GS Paper II

News Excerpt:

The former Vice Chairman of NITI Aayog, Arvind Pangariya, has been appointed as the Chairman of the 16th Finance Commission.

More about the news:

• The government is yet to name the other members of the panel, which has an open mandate unlike finance commissions in recent years, where the Centre provided a large set of terms of reference.
• The 16th Finance Commission, which has less than two years to finalise its recommendations for five years, starting April 2025.
• The commission will submit its report for the five-year period (2026-27 to 2030-31) to the President by October 31, 2025.
• This time, the government has also refrained from providing a base year for the Commission, which uses population as a key parameter for working out the devolution formula.

The 16th Finance Commission shall make recommendations on the following matters:

• 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 Chapter I, Part XII of the Constitution 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 and the sums to be paid to the States by way of grants-in-aid of their revenues under article 275 of the Constitution for the purposes other than those specified in the provisos to clause (1) of that article.
• The measures needed to augment the Consolidated Fund of a State to supplement the resources of the Panchayats and Municipalities in the State on the basis of the recommendations made by the Finance Commission of the State.
• The Sixteenth Finance Commission may review the present arrangements on financing Disaster Management initiatives, with reference to the funds constituted under the Disaster Management Act, 2005 (53 of 2005), and make appropriate recommendations thereon.

Recommendation of previous Finance Commission:

• The 15th Finance Commission under NK Singh had recommended that states be given 41% of the divisible tax pool of the Centre during the five-year period 2021-22 to 2025-26, which is at the same level as was recommended by the 14th Finance Commission.

 About Finance Commission: 

• The Finance Commission is a Constitutionally mandated body that is at the centre of fiscal federalism.
• It is set up under Article 280 of the Constitution with the core responsibility to:
• evaluate the state of finances of the Union and State Governments
• recommend the sharing of taxes between them
• lay down the principles determining the distribution of these taxes among States
•  Its working is characterized by extensive and intensive consultations with all levels of governments, thus strengthening the principle of cooperative federalism.
•  Its recommendations are also geared towards improving the quality of public spending and promoting fiscal stability.
• The first Finance Commission was set up under the chairmanship of Shri K.C. Neogyi in 1951. 

Prelims PYQ

Q. With reference to the Finance Commission of India, which of the following statements is correct? (UPSC 2011)

(a) It encourages the inflow of foreign capital for infrastructure development

(b) It facilitates the proper distribution of finances among the Public Sector Undertakings

(c) It ensures transparency in financial administration

(d) None of the statements (a), (b), and (c) given above is correct in this context.

Mains PYQ

Q. How have the recommendations of the 14th Finance Commission of India enabled the States to improve their fiscal position? (UPSC 2021)