Appointment and TOR of 16th Finance Commission

  • January 1, 2024
  • Posted by: OptimizeIAS Team
  • Category: DPN Topics
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Appointment and TOR of 16th Finance Commission

Subject: Polity

Section: National Body

Context:

  • Arvind Panagariya, former Vice Chairman of NITI Aayog appointed as Chairman of the 16th Finance Commission.
  • The 16th Finance Commission is tasked to submit its Report by October 31, 2025.
  • Covers a period of five years from April 1, 2026.

Qualification:

Qualifications for appointment as, and the manner of selection of, members of the commission

The Chairman of the Commission shall be selected from among persons who have had experience in public affairs, and the four other members shall be selected from among persons who–

(a) are, or have been, or are qualified to be appointed as Judges of a High Court

(b) have special knowledge of the finances and accounts of Government

(c) have had wide experience in financial matters and in
administration

(d) have special knowledge of economics.

Major Terms of Reference for 16th Finance Commission:

  1. Division of Tax Proceeds:
    • Recommending the distribution of taxes between the Union Government and the States under Chapter I, Part XII of the Constitution.
    • Includes the allocation of shares among the States from these tax proceeds.
  2. Principles for Grants-in-Aid:
    • Establishing principles governing grants-in-aid to the States from the Consolidated Fund of India.
    • Determines amounts to be provided to the States as grants-in-aid under Article 275 of the Constitution.
  3. Enhancing State Funds for Local Bodies:
    • Identifying measures to enhance the Consolidated Fund of a State to supplement resources available to Panchayats and Municipalities.
    • Based on recommendations made by the State’s own Finance Commission.
  4. Evaluation of Disaster Management Financing:
    • The Commission may review current financing structures related to Disaster Management initiatives.
    • Examines funds created under the Disaster Management Act, 2005, and presents suitable recommendations for improvements or alterations.

Key Recommendations of 15th Finance Commission:

  • Maintained states’ share in central taxes at 41% for the 2021-26 period, a slight reduction from the 42% allocated during 2015-20 by the 14th Finance Commission.
  • Adjustment accommodates the newly formed union territories of Jammu and Kashmir and Ladakh.
  • Advised the Centre to limit its fiscal deficit to 4% of GDP by 2025-26.
  • Proposed a Modernisation Fund for Defence and Internal Security.
  • Recommendations for Centrally Sponsored Schemes (CSS), including setting a threshold for annual CSS allocations.

What is the Finance Commission?

  • The Finance Commission is a constitutional body established under Article 280 of the Indian Constitution.
  • Its primary function is to recommend the distribution of financial resources between the central government and the state governments.
  • The Fifteenth Finance Commission, made recommendations covering the period of six years commencing on April 1, 2020.
  • Criteria include factors like income distance, area, population, demographic performance, forest cover, and tax and fiscal efforts.

Appointment and TOR of 16th Finance Commission Polity