Centre to roll out process to set up 16th Finance Commission soon

Subject: Polity

Section: National body

Concept:

The Union Government is expected to initiate the process of establishing the 16th Finance Commission.
The Finance Commission is a constitutional body that is tasked with recommending the revenue-sharing model between the Union and the States and their distribution among the States.
As per the Indian Constitution, a Finance Commission is to be set up every five years.
The 15th Finance Commission was established in November 2017 with a mandate to make recommendations for the five-year period from 2020-21 and its mandate was extended by a year till 2025-26, breaking the cycle.
The last time a Finance Commission was granted a six-year time frame was for the 9th Finance Commission which was set up in 1987.
The Union Finance Ministry will usually notify the terms of reference for the Finance Commission and the Commission is usually given close to two years to deliberate on its terms of reference, consult States and frame its recommendations.
Experts believe that a key new challenge for the 16th Finance Commission would be the co-existence of the GST Council which is another permanent constitutional body.
Experts feel that GST Council’s decisions on tax rate changes could alter the revenue calculations made by the Finance Commission for sharing fiscal resources.

Finance Commission

Finance Commission is a constitutional body for the purpose of allocation of certain revenue resources between the Union and the State Governments.
It was established under Article 280 of the Indian Constitution by the Indian President.
It was created to define the financial relations between the Centre and the states. It was formed in 1951.
It shall be the duty of the Commission to make recommendations to the President in relation to the:
the distribution between the Union and the States of the net proceeds of taxes which are to be, or maybe, divided between them and the allocation between the States of the respective shares of such proceeds;
the principles which should govern the grants in aid of the revenues of the States out of the Consolidated Fund of India;
any other matter referred to the Commission by the President in the interests of sound finance
The Commission shall determine their procedure and shall have such powers in the performance of their functions as Parliament may by law confer on them.

Composition of Finance Commission

Chairman: Heads the Commission and presides over the activities. He should have had public affairs experience.
Four Members.
The Parliament determines legally the qualifications of the members of the Commission and their selection methods.

Qualifications of Finance Commission Chairman and Members

Parliament specifies chairman to be a person of experience in public affairs.
The 4 members should be or have been qualified as High Court judges, or be knowledgeable in finance or experienced in financial matters and are in administration, or possess knowledge in economics.
All the appointments are made by the President of the country.
Grounds of disqualification of members: found to be of unsound mind, involved in a vile act, if there is a conflict of interest
The tenure of the office of the Member of the Finance Commission is specified by the President of India and in some cases, the members are also re-appointed.
The members shall give part-time or service to the Commission as scheduled by the President.
The salary of the members is as per the provisions laid down by the Constitution.

Advisory Role of Finance Commission

The recommendations made by the Finance Commission are of an advisory nature only and therefore, not binding upon the government.
It is up to the Government to implement its recommendations on granting money to the states.