Finance Commission

What is a Finance Commission?

It is a body set up under Article 280 of the Constitution. Its primary job is to recommend measures and methods on how revenues need to be distributed between the Centre and states.

What else is its job?

Besides suggesting the mechanism to share tax revenues, the Commission also lays down the principles for giving out grant-in-aid to states and other local bodies. In the case of 14th Commission, these principles will apply for a five-year period beginning April 1, 2015.

What kind of work a Finance Commission has to do?

The commission has to take on itself the job of addressing the imbalances that often arise between the taxation powers and expenditure responsibilities of the centre and the states, respectively. Primarily, it has to ensure a sense of equality in public services across the states.

Who is the head of the latest i.e. 14th Finance Commission?

Former Governor of the Reserve Bank of India, Mr. Y.V. Reddy, is the Chairman.

Who are the other members of the Commission?

The Commission comprise Abhijit Sen, Member, Planning Commissio; Sushama Nath, Former Union Finance Secretary; M Govinda Rao, former Director of National Institute of Public Finance and Policy; Sudipto Mundle, former Acting Chairman, National Statistical Commission; and AN Jha, Secretary to the Commission.

Are the recommendations of the 14th Finance Commission unanimous?

It appears there is a dissent. The report is believed to contain a dissent note from Planning Commission member Abhijit Sen.

What is the key recommendation of the 14th Finance Commission?

It has recommended an increase in the share of states in the centre's tax revenue from the current 32 per cent to 42 per cent. This is indeed the single largest increase ever recommended by a Finance Commission.

What does it means to States?

As against a total devolution of Rs. 3.48 lakh crore approximately in 2014-15, the total devolution to the States in 2015-16 will be Rs. 5.26 lakh crore approximately, a year-on-year increase of Rs. 1.78 lakh crore approximately

What will the impact of this recommendation if accepted by the Centre?

"The higher tax devolution will allow States greater autonomy in financing and designing schemes as per their needs and requirements," says the report. Practically, it will give more power to states in determining how they spend this money.

What is the implication of this recommendation?

Well, it comes at a time when the Centre is trying to push GST (goods and services tax). Perhaps, higher devolution will help to reassure the States that they will not be at the wrong end of the stick if GST is introduced.