Constitutional Mandate: The Finance Commission is a constitutional body established under Article 280 of the Indian Constitution. Its primary role is to advise the President on financial matters between the Union and the States, and between the States themselves.
Advisory Nature: The recommendations made by the Finance Commission are of an advisory nature. This means they are not legally binding on the Union government. The government has the discretion to accept or reject these recommendations, although it usually provides reasons for any rejection.
Historical Context (P.V. Rajamannar Committee):
The Fourth Finance Commission, chaired by P.V. Rajamannar, made significant observations regarding the acceptance of its recommendations.
The committee strongly advocated that the Union government should not reject the Finance Commission's recommendations without strong and justifiable reasons. This highlights a historical perspective on the weightage given to the Commission's suggestions.
Limitations of Authority: The Finance Commission itself does not have the power to enforce its recommendations. Its strength lies in its constitutional backing, the expertise of its members, and the persuasive power of its reasoned recommendations.
Importance in Fiscal Federalism: Despite being advisory, the Finance Commission plays a crucial role in maintaining fiscal balance and promoting cooperative federalism in India. Its recommendations significantly influence the distribution of financial resources, impacting both central and state governments.
Exclusivity of Recommendations: Recommendations related to the net proceeds of divisible taxes and their allocation between the Union and the States, as well as the principles governing grants-in-aid, are generally given considerable weight by the government.
