FINANCE COMMISSION (Syllabus: GS Paper 2 – Polity)

Context: Public debt management is getting wider attention in Centre-State financial relations, against the backdrop of recently constituted Sixteenth Union Finance Commission.

Finance Commission

• About: Article 280 of the Constitution of India provides for a Finance Commission as a quasi judicial body. 
• Constituted by: President of India every fifth year or at such earlier time as he considers necessary.
• Composition: Chairman and four other members to be appointed by the president.
• Tenure: They hold office for such period as specified by the president in his order.
• Recommendation of Commission: The recommendations made by the Finance Commission are only of advisory nature, not binding on the government.
• Fifteenth Finance Commission was constituted: On November 27, 2017
• Function:

oNet proceeds of taxes: The distribution between the Union and the States of the net proceeds of taxes which are to be, or may be, divided between them and the allocation between the States of the respective shares of such proceeds. 

oGrants-in-aid: The principles which should govern the grants-in-aid of the revenues of the States out of the Consolidated Fund of India.

oConsolidated Fund of a State: The measures needed to augment the Consolidated Fund of a State to supplement the resources of the Panchayats in the State on the basis of the recommendations made by the Finance Commission of the State.

oSupplement to municipalities: The measures needed to augment the Consolidated Fund of a State to supplement the resources of the Municipalities in the State on the basis of the recommendations made by the Finance Commission of the State.

oPresident reference: Any other matter referred to the Commission by the President in the interests of sound finance.

Public Finance

• About: It encompasses the examination of the government's involvement in the economy, including its revenue generation and expenditure allocation.
• Revenue and Expenditure Assessment: It involves evaluating government revenue and expenditure to achieve favorable outcomes and mitigate unfavorable ones.
• The purview of public finance is:

oThe efficient allocation of available resources;

oThe distribution of income among citizens; and

oThe stability of the economy.