The Finance Commission, as established under Article 280 of the Constitution of India, has several important functions. Its primary role is to make recommendations on the distribution of financial resources between the Union government and the state governments.
Functions of Finance Commission
Distribution of Tax Revenue
The Finance Commission recommends the distribution of taxes, such as income tax, between the Union government and the state governments. It determines the share of taxes that should be allocated to the states to ensure a fair and equitable distribution of financial resources.
Grants-in-Aid
The Commission suggests the principles and criteria for providing grants-in-aid to the states from the Consolidated Fund of India. These grants are meant to support states in fulfilling their developmental and expenditure needs, especially in areas where they face resource constraints.
Revenue Sharing
The Commission assesses the revenue-sharing arrangements between the Union government and the states. It examines various factors such as population, income disparities, fiscal capacity, infrastructure needs, and the expenditure requirements of the states to determine the sharing of resources.
Debt Management
The Commission looks into the debt position and financial liabilities of both the Union government and the state governments. It recommends measures for debt consolidation, restructuring, and other related aspects to ensure sustainable debt management practices.
Local Bodies
The Commission also considers the financial resources available to local bodies, such as municipalities and panchayats, and recommends measures for strengthening their fiscal capacity. This helps in empowering local governance and promoting effective delivery of services at the grassroots level.
Terms of Reference
The Finance Commission operates within the framework of Terms of Reference (ToR) specified by the President of India. The ToR outline the specific aspects that the Commission needs to consider while making its recommendations, ensuring a comprehensive assessment of fiscal matters.
Consultation and Submissions
The Commission consults with various stakeholders, including the central and state governments, local bodies, and other interested parties. It gathers inputs, information, and feedback to understand the needs and concerns of different regions and sectors.
Report and Recommendations
Based on its analysis and consultations, the Finance Commission prepares a detailed report containing its findings, recommendations, and financial allocations. The report is submitted to the President, who lays it before both Houses of Parliament.
