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GS Paper: Federalism

  • N.K. Singh calls for a fresh look at the Seventh Schedule

    Fifteenth Finance Commission chairman N.K. Singh has called for a fresh look at the Constitution’s Seventh Schedule, which forms the basis for allocating subjects to the Centre and States.

    Try this PYQ:

    Q.Which of the following provisions of the Constitution of India have a bearing on Education?

    1. Directive Principles of State Policy
    2. Rural and Urban Local Bodies
    3. Fifth Schedule
    4. Sixth Schedule
    5. Seventh Schedule

    Select the correct answer using the codes given below:

    (a) 1 and 2 only

    (b) 3, 4 and 5 only

    (c) 1, 2 and 5 only

    (d) 1, 2, 3 4 and 5

    Why such calls by Mr NKS?

    • Singh said these issues needed urgent consideration to reinforce trust in fiscal federalism.
    • He urged a review of both the Seventh Schedule and Article 282 of the Constitution so as to give more flexibility to States in implementing centrally sponsored schemes.
    • Many have argued that the trust between various forms of government is waning.
    • Since the farmers’ agitation, these are seen through the prism of suspicion and mistrust.

    Q. The federal organisation of powers under the Constitution’s Seventh Schedule needs review. In light of this, examine the problems faced by the distribution and suggest the challenge the review would face.

    What is the Seventh Schedule?

    • This Schedule of the Indian Constitution deals with the division of powers between the Union government and State governments.
    • It defines and specifies the allocation of powers and functions between Union & States. It contains three lists; i.e. 1) Union List, 2) State List and 3) Concurrent List.

    The Union List

    • It is a list of 98 (Originally 97) numbered items as provided in the Seventh Schedule.
    • The Union Government or Parliament of India has exclusive power to legislate on matters relating to these items.

    The State List

    • It is a list of 59 (Originally 66) items.
    • The respective state governments have exclusive power to legislate on matters relating to these items.

    The Concurrent List

    • There are 52 (Originally 47) items currently in the list.
    • This includes items which are under the joint domain of the Union as well as the respective States.

  • Factors sustaining federalism in India

    The article analyses the various factor that helped in sustaining the federal structure in India.

    Flexible federalism

    • The Indian Constitution was designed to be opportunistic about federalism.
    • As BR Ambedkar had put it, “India’s Draft Constitution can be both unitary as well as federal according to the requirements of time and circumstances.”
    • This flexible federalism is still the default common sense of Indian politics.
    • The concerns about security, state-building, and economic development are always given preference over the idea of federalism.

    4 factors sustaining federalism in India

    1) Linguistic and cultural diversity in India

    • The first was a genuine concern about whether a centralised state could accommodate India’s linguistic and cultural diversity.
    • The States Reorganisation Act and the compromises on the issue of languages was a victory for federalism.
    • It allowed India to use federalism to accommodate linguistic diversity.
    • So long as regional linguistic identities are not threatened there is no natural source of resistance to centralisation.

    2) Distribution of political power

    • The rise of coalition governments, economic liberalisation, regional parties, seemed to provide a basis for political federalism.
    • Political federalism is quite compatible with financial, and administrative centralisation.
    • Fragmentation of power effectively meant was that each state could bargain for certain things, or very strong leaders could veto central proposals.
    • However, it is striking that the period of fragmented power, strong chief ministers, didn’t act to strengthen the institutions of federalism.

    3) Political and institutional culture

    • The third thing that sustains federalism is the political and institutional culture.
    • But the culture of political parties ruling at the Centre was committed to the most extreme interpretation of flexible federalism, including procedural impropriety to oust opponents.
    • Because of the increasing presidentialisation of national politics, the attribution of policy successes or failures might change, diminishing the stature of chief ministers considerably.
    • The other source of institutional culture might be the Supreme Court.
    • There was mostly a bi-partisan consensus on honouring the technical recommendations of institutions like the Finance Commission.

    4) Asymmetrical federalism

    • The fourth thing that sustained federalism was “asymmetrical federalism” — special exemptions given to various states.
    • But asymmetrical federalism has always been subject to three pressures.
    • For Kashmir, asymmetrical federalism came to be seen as the source, not the resolution, of the security threat.
    • Even in the North-east, local conflicts within the scheme of asymmetrical federalism and discourse of security allowed the Centre to step in.
    • And increasingly, there will be pressure on the question: Which laws under asymmetrical federalism are compatible with Article 14 of the Indian Constitution?

    GST and Decentralisation in states

    • The most far-reaching change in the Indian Constitution on federalism was GST.
    • It does increase centralisation in the system.
    • But it is a product of the cooperation of the states, who still have a significant role in shaping it.
    • The states did push back against the possibility of the Centre reneging on its commitment on payments.
    • Most states are reluctant to honour more decentralisation within, to rural and urban bodies.
    • The Centre disproportionately controls resources in India; but very few states have shown a zeal to increase their own financial headroom by utilising whatever powers they might have on taxation.

    Consider the question “How federalism in India is different from the U.S.? What are the factors responsible for its sustenance in India?”

    Conclusion

    The flexible federalism will be bent in all kinds of ways. But it is important to remember that this mess is not a product of Centre versus states. It has been co-produced by a political culture in both Centre and the states.

  • One nation One election

    Prime Minister once again raised the pitch for “One Nation, One Election” and a single voter list for all to prevent the impact of the model code of conduct on development works due to frequent elections.

    Try this question:

    Q.Discuss how a common electoral roll and simultaneous elections are ways to save the enormous amount of effort and expenditure on Elections in India. Also discuss the centralizing tendency behind the idea.

    Elections in India

    • Currently, elections to the state assemblies and the Lok Sabha are held separately — that is whenever the incumbent government’s five-year term ends or whenever it is dissolved due to various reasons.
    • This applies to both the state legislatures and the Lok Sabha. The terms of Legislative Assemblies and the Lok Sabha may not synchronize with one another.
    • For instance, Rajasthan faced elections in late 2018, whereas Tamil Nadu will go to elections only in 2021.

    Simultaneous Elections

    • But the idea of “One Nation, One Election” envisages a system where elections to all states and the Lok Sabha will have to be held simultaneously.
    • This will involve the restructuring of the Indian election cycle in a manner that elections to the states and the centre synchronize.
    • This would mean that the voters will cast their vote for electing members of the LS and the state assemblies on a single day, at the same time (or in a phased manner as the case may be).

    Birth of the Idea: A backgrounder

    • Simultaneous elections are not new to India. They were the norm until 1967.
    • But following dissolution of some Legislative Assemblies in 1968 and 1969 and that of the Lok Sabha in December 1970, elections to State Assemblies and Parliament have been held separately.
    • The idea of reverting to simultaneous polls was mooted in the annual report of the Election Commission in 1983.
    • The Law Commission’s Report also referred to it in 1999.
    • After PM floated the idea once again in 2016, the NITI Aayog prepared a working paper on the subject in January 2017.

    What are the proposals under it?

    There were two proposals to conduct elections synchronization in two batches.

    • One proposal was to make the shift to simultaneous polls in a phased manner, where general elections, of few States and UT may be synchronised in 2019.
    • For such a synchronization to happen, besides political consensus and extension of term up to six months in some states, amendments to the Constitution have to be made.
    • Elections to the remaining States and UTs with will be synchronised by the end of 2021.
    • Thereafter, elections to the Lok Sabha, all the State Legislative Assemblies and Union Territories (with legislatures) will be held simultaneously from 2024.

    Advantages of simultaneous elections

    • Reduce cost: The cost of an election has two components – one, expenditure incurred by the Election Commission and two, expenditure incurred by the political parties. A large number of government employees and public buildings are diverted from their regular responsibilities for election duties. Supporters of the simultaneous elections argue that it will reduce election expenditure in terms of finance and reduce diversion of human resources for election duties.
    • Reduce disruption due to MCC: Model Code of Conduct (MCC) comes into operation during election season. MCC is seen as an obstacle to the government service delivery mechanism. Simultaneous elections may reduce such disruption.
    • Reduce populism: During elections, political convenience takes precedence over public interest. To lure voters, political parties concede to popular demands without any consideration to public interest. Simultaneous elections reduce such opportunity for political parties.
    • National prespective: Simultaneous election promotes national perspective over the regional perspective. This is important for the unity of the country.
    • Strengthen National parties: Since it promotes national perspective, simultaneous elections strengthen national parties. This reduces mushrooming growth of political parties based on narrow vote bank politics.
    • Strengthens federalism: Simultaneous elections bring States on par with the Center. If the elections are to be held simultaneously once in five years, the elected state governments cannot be dismissed easily. This reduces the anomalies created by the Article 356 (President’s Rule) of the Indian constitution and hence, it strengthens federalism.
    • Stability: The simultaneous election once in five years provides stability to the governments. It allows the government to take difficult and harsh decision in larger public interest.

    Arguments against simultaneous elections

    • No guarantee that expenditure of the political parties will reduce: Simultaneous elections may reduce the expenditure incurred by the Election Commission. But there is no guarantee that expenditure of the political parties will reduce. Political parties may spend entire fund at once rather than in phases.
    • Reduce importance of state elections: Center and States are equal and sovereign within their jurisdiction. Simultaneous elections may reduce the importance of state elections. Thus it affects the concept of federalism.
    • Violates Article 83(2) and Article 172 : Article 83(2) and Article 172 of the Constitution requires that the Lok Sabha and State legislatures be in existence for five years from the date of its first meeting, “unless dissolved earlier”. Simultaneous elections ignore this phrase, as there would be no opportunity to dissolve Lok Sabha or State Assemblies.
    • Negates NCM: A government can be in power as long as it enjoys the confidence of Parliament. Simultaneous elections can work only if governments last for a fixed tenure of five years regardless of confidence of Parliament. It negates the concept of ‘no confidence motion’ – an important tool for legislative control over the executive.
    • Keep Government on toes: Elections are an important part of representative democracy. Simultaneous elections with fixed tenure of five years curtail people’s right to express their confidence or displeasure on the government.
    • Ignores diversity: Simultaneous elections will relegate local issues or issues of state importance to the background. This completely ignores the diversity of the country.
    • Logistical challenge: Holding simultaneous election once in five years may also face logistical challenges. For the free and fair conduct of the elections, security forces need to be deployed in large numbers. Given the current strength of security personnel, this may be a challenging task.

    Way forward

    • There needs to be a consensus and all hands on the deck to see whether the country suits for simultaneous elections.
    • All political parties should at least cooperate in debating this issue, once the debate starts, the public opinion can be taken into consideration.
    • India being a mature democracy, can then follows the outcome of the deliberation.

    Shekhawat solution

    • The former vice-president Bhairon Singh Shekhawat proposed a solution. He called for a review of provisions of the no-confidence motion.
    • He suggested that no-confidence motion must mandatorily be accompanied by an alternative government formation plan. This prevents premature dissolution of Lok Sabha on account of political instability.
    • But critics point out that, this solution will take away people’s right to elect or dismiss a government.

    Conclusion

    • The constitution of India has essentially prescribed a federal structure of state governance.
    • As we are aware that there are several levels of government such as Lok Sabha and the Rajya Sabha besides, state governments, Municipal Corporations and the Panchayats, which are forms of local governance.
    • As a result the entire power is not concentrated with one government.
    • But One Nation, One Election can lead to such concentration of power in a single hand.
    • So the new government needs to ensure such vast power is not gathered by a single domain through One Nation, One Election.

  • Punjab’s claim over Chandigarh

    Earlier this month, Haryana Dy. CM said it would be better if both Haryana and Punjab agreed on Chandigarh as a Union Territory and make their independent capitals and Benches of High Courts.

    Try answering this

    Q.The linguistic re-organization of Indian states in the post-Independence period has prevented its balkanization, unlike our neighbourhood. Comment.

    Why was Chandigarh created?

    • Chandigarh was planned to replace Lahore, the capital of erstwhile Punjab, which became part of Pakistan during the Partition.
    • In March 1948, the Government of (India’s) Punjab, in consultation with the Centre, approved the area of the foothills of the Shivaliks as the site for the new capital.
    • From 1952 to 1966 (till Haryana was carved out of Punjab), Chandigarh remained the capital of Punjab.

    How did it become a shared capital?

    • At the time of reorganization of Punjab in 1966, the city assumed the unique distinction of being the capital of both Punjab and Haryana.
    • Even as it was declared a union territory and was placed under the direct control of the Centre.
    • The properties in Chandigarh were to be divided into 60:40 ratio in favour of Punjab.

    Punjab’s claim

    • The-then PM Indira Gandhi had announced that Haryana, in due course, would have its own capital and Chandigarh would go to Punjab.
    • As per documents submitted in the Lok Sabha, the Centre had even issued a formal communication is this regard on January 29, 1970, almost three years after Haryana came into being.
    • Again, in 1985, under the Rajiv-Longowal accord, Chandigarh was to be handed over to Punjab on January 26, 1986, but the Rajiv Gandhi government withdrew at the last minute.

    Haryana’s counter-claim

    • As per the 1970 documents, the Centre had considered various alternatives for settling the matter, including dividing the city.
    • But that wasn’t feasible since Chandigarh was built as a planned city to serve as the capital of one state.
    • Haryana was told to use the office and residential accommodation in Chandigarh only for five years till it shifts to its own new capital.
    • The Centre had offered Rs 10 crore grant to Haryana and an equal amount of loan for setting up the new capital.
    • In 2018, Haryana CM suggested setting up a special body for the development of Chandigarh, but the Punjab CM rejected it, saying the city “indisputably belonged to Punjab”.

  • Inter state water Sharing disputes

    The article highlights the issue of challenges facing the water governance in India, how need for more coordination between the Centre and the States.

    Objectives of the two bills

    • Interstate River Water Disputes Amendment Bill 2019 and the Dam Safety Bill 2019 were passed by Lok Sabha and awaits Rajya Sabha nod.
    • The Interstate River Water Disputes Amendment Bill 2019 seeks to improve the inter-state water disputes resolution by setting up a permanent tribunal.
    • The Dam Safety Bill 2019 aims to deal with the risks of India’s ageing dams, with the help of a comprehensive federal institutional framework comprising.
    • The other pending bills also propose corresponding institutional structures and processes.

    Challenges to the federal water governance

    • The agenda of future federal water governance is not limited to the above cited issues.
    • These include emerging concerns of long-term national water security and sustainability, the risks of climate change, and the growing environmental challenges, including river pollution.
    • These challenges need systematic federal response where the Centre and the states need to work in a partnership mode.
    • Greater Centre-states coordination is also crucial for pursuing the current national projects — whether Ganga river rejuvenation or inland navigation or inter-basin transfers.

    Challenges to water governance

    • Water governance is perceived and practiced as the states’ exclusive domain, even though their powers are subject to those of the Union under the Entry 56 about inter-state river water governance.
    • The River Boards Act 1956 legislated under the Entry 56 has been in disuse.
    • No river board was ever created under the law.
    • The Centre’s role is largely limited to resolving inter-state river water disputes by setting up tribunals for their adjudication.
    • Combined with the states’ dominant executive power, these conditions create challenges for federal water governance.
    • This state of affairs puts the proposed bills at a disadvantage.

    Bridging the water governance gap

    • Each bill proposes their own institutional mechanisms and processes leaning on closer Centre-state coordination and deliberation.
    • The disputes resolution committee and dam safety authority rely on active Centre-states participation.
    • Segmented and fragmented mechanisms bear the risks of the federal water governance gap.

    Way forward

    • The massive central assistance (Rs 3.6 lakh crore- Centre and states together) through  Jal Jeevan Mission (JJM), is an opportunity to open a dialogue with the states to address this governance gap.
    • Globally, federated systems with comparable organisation of powers have used similar investments to usher key water sector reforms.
    • The symbiotic phase of implementing JJM can be productively used to engage in a dialogue with the states about the larger water resources management agenda, beyond the mission’s goals.
    • The Centre can work with the states in building a credible institutional architecture for gathering data and producing knowledge about water resources.

    Consider the question “Water governance in the country requires greater Centre-State coordination to deal with the current issues as well as future challenges. In light of this, examine the challenges and suggest the strategies to deal with it.”

    Conclusion

    Bridging the governance gap between the Centre and State and creation of institutional framework is at the heart of addressing the future challenges to the federal water governance in the country.

    Back2Basics: River Board Act 1956

    • The act to provide for the establishment of River Boards for the regulation and development of inter-state rivers and river valleys.
    • It empowers the Central Government, on a request received in this behalf from a State Government to establish a River Board for advising the Governments on regulation or development of an inter-State river or river valley or any specified part thereof.

  • Mahajan Commission Report on Maha-K’taka boundary dispute

    A Maharashtra leader has sparked a controversy, when he called the incorporation of Belgaum (Belagavi), Karwar and Nipani areas of Karnataka into Maharashtra, as a dream of the ruling party.

    Try answering this

    Q.The linguistic re-organization of India in the post-Independence period has prevented its balkanization, unlike our neighbourhood. Comment.

    Maha-K’taka boundary dispute

    • The erstwhile Bombay Presidency, a multilingual province, included the present-day Karnataka districts of Vijayapura, Belagavi, Dharwad and Uttara-Kannada.
    • In 1948, the Belgaum municipality requested that the district, having a predominantly Marathi-speaking population, be incorporated into the proposed Maharashtra state.
    • However, the States Reorganization Act of 1956, which divided states into linguistic and administrative lines, made Belgaum and 10 taluka of Bombay State a part of the then Mysore State

    The Mahajan Commission

    • While demarcating borders, the Reorganization of States Commission sought to include talukas with a Kannada-speaking population of more than 50 per cent in Mysore.
    • Opponents of the region’s inclusion in Mysore argued, and continue to argue, that Marathi-speakers outnumbered Kannadigas who lived there in 1956.
    • In September 1957, the Bombay government echoed their demand and lodged a protest with the Centre, leading to the formation of the Commission under former CJI Mehr Chand Mahajan in October 1966.

    Beginning of the dispute

    • The Commission recommended that 264 villages be transferred to Maharashtra (which formed in 1960) and that Belgaum and 247 villages remain with Karnataka.
    • Maharashtra rejected the report, calling it biased and illogical, and demanded another review.
    • Karnataka welcomed the report and has ever since continued to press for implementation, although this has not been formally done by the Centre.

    A case pending in the Supreme Court

    • Successive governments in Maharashtra have demanded their inclusion within the state– a claim that Karnataka contests.
    • In 2004, the Maharashtra government moved the Supreme Court for a settlement of the border dispute under Article 131(b) of the Constitution.
    • It demanded 814 villages from Karnataka on the basis of the theory of village being the unit of calculation, contiguity and enumerating linguistic population in each village.
    • The case is pending in the apex court.

  • Governor’s inaction and judicial scrutiny

    The inaction by the Governor of Tamil Nadu on advice to free the convict has raised the possibility of judicial intervention due to undue delay.

    Inaction by Governor on advice

    • The Governor of Tamil Nadu has continued to withhold his decision on an application seeking pardon by one of the seven prisoners convicted in the Rajiv Gandhi assassination case.
    • In September 2018, the Supreme Court (SC) had observed, while hearing a connected writ petition, that the Governor should take a decision
    • The inaction by the Governor now has given rise to constitutional fault lines within the Executive arm of the government.

    Past judgements on pardoning power

    • In Maru Ram v. Union of India (1981)  Supreme Court held that the pardoning power “under Articles 72 and 161 of the Constitution can be exercised by the Central and the State Governments, not by the President or Governor on their own.”
    • The majority judgment had said that the “advice of the appropriate Government binds the Head of the State”.
    • Therefore, a Governor is neither expected, nor is empowered, to test the constitutionality of the order or resolution presented to her.

    Issue of delay in decision of mercy petition

    • Recently, the Supreme Court, had examined the inordinate delay by the President and the Governor — in taking decisions on mercy petitions.
    • The Supreme Court, in the case of Shatrugan Chouhan v. Union of India, laid down the principle of “presumption of dehumanising effect of such delay”.
    • The Supreme Court confirmed that the due process guaranteed under Article 21 was available to each and every prisoner “till his last breath”.

    Judicial scrutiny of the actions of Speakers

    • It was hitherto believed that the powers of the Speaker, holding a constitutional office and exercising powers granted under the Constitution, were beyond the scope of a ‘writ of mandamus’.
    • In the recent case of Keisham Meghachandra Singh v. Hon’ble Speaker (2020), the Supreme Court was asked to examine the Speaker’s inaction with regard to disqualification proceedings.
    • However, the apex court, referering to Rajendra Singh Rana v. Swami Prasad Maurya (2007), had confirmed its view that the “failure on the part of the Speaker to decide the application seeking a disqualification cannot be said to be merely in the realm of procedure”
    • Consequently, breaking years of convention, the SC set the time period of four weeks to decide the disqualification petition.
    • By doing so, the Supreme Court has indicated that it would not be precluded from issuing directions in aid of a constitutional authority “arriving at a prompt decision”.

    Consider the question “The undue delays and inactions by the constitutional functionaries threaten to widen the constitutional faultlines among the Executives. Comment.”

    Conclusion

    Instead of relying on the judicial intervention in the event of delays, it would be better to have a set time limit for arriving at decision by the constitutional judiciary.

  •  Assam-Mizoram Boundary Dispute

    The recent violence and tension on the Assam-Mizoram border underline the differences the two States have had since 1972 when Mizoram was carved out of Assam as a Union Territory.

    Try answering this:

    Q.Assam has had boundary problems with almost all of its north-eastern neighbours. Discuss.

    *Also note the states bordering Assam.

    What is the Dispute?

    • Mizoram was carved out of Assam as a Union Territory in 1972. In 1987, it became a full-fledged state.
    • The two states have sparred over where the border lies in the past, leading to the occasional violence.
    • The disagreement stems from differing views on which border demarcation to follow.
    • Mizoram’s perception of the border is based on an 1875 notification that flows from the Bengal Eastern Frontier Regulation Act of 1873.
    • The Act demarcated the Lushai Hills from the plains and valleys in the North East, restricting free travel between the two zones. The hills were deemed to be “excluded areas”.
    • Assam, for its part, goes by a 1933 notification by the state government that demarcated the Lushai Hills, as Mizoram was then known, from the province of Manipur.

    The Assamese problem

    • Assam has had boundary problems with all its north-eastern neighbours, except Manipur and Tripura that had existed as separate entities.
    • The primary reason is that the other States, a part of Assam during the British rule, have contested the boundaries since they became States, beginning with Nagaland in 1963.
    • Assam has accepted several recommendations of border commissions set up by the Supreme Court, but other States have been sticking to “historical boundaries” that go back to the period before 1826.
    • However, the border residents have to bear the brunt of the unrest unless an acceptable solution is arrived at.

  • 15th Finance Commission submits report to President

    The 15th Finance Commission, chaired by NK Singh, on Monday submitted its final report for 2021-22 to 2025-26 to the President.

    Try this PYQ:

    With reference to the Finance Commission of India, which of the following statements is correct?

    (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

    Key recommendations that would feature in its final report:

    • A separate defence and national security: The viability of creating a separate defence and national security fund as suggested by the Centre.
      • States would keenly await these recommendations as it may translate into a lower share of funds for them.
    • GST compensation dues to States: The panel is also expected to factor in unpaid GST compensation dues to States for this year, while working out State’s revenue flow calculations for the years beyond 2022.

    Formula that decides a State’s share:

    Weight in 15th FC Parameters Weight in 14th FC
    15 (2011 Census) Population 27.5 (17.5 – 1972, 10 – 2011 Census)
    15 Area 15
    10 Forest and Ecology 7.5
    45 Income Distance 50
    12.5 Demographic Performance –
    2.5 Tax Effort

    What is the Finance Commission?

    • The Finance Commission (FC) was established by the President of India in 1951 under Article 280 of the Indian Constitution.
    • It was formed to define the financial relations between the central government of India and the individual state governments.
    • The Finance Commission (Miscellaneous Provisions) Act, 1951 additionally defines the terms of qualification, appointment and disqualification, the term, eligibility and powers of the Finance Commission.
    • As per the Constitution, the FC is appointed every five years and consists of a chairman and four other members.
    • Since the institution of the First FC, stark changes in the macroeconomic situation of the Indian economy have led to major changes in the FC’s recommendations over the years.

    Constitutional Provisions

    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 levy of duties by the Centre but equips the States to collect and retain the same.

    Article 280 of the Indian Constitution defines the scope of the commission:

    1. The President will constitute a finance commission within two years from the commencement of the Constitution and thereafter at the end of every fifth year or earlier, as the deemed necessary by him/her, which shall include a chairman and four other members.
    2. Parliament may by law determine the requisite qualifications for appointment as members of the commission and the procedure of selection.
    3. The commission is constituted to make recommendations to the president about the distribution of the net proceeds of taxes between the Union and States and also the allocation of the same among the States themselves. It is also under the ambit of the finance commission to define the financial relations between the Union and the States. They also deal with the devolution of unplanned revenue resources.

    Why need the Finance Commission?

    • 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.
    • The first FC was established in 1951 by Dr B.R. Ambedkar, the then-incumbent law minister, to address these imbalances.

    Important functions

    • Distribution of net proceeds of taxes between Center and the States, to be divided as per their respective contributions to the taxes.
    • Determine factors governing Grants-in-Aid to the states and the magnitude of the same.
    • To make recommendations to the president as to the measures needed to augment the 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.
    • Any other matter related to it by the president in the interest of sound finance.

    Members of the Finance Commission

    • 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.
    • It laid down rules for the qualification and disqualification of members of the commission, and for their appointment, term, eligibility and powers.
    • The Chairman of a finance commission is selected from people with experience of public affairs. The other four members are selected from people who:
    1. Are, or have been, or are qualified, as judges of a high court,
    2. Have knowledge of government finances or accounts, or
    3. Have had experience in administration and financial expertise; or
    4. Have special knowledge of economics

  • Fifteenth Finance Commission

    Three years after it was constituted, the Fifteenth Finance Commission has finalised its report for fund devolution from the Centre to States for the five years from 2021-22 to 2025-26.

    Fifteenth Finance Commission

    • The Fifteenth Finance Commission (XV FC) was constituted on November 27, 2017.
    • It was constituted against the backdrop of the abolition of the Planning Commission and the distinction between Plan and non-Plan expenditure, and introduction of the Goods and Services Tax (GST).

     What is the Finance Commission?

    • The FC was established by the President of India in 1951 under Article 280 of the Indian Constitution.
    • It was formed to define the financial relations between the central government of India and the individual state governments.
    • The Finance Commission (Miscellaneous Provisions) Act, 1951 additionally defines the terms of qualification, appointment and disqualification, the term, eligibility and powers of the Finance Commission.
    • As per the Constitution, the FC is appointed every five years and consists of a chairman and four other members.
    • Since the institution of the First FC, stark changes in the macroeconomic situation of the Indian economy have led to major changes in the FC’s recommendations over the years.

    Why in news now?

    • That report of the XV FC had pared the States’ share of the divisible tax pool from 42%, as recommended by the Fourteenth Finance Commission, to 41%, citing the creation of the UT of Jammu and Kashmir and Ladakh.
    • The Commission had then said that some of the key recommendations it was required to make would feature in its final report, including the viability of creating a separate defence and national security fund.
    • The panel is also expected to factor in unpaid GST compensation dues to States for this year while working out States’ revenue flow calculations for the years beyond 2022.

    Must read:

    [Burning Issue] 15th Finance Commission and its recommendations (Part I)