Relevance of the Finance Commission

Relevance of the Finance Commission

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Finance Commission in India is responsible for defining the fiscal relationship between the union and the individual states so that there is a proper division of resources for the all-round development of the country. It is primarily responsible for the distribution of proceeds from taxes as per the respective contribution from each of the states. It also determines the factors that are responsible for deciding the Grants-in-Aid to the states and the exact magnitude of those grants. The body also makes recommendations to the President on the measures that may be needed to augment a state fund so that municipal and panchayat resources can be supplemented.

Thus, the Finance Commission in India encompasses a wide range of financial aspects between the centre and states that need focus and correct handling. There have been fifteen commissions to date with the first one being established in 1951 and the latest in 2017. The duration of each of them is of five years and the operational period for the current commission is from 2020 to 2025. The primary duty of the commission is to provide recommendations for the five years but the job of the current body may be tougher due to the rollout of Goods and Services Tax (GST) because it has taken certain taxation-related powers from the centre and states and handed them to the GST council.

However, the Finance Commission duties are explicit as the body is tasked with strengthening cooperative federalism within the nation. It is expected to come up with innovative plans and ways in which the quality of public spending can be improved for the larger good. The body is also responsible to help protect the financial stability of the country and can provide quality inputs for the same.

The Finance Commission Head is the Chairman of the body and the post requires a sound experience in public affairs. However, to help a Chairman, the body also includes four other members and they are selected as per the qualification rules of the commission. These members can be persons with exemplary knowledge of economics, government accounts or finance, experience in public administration or qualified judges of the high court. The qualifications, powers and eligibility are governed as per the Finance Commission (Miscellaneous Provision) Act, 1951 as it gives a structured format to the commission and its working.