Q. Give an account of the composition and functions of the Finance Commission as mentioned in the Constitution of India.

The Finance commission is a constitutional body which is set up at an interval of every five years by the President under Article 280 of the Indian Constitution. It is assigned the task of enabling transfer of resources from the Centre to the states and its distribution among the states to overcome the vertical and horizontal imbalances in India’s federal structure.

Composition of the Finance Commission:

It consists of a Chairman and four other members, appointed by the President. However, the qualifications of these members and manners of their selection are determined by the Parliament, as authorized by the constitution.

Accordingly, the Chairman must be a person having ‘experience in Public Affairs’ and the other four members must be appointed from amongst the following:

  • A High Court Judge or one qualified to be appointed as such
  • A person having special knowledge of the finance and accounts of the government
  • A person having wide experience in financial matters and administration
  • A person having special knowledge of economics

Functions of the Finance Commission:

As mentioned in Article 280 (3), its function is to make recommendations to the President regarding:

  • The distribution of the net proceeds of taxes between the Union and the States and the allocation of such proceeds between the states.
  • The principles which should govern the grants-in-aid of the revenue of the states out of the Consolidated Fund of India.
  • The measures needed to augment the Consolidated Fund of a State to supplement the resources of the Panchayats and the Municipalities in the state.
  • Any other matter referred to the commission by the President in the interests of sound finance.

Hence, Finance Commission is a critical institution to strengthen fiscal federalism and improve the quality of public spending. Till date, fifteen Finance Commissions have been constituted. The most recent was constituted in 2017, headed by Dr. N.K. Singh.

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