What is finance commission? Click Here And know everything

HR Mandi Bhav: Finance Commission: The Central Government has announced the Chairman of the 16th Finance Commission. The government has appointed Professor Arvind Panagariya as the chairman of the commission. Arvind Panagariya has been the former Vice Chairman of NITI Aayog. 

The responsibility of the 16th Finance Commission has been handed over to Professor Arvind Panagariya of Columbia University. The 16th Finance Commission will submit its report to the President by October 2025. 

The recommendations of this 16th Finance Commission will be valid for five years from April 2026 to March 31, 2031. Let us know what is this Finance Commission or Finance Commission? What is its function? 

What is Finance Commission? 

Finance Commission or Finance Commission is a constitutional body, which is formed under Article 280 of the Constitution. It is formed every five years. How will the money be distributed between the central and state governments. The Finance Commission looks after how much will be divided between the two. 

Makes recommendations on this. The Finance Commission recommends the distribution of taxes between the Center and the states and decides the framework for distribution of taxes between them. 

However, the Central Government can entrust the responsibility of any work to the Finance Commission from time to time. The responsibility of the Finance Commission is to advise the government on issues ranging from strengthening fiscal federalism to public finance. 

What is the role of Finance Commission?

Apart from a Chairman, there are 4 more members in the Finance Commission. It is mandatory for one of the four members to be a High Court judge. Whereas one member is selected by the Parliament. Their tenure is for five years. The Finance Commission has only two main functions.

First vertical evolution and second horizontal evolution. If understood in simple language, vertical devolution means how the tax collected should be distributed between the Center and the states. Whereas horizontal devolution means how to allocate taxes among the states. 

The Finance Commission works to increase cooperation by reducing friction between the Central and State Governments. The most important thing is that the recommendations of the commission are only advisory. 

That means the Central Government is not bound to accept the recommendations of the Commission. However, refusing to accept the recommendations of the Commission without any solid reason is tantamount to disobeying the rules of the Constitution.  

What is the responsibility of the Commission?  

Apart from the division of taxes between the Center and the States, the Finance Commission prepares the formula under Article 275 for 'Grant in Aid' i.e. the amount of assistance received from the Center to the States. 

At the same time, the Finance Commission is also responsible for giving recommendations to strengthen the consolidated fund of the states. Apart from this, it is also the job of the Finance Commission to manage funds for disaster management.  

Challenges of the Commission: 

 The 16th Finance Commission is being formed after the Corona epidemic, hence there are many challenges before the Commission. 

The 16th Finance Commission has the responsibility of balancing the high interest system and dealing with the challenges arising due to the global recession.