The Finance Commissions (IAST: Vitta Āyoga) are commissions periodically constituted by the President of India under Article 280 of the Indian Constitution to define the financial relations between the central government of India and the individual state governments. The First Commission was established in 1951 under The Finance Commission (Miscellaneous Provisions) Act, 1951. Fifteen Finance Commissions have been constituted since the promulgation of Indian Constitution in 1950. Individual commissions operate under the terms of reference which are different for every commission, and they define 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. The most recent Finance Commission was constituted on 31 December 2023 and is chaired by Arvind Panagariya former Vice Chairman of NITI Aayog.

History

As a federal nation, India suffers from both vertical and horizontal fiscal imbalances. Vertical imbalances between the central and state governments result from states incurring expenditures disproportionate to their sources of revenue, in the process of fulfilling their responsibilities. However, states are better able to gauge the needs and concerns of their inhabitants and therefore more efficient at addressing them. Horizontal imbalances among state governments result from differing historical backgrounds or resource endowments and can widen over time. Several provisions to bridge the fiscal gap between the centre and the states were already enshrined in the Constitution of India, including Article 268, which facilitates the levy of duties by the centre but equips the States to collect and retain the same. Similarly, Articles 269, 270, 275, 282 and 293, among others, specify ways and means of sharing resources between the Union and States. In addition to the above provisions, the finance commission serves as an institutional framework to facilitate Centre-State Transfers. Article 280 of the Indian Constitution defines the scope of the commission:

Functions

The Finance Commission (Miscellaneous Provisions) Act, 1951

The Finance Commission (Miscellaneous Provisions) Act, 1951 was passed to give a structured format to the finance commission and to bring it to par with world standards, by laying down rules for the qualification and disqualification of members of the commission, and for their appointment, term, eligibility and powers.

Qualifications of the members

The chairman of a finance commission is selected from people with experience of public affairs. The other four members are selected from people who:

Disqualification from being a member of the commission

A member may be disqualified if:

Terms of office of members and eligibility for reappointment

Every member will be in office for the time period as specified in the order of the President, but is eligible for reappointment provided he has, by means of a letter addressed to the president, resigned his office.

Salaries and allowances of the members

The members of the commission shall provide full-time or part-time service to the commission, as the President specifies in his order. The members shall be paid salaries and allowances as per the provisions made by the Central Government.

List of Finance Commissions

So far 15 Finance Commissions have been appointed which are as follows:

14th Finance Commission

Major Recommendations of 14th Finance Commission headed by Prof. Y V Reddy

15th Finance Commission

The Fifteenth Finance Commission was constituted by the Government of India, after the approval from the President of India, through a notification in the Gazette of India in November 2017. Nand Kishore Singh was appointed as the commission's chairman, with its full-time members being Shaktikanta Das and Anoop Singh and its part-time members being Ramesh Chand and Ashok Lahiri. However Ajay Narayan Jha was appointed replacing Shaktikanta Das who resigned from the commission to serve as the governor of the Reserve Bank of India. The commission was set up to give recommendations for five years commencing on 1 April 2020. The main tasks of the commission were to "strengthen cooperative federalism, improve the quality of public spending and help protect fiscal stability". Some newspapers like The Hindu and The Economic Times noted that commission's job was harder because of the rollout of goods and service tax (GST), as, it had taken certain powers related to taxation away from states and the Union and had given it to the GST Council.

Finance Commission allocation

First Finance Commission proposed, the percentage share of net proceeds of income-tax assigned to the states should be following manner: