Finance Commission

• Article 280 of the Constitution provides for a Finance Commission.
• It is a quasi-judicial body.
• Constituted by the President of India every fifth year or earlier if necessary.
• Fifteen Finance Commissions have been constituted so far.

Composition:

• Consists of a chairman and four other members appointed by the President.
• Members are eligible for reappointment.
• Parliament determines qualifications and selection manner.
• Chairman should have experience in public affairs.
• Four other members should be selected from:
  • A judge of high court or one qualified.
  • A person with specialised knowledge of finance and accounts of the government.
  • A person with wide experience in financial matters and administration.
  • A person who has special knowledge of economics.

Functions:

• Makes recommendations to the President on:

  • Distribution of net proceeds of taxes between the Centre and states.
  • Principles governing grants-in-aid to states from the consolidated fund of India.
  • Measures to augment a state's consolidated fund to supplement resources of panchayats and municipalities, based on state finance commission recommendations.
  • Any other matter referred by the President in the interest of sound finance.

• Until 1960, the commission also suggested grants to Assam, Bihar, Odisha, and West Bengal in lieu of export duty on jute products.

• The function related to panchayats and municipalities was added by the 73rd and 74th Constitutional Amendments of 1992.

• The commission submits its report to the President, who lays it before Parliament with an explanatory memorandum.

Advisory Role:

• Recommendations are advisory, not binding.
• The Union government decides whether to implement recommendations on granting money to states.
• The Constitution doesn't mandate binding recommendations or create legal rights for beneficiary states.
• Dr. P.V. Rajamannar: Recommendations should only be turned down for compelling reasons.
• The Finance commission is the balancing wheel of fiscal federalism in India.
• Till 2014, The Planning Commission undermined the Finance Commission
• Overlapping functions existed between the Finance Commission and the Planning Commission.
• The Planning Commission was replaced by NITI Aayog in 2015.

Finance Commissions Appointed so far

Finance Commission	Chairman	Appointed in	Submitted Report in	Period of implementation of Report
First	K.C. Neogy	1951	1952	1952-57
Second	K. Santhanam	1956	1957	1957-62
Third	A.K. Chanda	1960	1961	1962-66
Fourth	Dr. P.V. Rajamannar	1964	1965	1966-69
Fifth	Mahavir Tyagi	1968	1969	1969-74
Sixth	Brahmananda Reddy	1972	1973	1974-79
Seventh	J.M. Shelat	1977	1978	1979-84
Eighth	Y.B. Chavan	1982	1984	1984-89
Ninth	N.K.P. Salve	1987	1989	1989-95
Tenth	K.C. Pant	1992	1994	1995-2000
Eleventh	A.M. Khusro	1998	2000	2000-2005
Twelfth	Dr. C. Rangarajan	2002	2004	2005-2010
Thirteenth	Dr. Vijay Kelkar	2007	2009	2010-2015
Fourteenth	Y.V. Reddy	2013	2014	2015-2020
Fifteenth	N.K. Singh	2017	2019 & 2020	2020-2026

Articles Related to Finance Commission at a Glance

Article No.	Subject-matter
280.	Finance Commission
281.	Recommendations of the Finance Commission