The Finance Commission (FC) submitted its report for the financial year 2020-21 to President Ram Nath Kovind. The Commission headed by N K Singh apprised the President of the recommendations contained therein. The 15th Finance Commission was constituted by the President of India under Article 280 of the Constitution on November 27, 2017, to make recommendations for a period of five years from April 2020 to March 2025.
  1. The Commission had a wide ranging terms of reference contained in the Presidential Notification.
  2. Thereafter, the Gazette Notification dated November 27, 2019 mandated the Commission to submit a report for the financial year 2020-21 by November 30, 2019, and thereafter the final report for the period April 2021 to March 2026 by October 30, 2020.
  3. Last month, the government extended the term of 15th Finance Commission, which is to decide on division of tax and other resources between the Centre and the states, by about one year to October 30, 2020.
  4. The term of the commission was originally set to end in October 2019, but was extended by one month to November 30.
  5. The extension of the term was given to enable the commission to examine various comparable estimates for financial projections in view of reforms and the new realities to finalise its recommendations for the period 2020-2026.
Finance Commission of India  
  1. The Finance Commission is a constitutional body, that determines the method and formula for distributing the tax proceeds between the Centre and states, and among the states as per the constitutional arrangement and present requirements. The constitution makers were aware of the financial requirements of the Centre and the states. 
  2. They devised an elaborate method, clearly demarcating the duties and responsibilities of the units of the Union and of the Union itself while allocating resources to perform those duties. To meet these requirements, the Finance Commission came into being.
  3. Under Article 280 of the Constitution, the President of India is required to constitute a Finance Commission at an interval of five years or earlier.
  4. The Finance Commission has a chairman and four members appointed by the President. The government of India provides necessary support and manpower including a secretary to the commission to facilitate its work.
  5. In November 2017, President of India constituted the 15th Finance Commission and appointed former Planning Commission member NK Singh as its chairman
  6. The Commission had former economic affairs secretary Shaktikanta Das as its member but he resigned from the post in December 2018 following his appointment as RBI Governor. The Union government appointed former Finance Secretary Ajay Narayan Jha in his place in March 2019.
The Finance Commission has the following functions or duties:
  1. The Commission makes recommendations to the President of India on the distribution of tax proceeds between the Union and the States and the share of each state.
  2. The Commission also decides the principles that govern the payment of grants-in-aid to states from the Consolidated Fund of India.
  3. The President of India can also refer any other matter to the Finance Commission in the interest of building a sound financial system.
  4. Under Article 281 of the Constitution, the President of India is required to cause laying of the Finance Commission report before each House of Parliament along with an explanatory note and the action taken by the government on the Commission’s recommendations.
State Finance Commissions
  1. The 73rd Constitutional Amendment Act of 1992 created the Panchayati Raj institutions as the third level of a three-tier democratic governance system at the village level, intermediate level and district level.
  2. It also mandated the constitution of a Finance Commission every five years by state governments to decide the division of resources (tax proceeds) between a state government and Panchayati Raj institutions at all levels.