Finance Commission

The Finance Commissions (IAST: Vitta Āyoga) are commissions periodically constituted by the President of India under Article 280 of the Indian Constitution to define the financial relations between the central government of India and the individual state governments. The First Commission was established in 1951 under The Finance Commission (Miscellaneous Provisions) Act, 1951. Fifteen Finance Commissions have been constituted since the promulgation of Indian Constitution in 1950. Individual commissions operate under the terms of reference which are different for every commission, and they define 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. The most recent Finance Commission was constituted in 2017 and is chaired by N. K.Singh, a former member of the Planning Commission. As a federal nation, India suffers from both vertical and horizontal fiscal imbalances. Vertical imbalances between the central and state governments result from states incurring expenditures disproportionate to their sources of revenue, in the process of fulfilling their responsibilities. However, states are better able to gauge the needs and concerns of their inhabitants and therefore more efficient at addressing them. Horizontal imbalances among state governments result from differing historical backgrounds or resource endowments and can widen over time. Several provisions to bridge the fiscal gap between the centre and the states were already enshrined in the Constitution of India, including Article 268, which facilitates the levy of duties by the centre but equips the States to collect and retain the same. Similarly, Articles 269, 270, 275, 282 and 293, among others, specify ways and means of sharing resources between the Union and States. In addition to the above provisions, the finance commission serves as an institutional framework to facilitate Centre-State Transfers.