Roadmap for Answer Writing
1. Introduction
- Briefly define the Finance Commission of India.
- Mention its constitutional basis (Article 280).
2. Constitution of the Finance Commission
- Composition:
- Chairperson and four members appointed by the President of India.
- Qualifications:
- Members selected for expertise in public affairs, finance, and administration.
- Tenure:
- Appointed every five years or earlier as needed.
3. Terms of Reference of the Recently Constituted Finance Commission
- Focus on the 15th Finance Commission (2017).
- Key Areas:
- Vertical devolution (tax distribution).
- Horizontal devolution (allocation criteria among States).
- Grants-in-aid (principles for distribution).
- Fiscal consolidation (measures for stability).
- Performance-based incentives (for progress in various sectors).
- Disaster management (GST impact and strategies).
4. Conclusion
- Summarize the importance of the Finance Commission.
- Highlight its role in promoting fiscal federalism and balanced development.
Constitution of the Finance Commission of India
The Finance Commission of India is established under Article 280 of the Indian Constitution. Its primary role is to evaluate and recommend the distribution of financial resources between the central government and the state governments.
Constitution of the Finance Commission:
Terms of Reference of the Recently Constituted Finance Commission:
The terms of reference (ToR) of the recently constituted Finance Commission generally focus on the following aspects:
1. Resource Distribution: The Commission is tasked with recommending the distribution of net proceeds of central taxes between the central and state governments. This includes determining the share of states in central tax revenues and grants-in-aid.
2. State Finances: It evaluates the financial position of states and recommends measures for financial stability. This involves assessing the fiscal performance of states and recommending adjustments to improve their financial health.
3. Grants for Local Bodies: The Commission advises on the distribution of grants to local bodies, including Panchayats and Municipalities. It ensures that these local bodies have adequate resources for implementing local development projects and services.
4. Fiscal Consolidation: The Commission provides recommendations to enhance fiscal consolidation efforts by states. This includes suggesting fiscal management practices and reforms to improve fiscal discipline and efficiency.
5. Special Assistance: It offers recommendations for special assistance to economically weaker states or regions facing specific challenges. This might include additional grants or special funding to address regional disparities and promote balanced development.
6. Economic Impact of New Developments: The Commission may also consider the economic impact of new policy developments or changes in the economic environment on federal finances. This ensures that financial recommendations are aligned with current economic conditions.
Conclusion:
The Finance Commission of India plays a crucial role in maintaining the financial equilibrium between the central and state governments. Its recommendations impact fiscal federalism and resource allocation, ensuring balanced regional development. The terms of reference of the recently constituted Commission reflect a focus on equitable resource distribution, financial stability, and support for local governance.
Model Answer
Introduction
The Finance Commission of India is a constitutional body established under Article 280 of the Indian Constitution. Its primary role is to recommend the distribution of financial resources between the Union and State governments, thereby promoting fiscal federalism and ensuring equitable resource allocation for balanced economic development across the country.
Composition and Tenure
The Finance Commission comprises a Chairperson and four other members, all appointed by the President of India. Members are chosen for their expertise in public affairs, finance, and administration, ensuring they possess the necessary experience to handle fiscal issues effectively. The Commission is appointed every five years, or sooner if deemed necessary by the President, and its recommendations typically cover a five-year period.
Terms of Reference of the 15th Finance Commission
The 15th Finance Commission, chaired by N. K. Singh, was constituted in November 2017. Its terms of reference include:
Conclusion
The Finance Commission plays a crucial role in addressing the financial needs of the Union and State governments, thereby fostering cooperation and balanced economic growth. Its recently defined terms of reference reflect the need for adaptability in fiscal policies to meet contemporary challenges, including fiscal discipline and effective disaster management.