What is a Finance Commission? Discuss the main functions of the State Finance Commission.
The Finance Commission is a Constitutionally mandated body that is at the centre of fiscal federalism. Set up under Article 280 of the Constitution, its core responsibility is to evaluate the state of finances of the Union and State Governments, recommend the sharing of taxes between them, lay down the principles determining the distribution of these taxes among States. Its working is characterised by extensive and intensive consultations with all levels of governments, thus strengthening the principle of cooperative federalism. Its recommendations are also geared towards improving the quality of public spending and promoting fiscal stability. The first Finance Commission was set up in 1951 and there have been fifteen so far. Each of them has faced its own unique set of challenges.
The Fifteenth Finance Commission was constituted on 27 November 2017 against the backdrop of the abolition of Planning Commission (as also of the distinction between Plan and non-Plan expenditure) and the introduction of the goods and services tax (GST), which has fundamentally redefined federal fiscal relations.
Powers & functions of State Finance Commission (constituted as per Article 243I)
It makes recommendations with respect to
- Distribution of The principles net proceeds of the taxes, duties, tolls and fees leviable by the State between the State and the Panchayats.
- The determination of the taxes, duties, tolls and fees which may be assigned as, or appropriated by, the Panchayats.
- The grants-in-aid to the Panchayats from the Consolidated Fund of the State.
- The measures needed to improve the financial position of the Panchayats.
- Any other matter referred to the Finance Commission by the Governor in the interests of sound finance of the Panchayats.
- Article 243Y of the Constitution further provides that the Finance Commission constituted under Article 243 I shall make similar recommendation vis-à-vis municipalities.
The recommendations made are recommendatory in nature and not binding on the Governor or the state government.
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