The finance commission of india was established on 22nd november, 1951,it was established under article 280 of the indian constitution by the president of india,it was formed to describe the financial relations between the centre and the state.
The finance commission has been provieded for tha indian constitution as part of the scheme of division of financial resources between the two different sets of governments. Finance commission also serves as a constitutional body for the purpose of allocation of certional resources of income between the union and the state governments.
Article 280 of Indian Constitution provides for the establishment of a finance comission. The President shall within two years from the commencement of the Constitution and thereafter at the expiration of every fifth year or at such earlier time as he considers necessary constitute a Finance Comission. The finance commission shall consist of a chairman and four other members appointed by the president parliament may by law prescribe qualifications which shall be requisite for appointment as members of the commission and the manner in which they shall be selected.
The finance commission should be entrusted with the following functions
- To allocate between the provinces the respective shares of the proceeds of taxes that have to be divided between them.,
- To consider applications for grants-in-from provinces and report thereon;
- To cosider and report on any other matter reffered to it by the presidents.[1]
While these categories wolld exhaust the duties of the commision,it shouldbe open to the commission to make any recommendations it may thin expedient in the course of the discharge of these duties.It may,for example suggest a variation in the heads of revenue assigned to the provinces i.e.,the transfer of new heads or a reduction in the shares. In making all such recommendations, the the commission will take into account all relevant matters, including the state of finances of the Centre. Its recommendations, insofar as they do not involve any change in the Constitution, if similalry accepted by him, would dealt with like any other proposed amendment to the Constitution
The Commissinon’s first function would be of the nature of an arbitration,and,therefore, the Commission’s decisions will be final. As regards the second function, we have no doubt that the recommendation of the Commission in respect of grants-in-aid would be given the utmost weight by the president and not ordinarily departed from by him.
The basis for the allocationof revenues reffered to in item (a) should ordinarily be setteled by the Commission at the intervals of five years but it should be open to the Commission shorten the interval if it feels satisfied on special circumstances that such shortening is called for.
We would further recommend in order to save time, that the finance Commission may be set up in advance of the coming into effect of the Constitution, and its status regularised after the constitution comes into effect.
The Finance Commission (Miscelleanous Provisions) Act 1951 made under clause (1) of Article 280 of the Commission requires that the Chairmanof the Commission shall be selectedfrom among persons who have had experience in public affairs ,and the four other members shall be selected fron among persons who 1)are, or have been, or are qualified to be as judges of a High Court; or 2) have special knowledge of the finance and accounts of government; or 3)have had wide experience in financial matters and in administration; or 4) have special knowledge of economics. Every member of the Commission shal hold office for such period as may be specified in the order of the President appoiting him shall be eligible for reappointment. The members of the Commission shall render whole-time or part-time service to the comission, as the President may in each case specify. The Comission shall determine their procedure and in perfermance if their functions shall have all the powers of a civil court while trying a suit in respect of summoning and enforcing the attendance of witnesses,production of any document, and requisitioning any public record from any court or office. The Commission shall also have power to require any preson to furnish information on such points or matter as in the opinion of the Commission may be useful for, or relevant to, any matter under its consideration.
Clauses (bb) and(c) have been inserted in Article 280(3) inn veiw of the New provisions for Panchayats and Muicipalities in Part IX and Part IX-A.
Duties of Finance Comission.—It shall be the duty of the Commission to make recommendations to the President as to—
(a)the distribution between the Union and the States of the net proceeds of the taxes which are to be, or may be, divided between them under this Chapter ad the alloction between the States of the respective shares of suc proceeds;
(b) the principle which should govern the grants-in-aid of the revenues of the State out of the Consolidated fund of India;
(c)the measures needed to augument the Consolidated Fund of State to supplement the resources of the Panchayats in the State on the basis of the recommendations made by the Finance Comission of the State.
(d)the measure needed to augument the Consolidated Fund of a State to supplement the resources of the muncipalities in a State on the basis of the recommendations made by the Finance Commission of the State.
(e) any other matter reffered to the commisson by the president in the intrest of the sound finance.
The scheme of the distribution of revenues indicates, like distribution of legislative and admiistrative powers, a clear tendency centralisiation. The Centre’s resources are many and vast but the State resources are very meagre while the responsibilities of the States are manifold. The State has to implement all the welfare schemes. Consequently,the States are dependent upon Centre for funds. These Funds are given to the States by Centre on the recommendation of the Finance Commisision in the Form of grants. The States are primarily responsible for the well being of the citizens.
The control of Centre over finance appear to be a violation of the principles of the federation which is adopted in the Indian Constitution. But this is to be understood in the context of gthe historical background underlying the Indian Constitution,that is, for consolidating and strengthening the unity of India. It is Central government which is ultimatelyresponsible for maintaing economic unity and thereby maintaining the welfare of the country.
This tendency towards centralisation is seenin the modern times in all the federations. The problems of the Centre-State relations is more serious in the sphere of distribution of finances. The Government of India by its resolution created in 1950 a non-statuory body known as Planning Commission for recommending grants by the Central Government to the States. The grants to be recommended by the Planning Commission were discretionary. In fact,out of the total grants made in a year inly 30% was under purveiw of the Finance Commission and 70% was discretionary grant given to the States on the recommendation of the Planning Commission. The Prime Minister was ex-officio Chairman of the Planning commission. The ex-office members of the Comission were Finance Minister,Agriculture Minister,Home Minister,Health Minister, Chemicals and Fertilisers Ministers, Information Technology Minister, Law Minister, HRD Minister and Minister of state of Planning. The Planning Commission proved to be more powerful than the Finance Commission. The Planning commission was not a permanent body but its recommendation were limited to five year plans. The allocation of funds by Planning Commission to the States was deeply resented by the States and various government departments. The planning Commission was abolished on August 13, 2014.
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