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Finance Commission of India

The Finance Commission is established by Article 280 of the Constitution. Within two years of the constitution's inception, the President shall establish a Finance Commission, and thereafter at the end of every fifth year or at such earlier times as he deems necessary.


The president will appoint the Finance Commission's chairman and four other members. Parliament may specify in law the qualifications that members of the commission must meet in order to be appointed, as well as the process by which they will be chosen.


The other four members shall be selected from among persons who


  • are or have been or are qualified to be appointed as Judges of a High Court

  • have special knowledge of the finance and accounts of government

  • Have had wide experience in financial matters and in administration or

  • have special knowledge of economics.


Parliament passed the Finance Miscellaneous Provisions Act 1951 in the exercise of its Article 81 power. It requires that the chairman of the commission be chosen from individuals with prior experience in public affairs.




What are the duties that 'Finance Commission' performs?



It shall be the duty of the Commission to make recommendations to the President as to:


  • The distribution between the union and the states of the net proceeds of taxes, which are to be or maybe, divided between them under this chapter and the allocation between the states of the respective shares of such proceeds.


  • the principle which should govern the grants-in-aid of the revenues of the state out of the consolidated funds of India


  • the measures needed to the argument the consolidated fund of the 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.


  • The measures were necessary to persuade the state's concert front to supplement the municipal resources of the state on the recommendation of the state's finance commission.


  • The president may refer to the Constitution in the interest of sound financial management.


The commission shall determine their output and shall be empowered by parliament to carry out their designated functions. Article 281 requires the president to present each finance commission recommendation to each house of parliament, along with an explanatory memorandum.


The revenue distribution scheme illustrates the distribution of legislative and administrative powers and their tendency to be centralised.


Although the centre's resources are numerous and distributed, the state's resources are highly consolidated, and the state's responsibilities are numerous. The government must implement all welfare programmes.


As a result, the state relies on the federal government for financial support. The states receive these funds in the form of grants in accordance with the finance commission's recommendations for the centre.


The primary responsibility for citizens' well-being rests with the states.


Centralization of financial control appears to be a violation of the federation principles enshrined in the Indian Constitution. This, however, must be understood in the context of Indian history and constitutional analysis in order to irritate and strengthen India's unity. The Central Government is ultimately responsible for economic unity and, as a result, for the welfare of the country.


The federation's morning hours demonstrate a trend toward centralization, and the issue of centre-state relations is more serious in Hindi than the speed with which funds are distributed. Another issue is the emergence of a planning commission as an executive body in this regard. The Indian government passed a resolution establishing it. It is not a statutory body in the manner in which a finance commission is a statutory body.


The planning commission, on the other hand, distributes the remaining control grants to the states, while the finance committee does so.


The 15th Finance Commission


What are the various grants that the 15th Finance Commission has recommended?


The Finance Commission's Terms of Reference require it to make grant-in-aid recommendations to the states. These grants are divided into the following categories:

  • I revenue deficit grants, II grants to local governments, and III disaster management grants


As a result of devolution, 14 states are expected to face revenue shortfalls. To make up for this shortfall, the Commission has recommended that these 14 states receive revenue deficit grants totalling Rs 74,341 crore.


Furthermore, three states (Karnataka, Mizoram, and Telangana) were given special grants totalling Rs 6,674 crore. The special grants are being made to make up for the fact that the total amount of tax devolution and revenue deficit grants in 2020-21 will be less than in 2019-20.


For 2020-21, the Commission has recommended a total grant to local bodies of Rs 90,000 crore. This represents a 4.31 per cent increase over the Rs 87,352 crore budgeted for the same purpose in 2019-20.


Rural local bodies will receive Rs 60,750 crore, while urban local bodies will receive Rs 29,250 crore. Panchayats at the village, block and district levels will receive these funds.


The Commission advocated for the creation of National and State Disaster Management Funds to aid in community-level mitigation efforts.


The State Disaster Risk Management Fund has been recommended for a grant of Rs 28,983 crore, while the National Disaster Risk Management Fund has been recommended for a grant of Rs 12,390 crore.


Aside from that, there are guidelines for performance-based grantmaking and sector-specific grants.


In 2020-21, the Commission proposes a grant of Rs 7,375 crore for nutrition. Grants will be included in the final report for the following sectors:

  • I nutrition

  • II health

  • III pre-primary education

  • IV judiciary

  • V railways.

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