The Union government to set up the 16th Finance Commission and the Union Finance Ministry will soon notify the terms of reference for the commission.
Background:
In 2017, the 15th Finance Commission was set up with a mandate to make recommendations for the five year periods from 2020-21, latter the mandate was extended by a year till 2025-26.
The last time the commission was granted a 6 year time frame was for the 9th Finance Commission, formed in 1987.
Finance Commission:
Indian Constitution under article 280 provides for a Finance Commission as a quasi-judicial body.
The Commission is constituted by the president of India every fifth year or at such an earlier time as he considers necessary.
The Commission consists of a chairman and four other members to be appointed by the president of India.
The members hold office for such a period as specified by the president in his order.
They are eligible for reappointment.
Qualification of members: The Constitution authorizes the Parliament of India to determine the qualifications of members of the commission and the manner in which they should be selected.
The Parliament has specified certain qualifications for the selection of the chairman and members of the commission.
The chairman should be a person having experience in public affairs and the four other members should be selected from amongst the following:
A judge of a high court or one qualified to be appointed as one.
A person who has specialised knowledge of finance and accounts of the government.
A person who has wide experience in financial matters and administration.
A person who has special knowledge of economics.
The Commission is required to make recommendations to the Indian president on the following matters:
The distribution of the net proceeds of taxes to be shared between the Centre and the states, and the allocation between the states of the respective shares of such proceeds.
The principles that should govern the grants-in-aid to the states by the Centre.
The measures needed to augment the consolidated fund of a state to supplement the resources of the panchayats and the municipalities in the state.
Any other matter referred to it by the president in the interests of sound finance.
The recommendations made by the Commission are only of advisory nature and are not binding on the government.
It is up to the Union government to implement its recommendations on granting money to the states.
The commission submits its report to the president of India.
The President lays it before both Houses of Parliament along with an explanatory memorandum as to the action taken on its recommendations.