Public Section Preview
Finance Commission
5.1 Constitutional Framework (Article 280)
The Finance Commission is appointed every five years by the President under Article 280. It is a quasi-judicial body — its recommendations are advisory, but by convention, the government accepts most recommendations.
Mandate under Article 280:
- Distribution of net tax proceeds between Centre and States (vertical devolution).
- Allocation among States (horizontal devolution).
- Grants-in-aid (Article 275) to States in need.
- Measures to augment States' Consolidated Fund for panchayats and municipalities.
- Any other matter referred by the President.
5.2 Evolution of Devolution
| Finance Commission | Period | States' Share (Divisible Pool) |
|---|---|---|
| 10th FC (Rangarajan) | 1995–2000 | 29% |
| 12th FC (Kelkar) | 2005–10 | 30.5% |
| 13th FC (Vijay Kelkar) | 2010–15 | 32% |
| 14th FC (Y.V. Reddy) | 2015–20 | 42% (historic high; NITI Aayog created same year) |
| 15th FC (N.K. Singh) | 2020–25 | 41% (1% reduction for J&K as UT) |
15th FC key recommendations:
- Performance incentives for forest cover, tax effort, population control, and ease of doing business.
- Disaster Risk Management Fund at state level.
- Defence and Internal Security Fund suggestion (not accepted by government).
5.3 Finance Commission vs NITI Aayog
| Aspect | Finance Commission | NITI Aayog |
|---|---|---|
| Legal basis | Constitutional (Art. 280) | Executive Order |
| Nature | Quasi-judicial; periodic | Permanent think-tank |
| Financial power | Recommends tax devolution | No financial devolution power |
| States' role | States appear before it | States are represented in Governing Council |
| Binding nature | Mostly binding by convention | Advisory only |