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- The Finance Commission is a constitutional body established under Article 280 of the Indian Constitution.
- Its primary function is to make recommendations regarding the distribution of financial resources between the Union and the States.
- The President of India constitutes the Finance Commission every five years or as deemed necessary.
- The Finance Commission consists of a Chairperson and four other members appointed by the President.
- The qualifications of the members are determined by Parliament through legislation.
- The Commission’s main responsibility is to recommend the distribution of tax revenue between the Union and the States.
- It also advises on the allocation of resources among various States based on their needs and contributions.
- The Finance Commission makes recommendations regarding grants-in-aid from the Consolidated Fund of India to States.
- It ensures a fair and equitable financial relationship between the Union and the States.
- The Commission takes into account factors like population, income disparity, and fiscal efficiency while making recommendations.
- The recommendations of the Finance Commission are advisory in nature and not binding on the government.
- The First Finance Commission was established in 1951 under the chairmanship of K.C. Neogy.
- The 15th Finance Commission, chaired by N.K. Singh, was constituted in 2017.
- The Finance Commission also assesses the impact of Goods and Services Tax (GST) on financial resources.
- It reviews and recommends measures for improving the financial stability of the States.
- The Commission plays a crucial role in fostering cooperative federalism.
- The principles of equity, efficiency, and adequacy guide the recommendations of the Finance Commission.
- The Finance Commission submits its report to the President, which is then laid before Parliament.
- The recommendations often influence the fiscal policies and priorities of the Union and State governments.
- The Finance Commission promotes fiscal discipline at both Union and State levels.
- It evaluates the financial needs of States for various sectors such as health, education, and infrastructure.
- The Commission is also tasked with recommending measures to augment the resources of panchayats and municipalities.
- The Finance Commission ensures that States with weaker economies receive adequate financial support.
- The body plays a key role in ensuring the proper devolution of financial resources to grassroots governance institutions.
- The Commission’s work is supported by a dedicated team of economists, statisticians, and administrative staff.
- The Finance Commission addresses challenges like regional disparities and fiscal imbalances.
- The Constitution empowers the Finance Commission to define its scope and terms of reference.
- It reviews the debt levels of the Union and the States and suggests remedial measures.
- The Finance Commission’s reports often highlight systemic inefficiencies in public finance management.
- The role of the Finance Commission has expanded over time, addressing contemporary fiscal challenges.
- Its recommendations help in strengthening the financial autonomy of the States.
- The Finance Commission provides a platform for the Union and States to negotiate fiscal issues.
- The body emphasizes the need for financial prudence in managing public resources.
- The Finance Commission ensures horizontal equity by addressing the fiscal needs of different States.
- The 14th Finance Commission increased the share of States in central taxes from 32% to 42%.
- The Finance Commission’s role in determining fiscal transfers is critical for maintaining economic stability.
- The recommendations have a significant impact on the annual Union and State Budgets.
- The Finance Commission works in close coordination with other constitutional bodies like the Planning Commission (now NITI Aayog).
- The Commission’s inputs are vital for framing inclusive growth policies in India.