GS Question

The Finance Commission of India is a constitutional body that is constituted every five years. It is responsible for recommending the distribution of financial resources between the central government and the state governments of India. The commission also advises on matters related to fiscal management, tax reforms, and grants-in-aid.

The Finance Commission is composed of a chairman and four other members appointed by the President of India. Usually, a retired judge of the Supreme Court is appointed as the chairman. The members are selected based on their expertise in economics, public finance, or administration.

The terms of reference of the recently constituted Finance Commission (also known as the 15th Finance Commission) are as follows:

1. To recommend the distribution of the net proceeds of taxes between the center and the states.

2. To recommend the principles that should govern the grants-in-aid to the states based on the need for revenue deficit, infrastructure gap, and other special circumstances.

3. To examine the impact of the Goods and Services Tax (GST) on the finances of the center and the states and suggest measures to maintain a balance between them.

4. To review the performance of the state governments in implementing centrally-sponsored schemes and recommend incentives or disincentives based on the same.

5. To recommend measures to strengthen the financial position of the local governments and reinforce their functioning.

These terms of reference highlight the crucial role of the Finance Commission in coordinating fiscal matters between the central and state governments. The commission's recommendations play a significant role in shaping the distribution of resources and ensuring a balanced fiscal system in India.