Govt begins process of constituting Sixteenth Finance Commission

  • November 8, 2023
  • Posted by: OptimizeIAS Team
  • Category: DPN Topics
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Govt begins process of constituting Sixteenth Finance Commission

Subject :Polity

Section: Federalism

Context: Govt begins process of constituting Sixteenth Finance Commission

More about the news:

  • The Indian government has initiated the formation of the Sixteenth Finance Commission, a body responsible for determining the tax-sharing formula between the central and state governments.
  • The commission is expected to be constituted later this year, with the announcement of its Terms of Reference and members to follow after state elections.
  • States have already submitted their suggestions for these terms.
  • Ritvik Ranjanam Pandey, a 1998-batch IAS officer from the Karnataka cadre, was appointed as the Officer on Special Duty for the commission.
  • The Sixteenth Finance Commission will operate over a five-year period starting from 2026-27, and its recommendations will be included in the 2026-27 budget.
  • The commission’s role is to address vertical imbalances in taxation powers and expenditure responsibilities between the central government and the states, as well as to equalize public services across the states.
  • The 15th Finance Commission, led by NK Singh, submitted two reports, one for the financial year 2020-21 and the other for the 2021-26 period, with the latter recommending a 41% share of central taxes for the states, in contrast to the 42% share proposed by the 14th Finance Commission for the 2015-20 period.

What is Finance Commission:

  • The 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 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.
  • The recommendations made by the Finance Commission are of an advisory nature only and therefore, not binding upon the government.
  • The first Finance Commission was set up in 1951
  • The Fifteenth Finance Commission was constituted on 27 November 2017 under N.K.Singh

What is the Composition of Finance Commission:

  • The President shall constitute a Finance Commission which shall consist of a Chairman and four other members to be appointed by the President.
  • Qualifications for members of the Finance commission as per Finance commission act,1951:
    • Chairperson – Individual with experience of public affairs
    • Member 1 – High court judge or qualified to be one.
    • Member 2 – special knowledge of finance and accounts of government.
    • Member 3 – special knowledge of economics.
    • Member 4 – wide experience in financial matters and administration.
Govt begins process of constituting Sixteenth Finance Commission Polity