Finance Commission in India: Members, Functions and Powers

What is the Finance Commission?

The finance commission is a statutory body that was formed to establish financial relations between the centre and the states. The finance commission came into existence in the year 1951. Article 280, of the Indian constitution states the composition, functions and the role of the finance commission. According to article 280, the finance commission consists of a chairman and four other members appointed by the President. The members and the chairman can be re-appointed. The constitution allows the Parliament to make provisions related to qualification, conditions of service and so on.

Finance Commission in India:

The finance commission was established by Dr B.R. Ambedkar in the year 1951. The finance commission is constituted every five years and consists of 5 members. The primary function of the finance commission is to allocate funds between the centre and the state government. It mainly balances the powers and resources between the state and the centre. This is the reason the makers of the constitution have drafted article 280 very carefully and have laid the structural format of the commission. Till date, 14 finance commissions have submitted their reports.

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Finance Commission in India: Members, Functions and Powers

Who Appoints the Finance Commission?

Article 280 of the Indian constitution states:

• The president is authorized with the power to constitute the finance commission, two years from the commencement of the constitution and thereafter and at the end of every five years or before as per the president’s orders. The finance commission consists of a chairman along with four other members, as appointed by the president.
• The parliament may determine by law the qualifications required for the appointment of the members of the finance commission and the procedure of selection of the committee members.  
• The finance commission is also allowed to make recommendations to the president regarding the distribution of funds which are allotted to the states. It is also the duty of the finance commission to supervise the financial relations between the centre and the state and reduce the imbalance in the allocation of resources.

SEE ALSO: Planning Commission: Members, Functions, and Five Year Plan

Finance Commission Act:

The finance commission act was introduced in order to give a structure to the finance commission. The finance commission act lays certain rules on the qualifications of the members of the finance commission, how they will be appointed, the term of appointment and their power along with salaries and allowances.

• The chairman heads the finance commission and is elected based on experience in public affairs.
• The commission must have one chairman and four other members.
• The four members must be qualified high court judges or must have knowledge on finance, economics, administrative and financial matters.
• The appointment is made as per the discretion of the president of the nation.
• The act specifies grounds for disqualification of the members.
• The office tenure of the members of the finance commission is stated by the president and the members and the chairman is eligible for re-appointment.

Functions and Powers of Finance Commission:

Some of the most important functions of the finance commission are as follows:

• The finance commission is responsible for the distribution of funds between the Union Government and the states. The division is made based on the contribution of the state towards taxes. Higher the contribution more is the share of proceeds received by the state.
• One of the main functions of the finance commission is to determine the principle which governs grant-in-aid that is given to the states by the central government. The commission also determines the amount that will be granted by the union government.
• The functions of the finance commission also include recommendation of measures to supplement funds between the Panchayats and the Municipalities by taking into consideration the consolidated funds of an individual state.

List of Finance Commissions:

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