The Finance Commission of India came into existence in 1951. It was established under Article 280 of the Indian Constitution of India by the President of India. It was formed to define the financial relations between the centre and the state. The Finance Commission Act of 1951 states the terms of qualification, appointment and disqualification, the term, eligibility and powers of the Finance Commission. As per the Constitution, the commission is appointed every five years and consists of a chairman and four other members.Since the institution of the first finance commission, stark changes have occurred in the Indian economy causing changes in the macroeconomic scenario. This has led to major changes in the Finance Commission’s recommendations over the years. Till date, Thirteen Finance Commissions have submitted their reports.
History: Genesis of the Finance Commission
The Indian State, like all other federations, is also ridden by the problems of Vertical and Horizontal Imbalances. Vertical Imbalances result because states are assigned responsibilities and in the process of fulfilling those, they incur expenditures disproportionate to their sources of revenue. This is because the states are able to gauge the needs and concerns of their people more effectively, and hence, are more efficient in addressing them. Factors like historical backgrounds, differences in resource endowments etc lead to widening Horizontal Imbalances. The Constitution of India, in... Read More