Finance Commission – Issues related to devolution of resources

Fifteenth Finance Commission


From UPSC perspective, the following things are important :

Prelims level: Finance Commission

Mains level: Finance Commission, Its evolving role in fiscal federalism

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)

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