What is on the agenda for the 16th Finance Commission

• The 16th Finance Commission (FC) is tasked with the devolution of the consolidated fund and mandated to support panchayats and municipalities according to Article 280 and the 73rd and 74th constitutional amendments.

What is a Finance Commission?

• The Finance Commission in India is a constitutional entity created under Article 280 of the Indian Constitution. Its main role is to advise on the allocation of financial resources between the central government and the states. Established on 27th November 2017, the Fifteenth Finance Commission provided recommendations for six years from 1st April 2020 through both Interim and Final Reports, valid until the financial year 2025-26.

Composition of the Finance Commission of India (FCI):

• Structure: Consists of a Chairman and four members appointed by the President.
• Term: Duration specified by the President; members can be reappointed.

Qualifications:

• Chairman: Must have experience in public affairs.
• Members: Should include a High Court judge or a qualified individual, a finance/accounting expert, an experienced financial administrator, and an economist.

Functions:

• Tax Distribution: Recommends how tax proceeds should be distributed between the Centre and States.
• Grants-in-Aid: Advises on principles for grants from the Centre to States.
• State Funds: Suggests measures to increase State funds for Panchayats and Municipalities.
• Other Matters: Addresses additional issues referred by the President.

Report:

• The report is submitted to the President, who then presents it to Parliament with an explanatory memorandum on the actions taken.

About the 16th Finance Commission:

• Under Article 280(1) of the Constitution, the Government of India established the Sixteenth Finance Commission, with Dr. Arvind Panagariya, former Vice-Chairman of NITI Aayog and Professor at Columbia University, as its Chairman.

Major Terms of Reference for the 16th Finance Commission:

• Division of Tax Proceeds: Recommend tax distribution between the Union and States, including State shares.
• Principles for Grants-in-Aid: Establish principles for grants from the Consolidated Fund of India to States, especially under Article 275.
• Enhancing State Funds for Local Bodies: Suggest measures to increase State funds for Panchayats and Municipalities, based on State Finance Commission recommendations.
• Evaluation of Disaster Management Financing: Review and recommend improvements for disaster management funding under the Disaster Management Act, 2005.

Recommendations for Local Bodies by the 16th Finance Commission:

Revisit 15th FC’s Principles:

• Enhance property tax collection linked to state GST.
• Improve maintenance of accounts.
• Allocate resources for pollution mitigation.
• Focus on primary health care, solid waste management, and drinking water.
• Acknowledge India’s dynamic urbanization.
• Ensure intergovernmental transfers to urban areas are at least doubled.

Prelims Takeaway

• Finance Commission