Part XII: Finance, Property, Contracts and Suits

Article 280: Finance Commission

Original Article:

(1) The President shall, within two years from the commencement of this Constitution and thereafter at the expiration of every fifth year or at such earlier time as the President considers necessary, by order constitute a Finance Commission which shall consist of a Chairman and four other members to be appointed by the President.

(2) Parliament may by law determine the qualifications which shall be requisite for appointment as members of the Commission and the manner in which they shall be selected.

(3) It shall be the duty of the Commission to make recommendations to the President as to—

• The distribution between the Union and the States of the net proceeds of taxes which are to be, or may be, divided between them under this Chapter and the allocation between the States of the respective shares of such proceeds;
• The principles which should govern the grants-in-aid of the revenues of the States out of the Consolidated Fund of India;
• The measures needed to augment the Consolidated Fund of a State to supplement the resources of the Panchayats in the State on the basis of the recommendations made by the Finance Commission of the State;
• The measures needed to augment the Consolidated Fund of a State to supplement the resources of the Municipalities in the State on the basis of the recommendations made by the Finance Commission of the State;
• Any other matter referred to the Commission by the President in the interests of sound finance.

(4) The Commission shall determine their procedure and shall have such powers in the performance of their functions as Parliament may by law confer on them.

Explanations:

Article 280 establishes the Finance Commission to address financial imbalances between the Union and States, ensuring equitable revenue distribution and fostering fiscal federalism. It advises on the distribution of taxes, grants, and measures to augment state resources.

Clause-by-Clause Explanation:

Clause (1): Formation of the Finance Commission

The President is mandated to form a Finance Commission every five years or earlier, consisting of a Chairman and four members, to ensure fiscal balance between Union and States.

Example: The 15th Finance Commission was constituted in 2017 to provide recommendations for the 2021-26 period, addressing contemporary fiscal challenges.

Clause (2): Qualification and Selection

Parliament determines the qualifications and selection process for the Finance Commission members, ensuring competence in fiscal matters.

Example: Members typically include economists and financial experts to ensure sound fiscal advice, such as the renowned economist Dr. Y.V. Reddy heading the 14th Finance Commission.

Clause (3): Duties of the Finance Commission

The Commission recommends the distribution of tax revenues, grants-in-aid principles, and measures to augment resources for Panchayats and Municipalities.

Example: Recommendations for Panchayati Raj institutions have led to improved rural infrastructure through targeted grants.

Clause (4): Procedure and Powers

The Commission determines its own procedure and performs its functions with powers conferred by Parliament.

Example: The Commission consults with various stakeholders, including state governments, to formulate balanced recommendations.

Legislative History:

Article 280 was debated extensively in the Constituent Assembly, emphasizing the need for an impartial body to ensure fair financial distribution between the Union and States. The first Finance Commission was constituted in 1951.

Debates and Deliberations:

The Constituent Assembly debates on Article 260 (later renumbered as Article 280) highlighted the need for equitable financial distribution. Dr. B.R. Ambedkar stressed the importance of an independent Commission to address the fiscal imbalances between the Union and States.

Members like Shri B. Das and Prof. Shibban Lal Saksena argued for the inclusion of measures to support underdeveloped states like Orissa and Bihar. They highlighted the historical neglect of such regions and urged for targeted grants-in-aid.

Other members emphasized the necessity of appointing qualified experts to the Commission, ensuring that recommendations were based on sound economic principles rather than political considerations.

Ultimately, the Assembly agreed on the need for an independent Finance Commission to foster fiscal federalism and ensure balanced resource allocation.

Frequently Asked Questions (FAQs):

References:

• "The Constitution of India" - Government Publications
• Reports of the Finance Commission - Ministry of Finance
• Constituent Assembly Debates - Historical Archives