Finance Commission: Composition, Functions, and Recommendations

TOPIC CLASSIFICATION

Subject: Indian Polity & Governance Sub-area: Federal Finance - Finance Commission, NITI Aayog, GST Council Difficulty: Medium Weightage: High (1-2 Prelims + 1 Mains question per cycle)

EXAMINER REASONING

1. Trap: Believing the Finance Commission (FC) is a statutory body (it is constitutional - Article 280).
2. Most confused: FC vs NITI Aayog - resource allocation role vs policy advisory role.
3. Key anchor: Article 280 mandates FC at intervals not exceeding 5 years; Article 270 defines share of union taxes to states.
4. Current affairs hook: XV FC recommendations (2021-26) implementation; XVI FC constituted (2024) - chairman Arvind Panagariya.
5. Mains hinge: "Horizontal and vertical devolution by the Finance Commission touches the core of fiscal federalism. Critically examine the principles governing it."

Core Concept

The Finance Commission is a quasi-judicial body constituted by the President under Article 280 every 5 years (or earlier). It defines the fiscal relationship between the Union and States.

Composition

• Chairman (person of experience in public affairs)
• 4 other members (from specified backgrounds - SC Judge or qualified, finance/accounting experience, economic expertise, financial administration)
• Appointed by President by warrant

Functions (Article 280(3))

1. Distribution of...