BBAGE 201-18 Managerial Economics-II, Macro-economic Framework in Indian Economy-Financial Administration: Finance Commission.

2. FINANCIAL ADMINISTRATION: FINANCE
COMMISSION
 The Finance Commission ( Vitta Āyoga) was
established by the President of India in 1951
under Article 280 of the Indian Constitution.
 It was formed to define the financial relations between
the central government of India and the individual state
governments.
 The Finance Commission (Miscellaneous Provisions) Act,
1951 additionally defines the terms of qualification,
appointment and disqualification, the term, eligibility and
powers of the Finance Commission.
 As per the Constitution, the Commission is appointed
every five years and consists of a chairman and four
other members.

3. FINANCIAL ADMINISTRATION: FINANCE
COMMISSION
 There have been fifteen commissions to date. The most
recent was constituted in 2017 and is chaired by N. K.
Singh, a former member of the Planning Commission.

4. FUNCTIONS
 Distribution of net proceeds of taxes between
Center and the States, to be divided as per their
respective contributions to the taxes.
 Determine factors governing Grants-in-Aid to the
states and the magnitude of the same.

5. FUNCTIONS
 To make recommendations to the president as to
the measures needed to augment the Fund of a
State to supplement the resources of the
panchayats and municipalities in the state on the
basis of the recommendations made by the finance
commission of the state.
 Any other matter related to it by the president in the
interest of sound finance.
 A finance commission is an autonomous body
which is governed by the government of India.

6. THE FINANCE COMMISSION (MISCELLANEOUS
PROVISIONS) ACT, 1951
 The Finance Commission (Miscellaneous
Provisions) Act, 1951 was passed to give a
structured format to the finance commission and to
bring it to par with world standards, by laying down
rules for the qualification and disqualification of
members of the commission, and for their
appointment, term, eligibility and powers.

7. THE FINANCE COMMISSION (MISCELLANEOUS
PROVISIONS) ACT, 1951
 Qualifications of the members
The Chairman of a finance commission is selected from
people with experience of public affairs. The other four
members are selected from people who:
1. Are, or have been, or are qualified, as judges of a high
court,
2. Have knowledge of government finances or accounts,
or
3. Have had experience in administration and financial
expertise; or
4. Have special knowledge of economics.

8. THE FINANCE COMMISSION (MISCELLANEOUS
PROVISIONS) ACT, 1951
 Disqualification from being a member of the
commission
A member may be disqualified if:
1. He is mentally unsound; and as follows-
2. He is an undercharged insolvent;
3. He has been convicted of an immoral offence;
4. His financial and other interests are such that it hinders
the smooth functioning of the commission.

9. THE FINANCE COMMISSION (MISCELLANEOUS
PROVISIONS) ACT, 1951
 Salaries and allowances of the members
The members of the commission shall provide full-time or
part-time service to the commission, as the President
specifies in his order. The members shall be paid salaries
and allowances as per the provisions made by
the Central Government.

10. LIST OF FINANCE COMMISSIONS
Finance
Commission
Year of
establishment
Chairman
Operational
duration
First 1951 K. C. Neogy 1952–57
Second 1956 K. Santhanam 1957–62
Third 1960 A. K. Chanda 1962–66
Fourth 1964 P. V. Rajamannar 1966–69
Fifth 1968 Mahaveer Tyagi 1969–74
Sixth 1972
K. Brahmananda
Reddy
1974–79
Seventh 1977 J. M. Shelat 1979–84
Eighth 1983 Y. B. Chavan 1984–89
Ninth 1987 N. K. P. Salve 1989–95
Tenth 1992 K. C. Pant 1995–00
Eleventh 1998 A. M. Khusro 2000–05
Twelfth 2002 C. Rangarajan 2005–10
Thirteenth 2007 Dr. Vijay L. Kelkar 2010–15
Fourteenth 2013 Dr. Y. V Reddy 2015–20
Fifteenth 2017 N. K. Singh 2020–25

11. 14TH FINANCE COMMISSION
 Major Recommendations of 14th Finance
Commission headed by Prof. Y V Reddy
1. The share of states in the net proceeds of the
shareable Central taxes should be 42%. This is
10 percentage points higher than the
recommendation of 13th Finance Commission.
2. Revenue deficit to be progressively reduced and
eliminated.
3. Fiscal deficit to be reduced to 3% of the GDP by
2017–18.

12. 14TH FINANCE COMMISSION
 Major Recommendations of 14th Finance
Commission headed by Prof. Y V Reddy
4. A target of 62% of GDP for the combined debt of
centre and states.
5. The Medium Term Fiscal Plan (MTFP) should be
reformed and made the statement of commitment
rather than a statement of intent.
6. FRBM Act needs to be amended to mention the
nature of shocks which shall require targets
relaxation.

13. 14TH FINANCE COMMISSION
 Major Recommendations of 14th Finance
Commission headed by Prof. Y V Reddy
7. Both centre and states should conclude 'Grand
Bargain' to implement the model Goods and
Services Act (GST).
8. Initiatives to reduce the number of Central
Sponsored Schemes (CSS) and to restore the
predominance of formula-based plan grants.
9. States need to address the problem of losses in
the power sector in time bound manner.

14. 15TH FINANCE COMMISSION
 The Fifteenth Finance Commission was constituted
by the Government of India, after the approval from
the President of India, through a notification in
the Gazette of India in November 2017.
 Nand Kishore Singh was appointed as the
commission's chairman, with its full-time members
being Shaktikanta Das and Anoop Singh and its
part-time members being Ramesh Chand and
Ashok Lahiri.
 However Ajay Narayan Jha was appointed
replacing Shaktikanta Das who resigned from the
commission to serve as the governor of the
Reserve Bank of India.

15. 15TH FINANCE COMMISSION
 The 15th Finance Commission (Chair: Mr N. K.
Singh) was required to submit two reports.
 The first report, consisting of recommendations for
the financial year 2020-21, was tabled in Parliament
on February 1, 2020.
 The final report with recommendations for the 2021-
26 period will be submitted by October 30, 2020.

16. FINANCE COMMISSION VERSUS PLANNING
COMMISSION
 It is alleged that Planning Commission (PC) which
is neither a constitutional nor a statutory body has
usurped the role of Finance Commission (FC).
 PC has restricted FC's role to mere recommend
grants to states on revenue account only under
article 275 of Indian constitution.
 However, after the formation of NITI Aayog
(National Institute of Transforming India), which
comes to replace the Planning Commission seeks
to empower FC with the originally envisaged task of
distribution of revenue to the states.