Question

Consider the following statements about the Finance Commission:

1. The Finance Commission is described as the balancing wheel of fiscal federalism in India.

2. The First Finance Commission was chaired by K.C. Neogy.

3. The Finance Commission has the power to summon witnesses like a civil court.

• A. 1 and 2 only
• B. 1 and 3 only
• C. 2 and 3 only
• D. All of the above

Answer 1

Answer:

A. 1 and 2 only

Finance Commission in India

• Constitutional Mandate: The Finance Commission is a quasi-judicial body established under Article 280 of the Indian Constitution. It is appointed by the President every five years (or earlier if deemed necessary).

• Role in Fiscal Federalism: The Finance Commission acts as a crucial 'balancing wheel' of fiscal federalism. It recommends the distribution of net proceeds of taxes between the Union and the States, and the allocation of the respective shares among the States. This ensures a degree of vertical and horizontal equity in the fiscal relations between different levels of government.

• Historical Context - First Finance Commission: The First Finance Commission was established in 1951 and was chaired by K.C. Neogy. Its recommendations laid the groundwork for the subsequent fiscal arrangements between the Centre and the States.

• Powers and Functions: According to Article 281, the President lays the recommendations of the Finance Commission before Parliament. The Commission has the power to make recommendations on various matters, including:

  • The distribution of divisible tax proceeds.

  • Principles governing grants-in-aid to States.

  • Measures to augment the Consolidated Fund of a State to supplement the resources of Panchayats and Municipalities.

• Quasi-Judicial Powers: While not a court, the Finance Commission possesses certain powers akin to a civil court under the Code of Civil Procedure, 1908, as specified in Article 280(5). This includes the power to summon witnesses and compel the production of books, accounts, and other documents. However, it cannot punish for contempt.

• Evolution of Recommendations: Over the years, the Finance Commissions have played a significant role in shaping fiscal policy, evolving from focusing on vertical devolution to increasingly addressing issues of horizontal equity, fiscal discipline, and the needs of local bodies.

• Composition: The Finance Commission consists of a Chairman and four other members appointed by the President. The qualifications of members are determined by Parliament.