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08 Dec 2023
GS Paper 2
Polity & Governance
Day 17 : Discuss the role and responsibilities of the Finance Commission in the distribution of financial resources in the Indian federation.(150 Words)
- Briefly introduce the Finance Commission and its objective.
- Discuss the main role and responsibilities of the Finance Commission.
- Conclude with the significance of the Finance Commission in maintaining fiscal balance in the Indian federation.
Introduction
The Finance Commission plays a pivotal role in the distribution of financial resources in the Indian federation, serving as an indispensable constitutional body under Article 280 of the Constitution. The primary objective of the Finance Commission is to recommend the distribution of the net proceeds of taxes between the Centre and the States, as well as among the States themselves.
Body
The main role and responsibilities of the Finance Commission are:
- Tax Revenue Distribution: The Finance Commission assesses the revenue position of both the Union and the States, taking into account the existing and potential fiscal capacity. It recommends the principles and formulae governing the distribution of taxes between the Centre and States, ensuring a fair and equitable share for each.
- Grants-in-Aid: Apart from tax distribution, the Finance Commission suggests the principles that govern the grants-in-aid to be provided to the States. These grants aim to address the vertical and horizontal imbalances in fiscal capacities among the States, promoting balanced regional development.
- Fiscal Consolidation: The Finance Commission examines the financial position of the Union and the States in the context of their respective revenue and expenditure patterns. It recommends measures for the fiscal consolidation of both the Union and the States, ensuring sound financial management and sustainability.
- Recommendations for Special Cases: The Finance Commission addresses special situations and circumstances, such as the needs of border areas, backward regions, and tribal areas. It recommends special grants to fulfill these specific requirements, promoting inclusive development.
- Review of Fiscal Performance: The Finance Commission monitors the fiscal performance of the States and recommends measures for improvement. It acts as a watchdog, ensuring that fiscal discipline is maintained for the overall economic health of the country.
Conclusion
The Finance Commission serves as a crucial institution in the Indian federal structure, ensuring a balanced and fair distribution of financial resources. By considering multiple factors and engaging in a consultative process, the Finance Commission plays a pivotal role in fostering cooperative federalism and promoting sustainable and inclusive development across the diverse regions of India.
