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Financial Administration: Finance Commission.

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Financial Administration: Finance Commission.

  1. 1. FINANCIAL ADMINISTRATION: FINANCE COMMISSION  The Finance Commission ( Vitta Āyoga) 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 Commission is appointed every five years and consists of a chairman and four other members.
  2. 2. FINANCIAL ADMINISTRATION: FINANCE COMMISSION  There have been fifteen commissions to date. The most recent was constituted in 2017 and is chaired by N. K. Singh, a former member of the Planning Commission.
  3. 3. 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.
  4. 4. FUNCTIONS  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.  A finance commission is an autonomous body which is governed by the government of India.
  5. 5. THE FINANCE COMMISSION (MISCELLANEOUS PROVISIONS) ACT, 1951  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, by laying down rules for the qualification and disqualification of members of the commission, and for their appointment, term, eligibility and powers.
  6. 6. THE FINANCE COMMISSION (MISCELLANEOUS PROVISIONS) ACT, 1951  Qualifications of the members 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.
  7. 7. THE FINANCE COMMISSION (MISCELLANEOUS PROVISIONS) ACT, 1951  Disqualification from being a member of the commission A member may be disqualified if: 1. He is mentally unsound; and as follows- 2. He is an undercharged insolvent; 3. He has been convicted of an immoral offence; 4. His financial and other interests are such that it hinders the smooth functioning of the commission.
  8. 8. THE FINANCE COMMISSION (MISCELLANEOUS PROVISIONS) ACT, 1951  Salaries and allowances of the members The members of the commission shall provide full-time or part-time service to the commission, as the President specifies in his order. The members shall be paid salaries and allowances as per the provisions made by the Central Government.
  9. 9. LIST OF FINANCE COMMISSIONS Finance Commission Year of establishment Chairman Operational duration First 1951 K. C. Neogy 1952–57 Second 1956 K. Santhanam 1957–62 Third 1960 A. K. Chanda 1962–66 Fourth 1964 P. V. Rajamannar 1966–69 Fifth 1968 Mahaveer Tyagi 1969–74 Sixth 1972 K. Brahmananda Reddy 1974–79 Seventh 1977 J. M. Shelat 1979–84 Eighth 1983 Y. B. Chavan 1984–89 Ninth 1987 N. K. P. Salve 1989–95 Tenth 1992 K. C. Pant 1995–00 Eleventh 1998 A. M. Khusro 2000–05 Twelfth 2002 C. Rangarajan 2005–10 Thirteenth 2007 Dr. Vijay L. Kelkar 2010–15 Fourteenth 2013 Dr. Y. V Reddy 2015–20 Fifteenth 2017 N. K. Singh 2020–25
  10. 10. 14TH FINANCE COMMISSION  Major Recommendations of 14th Finance Commission headed by Prof. Y V Reddy 1. The share of states in the net proceeds of the shareable Central taxes should be 42%. This is 10 percentage points higher than the recommendation of 13th Finance Commission. 2. Revenue deficit to be progressively reduced and eliminated. 3. Fiscal deficit to be reduced to 3% of the GDP by 2017–18.
  11. 11. 14TH FINANCE COMMISSION  Major Recommendations of 14th Finance Commission headed by Prof. Y V Reddy 4. A target of 62% of GDP for the combined debt of centre and states. 5. The Medium Term Fiscal Plan (MTFP) should be reformed and made the statement of commitment rather than a statement of intent. 6. FRBM Act needs to be amended to mention the nature of shocks which shall require targets relaxation.
  12. 12. 14TH FINANCE COMMISSION  Major Recommendations of 14th Finance Commission headed by Prof. Y V Reddy 7. Both centre and states should conclude 'Grand Bargain' to implement the model Goods and Services Act (GST). 8. Initiatives to reduce the number of Central Sponsored Schemes (CSS) and to restore the predominance of formula-based plan grants. 9. States need to address the problem of losses in the power sector in time bound manner.
  13. 13. 15TH FINANCE COMMISSION  The Fifteenth Finance Commission was constituted by the Government of India, after the approval from the President of India, through a notification in the Gazette of India in November 2017.  Nand Kishore Singh was appointed as the commission's chairman, with its full-time members being Shaktikanta Das and Anoop Singh and its part-time members being Ramesh Chand and Ashok Lahiri.  However Ajay Narayan Jha was appointed replacing Shaktikanta Das who resigned from the commission to serve as the governor of the Reserve Bank of India.
  14. 14. 15TH FINANCE COMMISSION  The 15th Finance Commission (Chair: Mr N. K. Singh) was required to submit two reports.  The first report, consisting of recommendations for the financial year 2020-21, was tabled in Parliament on February 1, 2020.  The final report with recommendations for the 2021- 26 period will be submitted by October 30, 2020.
  15. 15. FINANCE COMMISSION VERSUS PLANNING COMMISSION  It is alleged that Planning Commission (PC) which is neither a constitutional nor a statutory body has usurped the role of Finance Commission (FC).  PC has restricted FC's role to mere recommend grants to states on revenue account only under article 275 of Indian constitution.  However, after the formation of NITI Aayog (National Institute of Transforming India), which comes to replace the Planning Commission seeks to empower FC with the originally envisaged task of distribution of revenue to the states.

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