Objectives of the Finance Commission

Objectives of the Finance Commission

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The Finance Commission of India plays a pivotal role in ensuring fiscal harmony and equitable distribution of financial resources among the central and state governments. It is a constitutional body that functions as an independent entity. Its primary objective is to address fiscal imbalances and promote cooperative federalism. The commission aims to provide recommendations on the distribution of tax revenues and grants-in-aid to the states, ensuring a fair allocation of resources based on specific criteria. It serves as a crucial institution to ensure fiscal harmony and equitable distribution of resources. It assesses the financial needs of the central and state governments and provides inputs to bridge the fiscal gap.

Amongst the other major objectives of the Finance Commission of India, it assesses the resources, needs, and financial gaps of the central and state governments. It takes into account factors such as population, income disparities, infrastructure requirements, and fiscal discipline while formulating its recommendations. The commission strives to bridge the gap between states with varying levels of development and fiscal capabilities. The Finance Commission operates within the constitutional framework and provides binding recommendations.

The tenure of the Finance Commission is typically five years. This periodic review allows for an updated assessment of the changing fiscal landscape and the evolving needs of the central and state governments. Each new commission brings fresh perspectives and recommendations to address the prevailing economic challenges and promote inclusive growth. The commission's tenure of five years allows for regular review and updates based on changing economic conditions.

It must also be highlighted here that there is a difference between Niti Aayog and Finance Commission. Niti Aayog, or the National Institution for Transforming India, is a policy think tank established in 2015 to provide holistic recommendations for sustainable development. It focuses on long-term strategic planning, policy formulation, and holistic development. It takes a comprehensive approach to address various sectors such as education, healthcare, agriculture, infrastructure, and technology. The Finance Commission, on the other hand, focuses on fiscal matters and the distribution of financial resources. It provides recommendations on tax revenues, grants-in-aid, and financial transfers between the center and the states. The commission acts as a neutral and independent body, ensuring a fair distribution of resources to promote cooperative federalism. It provides policy inputs and suggestions, but its recommendations are not binding on the government.