9. Finance Commission

This is a discussion on the Finance Commission in India. Once in five years the President appoints a Finance Commission.

Write a 200 word note on the composition and working of the Finance Commission and show it to me.

Note: Only a summary discussion takes place in this blog. Real discussion will be in the seminars in the classroom. The entire group should draft the answer and blog it to me. No individual member of the blog can do it separately. However all the members of the group need not agree. A consolidated report not exceeding ten lines must be posted in the blog. PLEASE DO NOT TAKE MORE THAN 15 MINUTES TO ANSWER

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27 thoughts on “9. Finance Commission

  1. 1.The way the Finance Commission is appointed, the manner in which it functions and the method of distribution of finances violates in many ways the Federal Principles underlying our Constitution. Comment

    1. The underlying federal principles of our Constitution state that the State and Union government should act independently and not as subordinates. On the other hand, supremacy of central organ which controls the states depicts a unitary form of government. Same is seen in following:
      -The members of the Finance Commission are appointed by the President who works as per the advice of Parliament, the Union government. So, the Sates do not have a share in selection of members.
      -The Commission is expected to make recommendations to the President, the face of Union government.
      -These recommendations include the distribution of revenues and proceeds of taxes among Union and State governments.

    1. In a federation, the power and functions are distributed between the Union and the State authorities. Neither acts as a subordinate to another, but both coordinate with each other working in their own well defined spheres. The Constitution divides subjects into three lists: Union, State and Concurrent. Central & State (and Union territory) governments get to frame laws in the domain of Union and State subject lists respectively, ousting the authority of other government for the matter. Concurrent list forms a joint domain for both Union and State governments.

    1. To carry out the activities and responsibilities, finances are required. And, just like the responsibilities, finances also need to be distributed between the Union and State governments. Also, there are states which are more prosperous than other. In order to maintain a concurrent growth, resources need to be shared among the states and finances need to be raised for poorer states. So that it does not become too cumbersome to administer, certain taxes and finances can be best raised by Central government and other by the State governments.

    1. Just like the responsibilities, finances also need to be distributed between the Union and State governments. Constitution has distributed the finances in a way which can be managed and is not too cumbersome to administer e.g. Income tax, taxes on inter-estate commerce, estate duties are too difficult to be managed at a state level, hence are assigned to Union government. Toll tax, sales tax, stamp duty, road tax contribute to State government treasury.

    1. The states in India vary quantitatively and qualitatively in land, man power, revenue, water, climatic conditions and other natural resources. Also, the way these resources have been utilized or exploited is different. So, it is very natural to find unequal growth statistics amongst the states. If a certain community or state progresses while the other remains backward, it neither represents nor can be called as growth of our nation. For our nation to progress as a whole we need to have concurrent developments throughout the country. So, there is a need to transfer some of the resources from the richer or more developed states to the poorer ones so that the country prospers as a whole.

    1. Article 280 first of all mentions that the President should constitute a Finance Commission within 2 years of commencement of Constitution, and thereafter every 5 years or earlier if necessary. It should comprise of a committee of four headed by a Chairman appointed by the President. Parliament shall decide the powers and procedure to be followed by the commission. It also mentions that the duty of the commission is to make recommendations to the President on the distribution of proceeds of taxes between Union and the States, the principles that govern the grants-in-aid of the revenues of the States, and the measures needed to augment Consolidated Fund of State to supplement the municipalities and Panchayats.

    1. State Finance Commissions views as,,,

      The state government must prescribe through an Act the qualifications of persons eligible for appointment as members of the State Finance Commissions consistent with Article 243 of the constitution,

      The State Finance Commissions are constituted once in five years to review the financial position of the local bodies and to recommend principles governing the distribution of finances between the states and local bodies and measures needed to improve the financial position of the local bodies. As per the constitutional requirement, states made the provision in the state panchayat raj/municipal Acts for the constitution of State Finance Commissions. Most states, however, have left it to the state governments to prescribe the details of composition, qualifications, term, etc. The states have mostly incorporated the constitutional provisions in their Acts.

    1. The functions of the commission are to make recommendations to the President on:
      – the distribution of proceeds of taxes between Union and the States,
      – the principles that govern the grants-in-aid of the revenues of the States, and
      – the measures needed to augment Consolidated Fund of State to supplement the municipalities and panchayats.

      Other than this, the President may at his discretion refer any other financial matter to the Finance Commission in public interest.

    2. According to Art. 280 deals with finance comm
      the principles that govern the grants-in-aid of the revenues of the States, and
      – the measures needed to augment Consolidated Fund of State to supplement the municipalities and panchayats.
      some states like Assam W.Bengal orissa revecive export duyt

    1. A grant-in-aid is money coming from central government for a specific project. This kind of funding is usually used when the government and parliament have decided that the recipient should be publicly funded but operate with reasonable independence from the state.
      A grant-in-aid is funds allocated by one level of government to another level of government to be used for specific purposes. Such funds are usually accompanied by requirements and standards set by the governing body for how they are to be spent.

    1. Finance commission under state, firlstly does registration to check under money exchange/transmitters. The business also needs to be registered with the Financial Crimes Enforcement Network (FinCEN) of the U.S. Department of the Treasury. Each state has its own set of registration filing fees

      Vertical analysis reports each amount on a financial statement as a percentage of another item. For example, the vertical analysis of the balance sheet means every amount on the balance sheet is restated to be a percentage of total assets.

      Horizontal analysis looks at amounts on the financial statements over the past years. For example, the amount of cash reported on the balance sheet at December 31 of 2007, 2006, 2005, and 2004 will be expressed as a percentage of the December 31, 2004 amount.

    Iidia has adopted a federal form of government with a strong centre the consititution makes a clear cut demarcation between the powers of the centre and the states in all areas. one such area is the powers of taxation of the union and the states
    principles adopted for demarcation of fiscal powers between the union and the stte governments
    1. Taxes which have an inter-state base are levied by the union
    2.Taxes with a local base are levied by the states
    3.The residuary powers of taxation belong to the union

    Financial resources of the union and the state governments.
    1. taxes belonging to the union excusively:custkoms, Corporatin tax taxes on capital value of asssets of individuals and companies ect.,
    2.Taxes belonging to the states exclusively: land revenue stamp duty except in documents included in the union list estate duty and income tax on agricultural land taxes on animals and boats on road vehicles, ect.,
    3.Duties levied by the union but collected and appropriated by the states;
    4.Taxes levied as well as collected by the union but assigned to the states within which they are leviable.
    5.TTaxes levied and collected by the Union and distributed between union and the states.
    6.The principal sources of non tax revenures of the union are the receipts from.
    7. The states similarly have their receipts from , irrigation and commercial enterprses and industrial undertakings sopa sandalwood, iron and steel in karnataka paper in madhaya pradesh, milk supply in bombay deep-sea fishing and sildk in west bengal.
    establishment ; constitutinal povision article 280(i):
    the president shall, within two years from the commencement of the constitution and thereafter at the expiration of evey fifth year of at such earlier time as the president considers necessary, by order consstitute a finance commission which shall consists of a chairman and four other members to be appointed by the president.

    Tenure of the commision: The president shall at the expiration of the evey fifth year of at such earlier time as the president considers necessary y order constitute the finance commission.
    Qualifications for membership Articale 280(i) :
    1. The Chairman of the commission shall be selected from among the persons who have had experience in public affairs.
    2. The four other member shall be selected from among persong who
    are or have been, or are qualified to be appointed as judges of a High Court or
    have special knowledge of finance and acccounts of governments or
    have had wide experience in financial matters and in administration or
    have special knowledge of economice

    Functions of the finance commission Act 280(iii):

  3. The 13th Finance Commission, like the previous finance commissions, it is about the appointment, organization and working State Finance Commissions, patchy nature of their reports, wide divergence in the quality of analyses, scope and scale of their recommendations, problem of non-synchronicity with national finance commissions in terms of coverage of period, etc. It emphasized on the urgent need to constitute State Finance Commissions on time and synchronize the period covered with the national Finance Commissions, implementation of the recommendations of the State Finance Commissions without delay and to promptly place the action taken reports before the state legislature.

    It advised the states to follow central legislation and the rules in the matter of composition of State Finance Commissions.

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