Constitutional Mandate: The Finance Commission is a constitutional body established under Article 280 of the Indian Constitution. It is required to be constituted by the President of India either every five years or at an earlier interval if the President considers it necessary. This ensures timely review and adjustments in financial relations between the Union and the States.
Nature of Recommendations: The recommendations made by the Finance Commission are advisory in nature, not binding on the Government. While the government usually accepts them, it has the discretion to modify or reject them based on its policy considerations.
Primary Functions: The core function of the Finance Commission is to recommend the distribution of the net proceeds of taxes between the Union (Centre) and the States. It also suggests the allocation of revenues between the States themselves.
Composition and Eligibility: The Finance Commission consists of a Chairman and four other members appointed by the President. The Chairman is typically a person with experience in public affairs, and the members can be chosen from individuals with expertise in finance, economics, administration, or law.
Additional Functions: The Finance Commission can also be asked to make recommendations on other matters related to public finance, such as principles governing grants-in-aid to States, measures to augment the Consolidated Fund of a State to supplement the resources of Panchayats and Municipalities, and any other matter referred to it by the President in the interest of sound financial management.
Historical Context: The First Finance Commission was constituted in 1951. Since then, numerous Finance Commissions have been constituted, each addressing the evolving fiscal challenges and needs of the Indian federal system.
