Agenda for the 16th Finance Commission
Kartavya Desk Staff
Syllabus: Constitutional Bodies: Finance Commission
Source: TH
Context: The 16th Finance Commission (FC) focuses on the devolution of the consolidated fund, with a mandate to support panchayats and municipalities as per Article 280 and the 73rd and 74th constitutional amendments.
What is a Finance Commission?
The Finance Commission in India is a constitutional body established under Article 280 of the Indian Constitution. Its primary function is to recommend the distribution of financial resources between the central government and the state governments. The Fifteenth Finance Commission constituted on 27th November 2017, made recommendations covering six years from 1st April 2020 through its Interim and Final Reports. These recommendations are valid up to the financial year 2025-26.
Composition of the Finance Commission of India (FCI):
• Structure: Consists of a Chairman and four members appointed by the President.
• Term: Duration specified by the President; members can be reappointed.
• Qualifications: Chairman: Experience in Public Affairs. Members: Must include a High Court judge or qualified individual, a finance/accounting expert, an experienced financial administrator, and an economist.
• Chairman: Experience in Public Affairs.
• Members: Must include a High Court judge or qualified individual, a finance/accounting expert, an experienced financial administrator, and an economist.
Functions:
• Tax Distribution: Recommends distribution of tax proceeds between the Centre and States.
• Grants-in-Aid: Advises on principles for grants from Centre to States.
• State Funds: Suggest measures to augment State funds for Panchayats and Municipalities.
• Other Matters: Addresses any additional issues referred by the President.
Report:
• Submitted to the President, who presents it to Parliament with an explanatory memorandum on actions taken.
About 16th FC:
The Government of India, under Article 280(1) of the Constitution, established the Sixteenth Finance Commission, with Dr. Arvind Panagariya, former Vice-Chairman of NITI Aayog and Professor at Columbia University, as its Chairman.
Major Terms of Reference for the 16th Finance Commission:
• Division of Tax Proceeds: Recommend tax distribution between Union and States, including State shares.
• Principles for Grants-in-Aid: Establish principles for grants from the Consolidated Fund of India to States, particularly under Article 275.
• Enhancing State Funds for Local Bodies: Suggest measures to boost State funds for Panchayats and Municipalities, based on State Finance Commission recommendations.
• Evaluation of Disaster Management Financing: Review and recommend improvements for disaster management funding under the Disaster Management Act, 2005.
Recommendations that can be made by the 16th Finance Commission for Local bodies:
• Revisit 15th FC’s Principles:
• Enhance property tax collection linked to state GST. Improve maintenance of accounts. Allocate resources for pollution mitigation. Focus on primary health care, solid waste management, and drinking water.
• Enhance property tax collection linked to state GST.
• Improve maintenance of accounts.
• Allocate resources for pollution mitigation.
• Focus on primary health care, solid waste management, and drinking water.
• Recognize Urbanization Dynamics:
• Acknowledge India’s dynamic urbanization. Ensure intergovernmental transfers to urban areas are at least doubled.
• Acknowledge India’s dynamic urbanization.
• Ensure intergovernmental transfers to urban areas are at least doubled.
Insta Links:
• 16th Finance Commission
Mains Link:
Discuss the recommendations of the 13th Finance Commission which have been a departure from the previous commissions for strengthening the local government finances. (UPSC 2013)
Prelims Link:
• Consider the following: (UPSC 2023)
• Demographic performance
• Forest and ecology
• Governance reforms
• Stable government
• Tax and fiscal efforts
For the horizontal tax devolution, the Fifteenth Finance Commission used how many of the above as criteria other than population area and income distance?
(a) Only two (b) Only three (c) Only four (d) All five
Ans: (b)