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Finance Commission Act
Finance Commission Act
Tags: Gig Economy Economy WTO WTO Public Stockholding MSP Economic Growth Masala Bond Environmental Performance Index Forecast of Economic Growth Functions of the Finance Commission
The Finance Commission Act is responsible for the creation of the Finance Commission and it is constituted under Article 280 of the Constitution by the President of India. The body defines the financial relations between the individual state governments and the central government of the country. The first commission was set up in 1951 through The Finance Commission (Miscellaneous Provisions) Act, 1951. Fifteen commissions have since been constituted since the first one and they operate under the terms of reference (ToR) that define appointment, qualification, disqualification, eligibility, powers and term of the commission. Also, the ToR is different for every commission.
The finance commission composition is made to select and enable the best public affairs specialists within the body so that they can formulate plans and suggest the best fiscal measures to the government. As per the constitution of India, it should consist of a Chairman and four other members. The Act provides a structured format to the body so that apart from the Chairman, the other four members can be selected from people who have experience in finance and administration, sound knowledge of government accounts and finance, a special grasp of economics or qualified present or ex-judges of high courts.
The duration of the 15th Finance Commission is set for five years and it was established in November 2017. The operational duration of the body is from 2020 to 2025. The body has recommended the share of states in the central taxes be decreased from 42 percent for 2015-2020 to 41 percent for 2020-2021. The decrease of one percent is to be provided to the new union territories of Ladakh and Jammu and Kashmir from the central government resources. There are also recommendations related to GST (Goods and Services Tax), Gross Tax Revenue, and Revenue Deficit Grants, health, higher education, defence, disaster risk management and local governments.
Due to the body’s inherent features and characteristics, finance commission and fiscal federalism have become complementary to each other. The body helps maintain fiscal federalism by suggesting the allocation and distribution of net proceeds of taxes amongst the union and states. The 15th commission was set up at a time when massive reforms took place under fiscal federalism and they include the implementation of GST, the abolition of planned and non-planned expenditure and the replacement of the Planning Commission with Niti Aayog.