Functions of the Finance Commission

Functions of the Finance Commission

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The total finance commission in India constituted so far stands at 15 with the first being in operation from 1952-57. It is a government of India body that is constituted periodically by the President of India to elaborate on the financial relationship between the state governments and the central government of India. The commission is made under Article 280 of the Constitution of India and it operates under the terms of reference that vary with each commission. It defines the terms of qualification, disqualification, appointment, powers and eligibility of the body. The First Finance Commission was established under The Finance Commission (Miscellaneous Provisions) Act 1951. The body is created after every five years and has a chairman with four other members.

The primary duty of finance commission in India is the distribution and allocation of revenue resources between the central government and the different state governments. Thus, it makes provisions for the distribution of the ‘net proceeds’ from taxes between the states and the center according to the respective contributions made by the states. It also determines the factors that govern Grants-in-Aid to the states and the size of the same. The body also makes recommendations to the President for the measures that are needed to increase state funds so that the resources of municipalities and panchayats in states can be supplemented based on the recommendations of state finance commissions.

The role and functions of the finance commission in India encompass a large area and as per the Code of Civil Procedure 1908, the body is endowed with all the powers of a Civil Court. It can call witnesses and demand records or public documents from any lower court or office. It can evaluate the increase in the Consolidated Fund of a state so that the resources of the municipalities and state panchayats can be affixed. Moreover, the President can refer all matters about finance to the Commission. Thus, it has enough powers within its working domain to exercise its functions.

However, the role of finance commission in India is advisory in nature and its findings and recommendations are not binding on the government of the day. Thus, a government may or may not implement the recommendations of granting money to the states as proposed by the commission yet a lot of governments work according to it.