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Finance Commission


The Constitution of India provides for the establishment of a Finance Commission for the purpose of allocation of certain resources of revenue between the Union and the State Governments.

The Finance Commission is established under Article 280 of the Constitution of India by the President.

The qualifications, powers and procedures of the Commission itself are regulated by the Finance Commission (Miscellaneous Provisions) Act 1951. Such Commissions are deemed to be civil courts for the purposes of the Code of Criminal Procedure 1898.

The Finance Commission is constituted to define financial relations between the Center and the States. Under the provision of Article 280 of the constitution, the President appoints a Finance Commission for the specific purpose of devolution of non-plan revenue resources.


Under Article 280 of the Constitution the Finance Commission is required to make recommendations to President in respect of:

1. The distribution of net proceeds of taxes to be shared between the Centre and the States, and the allocation between the States, the respective share of such proceeds.

2. The principles which should govern the grants-in-aid by the Centre to States out of the Consolidated Fund of India.

3. The measures needed to augment the Consolidated fund of a State to supplement the resources of the Panchayats and the Municipalities in the state on the basis of the recommendations made by the State Finance Commission.

4. Any other matter referred to it by the President in the interests of sound finance.

So far 14 Finance Commissions have been appointed which are as follows:

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. Rajamannarr 1966-69
Fifth 1968 Mahaveer Tyagi 1969-74
Sixth 1972 K. Brahmananda Reddy 1974-79
Seventh 1977 J.M. Shellet 1979-84
Eighth 1983 Y.B. Chavan 1984-89
Ninth 1987 N.K.P.Salve 1989-95
Tenth 1992 K.C Pant 1995-2000
Eleventh 1998 A.M.Khusro 2000-2005
Twelfth 2003 C.Rangarajan 2005-2010
Thirteenth 2007 Vijay l kelkar 2010-2015
Fourteenth 2012 Y.V. Redy 2015-2020

The Finance Commission India was officially structured and implemented as per the provisions of the Acts and Rules in the year 1951. The President of India selects the commissioner and the four other members of the Finance Commission India.

Further, the President of India assigns the term of their office and their responsibilities. The commissioner and the four members of the Finance Commission India are answerable for their act of commission and omission, directly to the President of India.

The process of selection of Finance Commission India

* The President of India shall, within maximum of two years from the commencement of the draft and thereafter completion of every fifth year or at earlier time (as he deems necessary), by order should constitute a Finance Commission

* The Finance Commission shall consist of a chairman and four other members, appointed by the President himself

* The elected parliament may by formulating appropriate law determine the qualifications of such members of the Finance Commission and it may also determine the manner in which the members shall be selected

India Finance Commission Act

The India Finance Commission Act was drafted to give a structured format to the Finance Commission of India as per the world standard.

Actually, the British rulers felt the need for a commission for guiding the Finance of India during the late 1660.

The basic structure of the modern day India Finance Commission Act was laid down during the British rule in the early 1920s.

The basic structure of the finance commission India was drafted to ward-off the eminent danger of rising business rivalry from other European countries and to prolong the dominance of British rule in India.

The Finance Commission (Miscellaneous Provisions) Act, 1951 defines the qualification, appointment, disqualification, term, eligibility, service, salaries and powers of the Finance Commission.

Duties of the Finance Commission India

The duty of the Finance Commission shall entail recommendations to the President of India on -

* Distribution of the income of the government (including central and state governments) as per proportion or according to the contribution made towards such collection of revenues by each such state governments or central government.

* Define the grounds on which the government should allocate the grants-in-aid of the revenues of the Indian states out of the consolidated fund of India. The quantum of allocation of such funds needs to compliment the requirements of the Municipalities in the State and the resources of the Finance Commission of the State.

* Any other matter referred to the Commission by the President in the interests of sound finance.

* The Finance Commission of India shall also determine the operational process and is vested with such powers in the operation as per the provisions enacted by the parliament of India.



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