13th finance commission's functions

What is the role of the commission?

The Constitution provides that certain tax revenues of the Union government be shared between the Centre and the states. President constitutes the finance commission under Article 280 of the Constitution to recommend what percentage of such revenues should go to the states and also how the funds are shared among the states.

Why the resources are shared between the Centre and states?

This is necessary due to the fact that the bulk of taxation powers are with the Centre, but expenditure is in the domain of states. In fact, most federal systems need a mechanism to address the issue of vertical distribution of resources. Canada has a federal system very similar to that of India. There, too, a mechanism is in place to address the issue of vertical imbalance and horizontal equity — how the resources are shared amongst states themselves. Australia is another such federal setup.

What are the other key responsibilities?

Finance commission is also required to lay down the principles governing the grants-in-aid to states out of the consolidated fund of India. It should also suggest measures to augment the resources of states to supplement the resources of panchayats and municipalities. At times the government can also ask the finance commission to make suggestions on specific issues. The Thirteenth Finance Commission was asked to make recommendations on accounting of off budget subsidies.

Are the recommendations of finance commission binding?

The recommendations of the finance commission are not binding on the government. But, the recommendations have the force of precedent and governments generally go by the suggestions. The recommendations relating to distribution of Union taxes and duties and grants-in-aid can be implemented by a presidential order.

When was the First Finance Commission appointed? What is the timeline for recommendations?

The First Finance Commission was constituted on 22 November 1951 under the chairmanship of KC Neogy. Thirteen finance commissions have been appointed so far at five-year intervals. Recommendations are valid for a period of five years. The recommendations of the current finance commission will be for the five year period beginning April 1, 2010.