grants-in-aid to states, which may not generate adequate revenue for essential services like health, education, and infrastructure. This reduces fiscal imbalances and promotes social welfare. It further suggests measures to augment the Consolidated Funds of the states to supplement the resources of the Panchayats and Municipalities, ensuring that local bodies have adequate resources to perform their functions.
The Finance Commission plays a crucial role in addressing contemporary fiscal challenges and the changing dynamics of the Indian economy, such as the introduction of the Goods and Services Tax (GST). It fosters cooperation and dialogue between the Union and State Governments, promoting a healthy federal structure.
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The recommendations are not binding on the Government
The Finance Commission of India (FCI) is a constitutional body that serves as the cornerstone of the country's fiscal federalism. It is constituted by the President of India under Article 280 of the Constitution. The FCI is tasked with making recommendations to the President on various financial matters, including the distribution of tax proceeds between the Union Government and State Governments, and the allocation of funds to panchayats and municipalities.
While the FCI plays a crucial role in advising the President and the government on financial matters, its recommendations are not legally binding. This means that the government is not obligated to implement the FCI's suggestions. The FCI's recommendations are advisory in nature, and the government has the discretion to accept or reject them. This is because there is no provision in the Constitution that makes the FCI's recommendations binding on the government.
The non-binding nature of the FCI's recommendations allows for flexibility and adaptability in financial decision-making. It empowers the government to make the final decision on financial matters, taking into account the recommendations as well as other relevant factors. This ensures that the government can respond to changing economic conditions and make decisions in the best interests of the country.
However, it is important to note that the FCI's recommendations carry significant weight and influence. They provide valuable insights and expertise in the field of fiscal policy. The government often relies on the FCI's recommendations to make informed decisions and ensure equitable growth across the country. While not legally binding, the FCI's recommendations play a crucial role in shaping the country's financial landscape.
The FCI's role in promoting cooperation and dialogue between the central and state governments is also noteworthy. By facilitating discussions on financial matters, the FCI strengthens the federal structure of the country. This collaborative approach helps to address fiscal imbalances and ensures that state governments have the financial autonomy they need to govern effectively.
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Frequently asked questions
The Finance Commission is constituted every fifth year or earlier if deemed necessary by the President.
The Finance Commission is appointed by the President under Article 280 of the Constitution.
The Finance Commission makes recommendations to the President on the distribution of financial resources between the Union Government and the State Governments.
The Finance Commission consists of a Chairman and four other members who are appointed by the President.
The Chairman should be a person with experience in public affairs. The other four members are selected from people who are or have been judges of a high court, have knowledge of government finances or accounts, or have experience in administration and financial expertise.
