Functions of Finance Commission and Formation | Indian Constitution Download PDF
Articles 270, 273, 275 and 280 provide for the constitution of a Finance Commission (at five year intervals) to recommend to the President certain measures relating to the distribution of financial resources between the Union and the States—for instance, the percentage of the net proceeds of income-tax which should be assigned by the Union to the States and the manner in which the share to be assigned shall be distributed among the States [Art. 280].
The constitution of the Finance Commission is laid down in Art. 280, which has to be read with the Finance Commission (Miscellaneous Provisions) Act of 1951, which has supplemented the provisions of the Constitution. Briefly speaking, the Commission has to be constituted by the President, every five years. The Chairman must be a person having ‘experience in public affairs’; and the other four members must be appointed from amongst the following—
(a) A High Court Judge or one qualified to be appointed as such; (b) a person having special knowledge of the finances and accounts of the Government; (c) a person having wide experience in financial matters and administration ; (d) a person having special knowledge of economics.
It shall be the duty of the Commission to make recommendations to the President as to—
(a) the distribution between the Union and the States of the net proceeds of taxes which are to be, or may be, divided between them under this Chapter and the allocation between the States of the respective shares of such proceeds;
(b) the principles which should govern the grants-in-aid of the revenues of the States out of the Consolidated Fund of India;
(c) the measures needed to augment the Consolidated Fund of a State to supplement the resources of the Panchayats in the State;5
(d) the measures needed to augment the Consolidated Fund of a State to supplement the resources of the Municipalities in the State;6
(e) any other matter referred to the Commission by the President in the interests of sound finance.
The First Finance Commission
The First Finance Commission was constituted in 1951, with Sri Neogy as the Chairman, and it submitted its report in 1953.
Government accepted its recommendations which, ’ inter alia, were that—
(a) 55 per cent of the net proceeds of income-tax shall be assigned by the Union to the States and that it shall be distributed among the States in the shares prescribed by the Commission.
(b) The Commission laid down the principles for guidance of the Government of India in the matter of making general grants-in-aid to States which require financial assistance and also recommended specific sums to be given to certain States such as West Bengal, Punjab, Assam, during the five years from 1952 to 1957.
The Second Finance Commission
A Second Finance Commission, with Sri Santhanam as the Chairman was constituted in 1956. Its report was submitted to Government in September, 1957 and its recommen- ’ dations were given effect to for the quinquennium commencing from April, 1957.
The Third Finance Commission
A Third Finance Commission, with Sri A.K. Chanda as its Chairman, was appointed in December, 1960. It submitted its report in 1962.
The Fourth Finance Commission
The Fourth Finance Commission with Dr. RAJAMANNAR, retired Chief Justice of the Madras High Court, as its Chairman, was constituted in May, 1964.
The Fifth Finance Commission
A Fifth Finance Commission, headed by Sri Mahavir Tyagi, was constituted in March, 1968, with respect to the quinquennium commencing from 1-4-1969. It submitted its final report in July 1969, and recommended that the States’ share of income-tax should be raised to 75 per cent and of Union Excise duties should be raised to 20 per cent.
The Sixth Finance Commission
The Sixth Finance Commission, headed by Sri Brahmananda Reddy, submitted its Report in October, 1973. This Commission was, for the first time, required to go into the question of the debt position of the States and their non-plan capital gap.
The Seventh Finance Commission
A Seventh Finance Commission was appointed in June, 1977 in relation to the next quinquennium from 1979, with Sri Shelat,
The Seventh Finance a retired Judge of the Supreme Court as its Chairman, ommission. q submitted its report in October, 1978.
The Eighth Finance Commission
The Eighth Finance Commission was set up in 1982, with ex-Minister, Shri Y.B. Chavan as its head.
The Eighth Finance Commission submitted its report in 1984, but its recommendations, granting moneys to the States, were not implemented by the Government of India, on the ground of financial difficulties and late receipt of the Commission’s Report. Obviously, this placed some of the States in financial difficulty and the State of West Bengal raised vehement protest against this unforeseen situation. Responsible authorities in West Bengal threatened litigation but eventually nothing was done presumably because the matter was non-justiciable. Article 280(3) enjoins die Finance Commission to make ‘recommendations’ to the President and the only duty imposed on the President, by Art. 281, is to lay the recommendations of the Commission before each House of Parliament. It is nowhere laid down in the Constitution that the recommendations of the Commission shall be binding upon the Government of India or that it would give rise to a legal right in favour of the beneficiary States to receive the moneys recommended to be offered to them by the Commission. Of course, non-implementation would cause grave dislocation in States which might have acted upon their anticipation founded on the Commission’s Report. The remedy for such dislocation or injustice lies only in the ballot box.
The Ninth Finance Commission
The Ninth Finance Commission headed by Shri N.K.P. Salve, submitted its reports in 1988 and 1989; all its recommendations have been accepted by the
The Tenth Finance Commission
The Tenth Finance Commission was constituted on 16-6-1992, with Shri The Tenth Finance K.C. Pant as its Chairman. It submitted its report on 23-11-2004
The Eleventh Finance Commission
The Eleventh Finance Commission was constituted on 3-7-1998 It submitted its report on 7-7-2000.
The Twelfth Finance Commission
The Twelfth Finance Commission was constituted on 1-11-2002 with Dr. C. Rangarajan as its Chairman. It submitted its report on 17-12-2004.
The Thirteenth Finance Commission
The Thirteenth Finance Commission was constituted on 1-11-2007 with Shri Vijay Kelkar as its Chairman and has submitted its report in December, 2009
The Fourteenth Finance Commission
The President of India constituted Fourteenth Finance Commission vide notification as published in the Gazette of India dated 02-01-2013 consisting of Dr. Y.V. Reddy, former Governor, Reserve bank of India as Chairman and four other members—former Finance Secretary Sushma Nath, NIPFP Director M. Govinda Rao, Planning Commission Member Abhijit Sen and Former Acting Chairman of National Statistical Commission Sudipto Mundle. The five-member panel is to submit its report by October 31, 2014. Apart from its recommendations on the sharing of tax proceeds between the Centre and the States which will apply for a five-year period beginning April 1, 2015, the Commission has been asked to suggest steps for pricing of public utilities such as electricity and water in an independent manner and also look into issues like disinvestment, GST compensation, sale of non-priority PSUs and subsidies. Among other things, the Commission would look into the “need for insulating die pricing of public utility services like drinking water, irrigation, power and public transport from policy fluctuations through statutory provisions”.
The Fourteenth Finance Commission has submitted its recommendations for the period 2015-16 to 2020-21. They are likely to have major implications for the Center-State relations.