Madhya Pradesh

• 17 Mar 2025

CAG and Finance Commission

Why in News? 

A meeting was held in Bhopal, Madhya Pradesh for consultation between Comptroller and Auditor-General of India (CAG) and Sixteenth Finance Commission on public finance. 

Key Points 

• About the Meeting: 
  • It focused on three major areas: Union and State finances, local bodies and public sector enterprises. 
  • It provided a comprehensive framework for making fiscal management, audit, tax policy and public financial management of the Centre and the States more transparent and effective.  
• Recommendations: 
  • Decline in State Tax Revenue (SOTR) : Need for strengthening the tax collection mechanism was emphasized. 
  • Standardisation of fiscal information : It was proposed to standardise accounting procedures to provide transparent and comparable financial data. 
  • The CAG stressed the need for further reforms in areas such as stamp duty, registration fee and state excise duty . 
    • Also recommended adopting modern technologies like QR codes and sensor-based systems. 
  • It was recommended that states with surplus revenue should create a Budget Stabilization Fund to avoid financial instability. 
  • Goods and Services Tax (GST) reforms recommended strengthening the taxpayer verification process, integration of unregistered units and use of automated data collection and real-time information systems. 

 Comptroller and Auditor General (CAG) 

• Introduction:  
  • According to Article 148 of the Constitution , the CAG of India is the head of the Indian Audit and Accounts Department (IA-AD) .  
  • He is responsible for the safeguarding of public funds and overseeing the financial system at both the central and state levels.  
  • The CAG of India is governed by the Comptroller and Auditor General (Duties, Powers and Conditions of Service) Act, 1971, which was significantly amended in the years 1976, 1984 and 1987 . 
• Appointment and Tenure:  
  • The CAG of India is appointed by the President of India by a warrant  under his signature and seal . 
  • The CAG holds office for a term of six years or till the age of 65, whichever is earlier. 
  • The CAG shall be removed from his office by the President only in the same manner and on the same grounds as a Judge of the Supreme Court. 
  • The CAG can resign from his office at any time by submitting his resignation to the President.  
  • After leaving the office, the CAG is not eligible for any other post under the Government of India or any State Government. 
• Pay and Allowances:  
  • The salary of the CAG is determined by the Parliament, which is equal to the salary of a Supreme Court judge. 
  • The CAG's administrative expenses, including salary, allowances and pension, are charged on the Consolidated Fund of India , which is not subject to parliamentary vote. 
  • Duties and Powers: The CAG audits the accounts relating to expenditure from the Consolidated Fund of India and State funds . 
  • It also audits the accounts of Government corporations , public sector undertakings and government-financed bodies. 
  • The CAG submits audit reports to the President , who lays them before Parliament. These reports are scrutinised by the Public Accounts Committee. 

Finance Commission 

• Constitutional Basis: It is a constitutional body established under Article 280 of the Indian Constitution . 
  • It is appointed by the President every five years or earlier as the President considers necessary. 
• Composition: The Commission consists of a Chairman and four other members appointed by the President. 
  • The Chairman should be a person who has experience in public affairs . 
• Functions and Duties : The primary function of the Finance Commission is to make recommendations to the President on various financial matters . 
• Distribution of Taxes: It recommends the distribution between the Union and the States of the net proceeds of taxes . This includes allocation of shares among the States from tax proceeds. 
• Grants-in-aid: The Bill suggests principles for providing grants-in-aid to States from the Consolidated Fund of India . 
  • This includes establishing the principles governing grants-in-aid to the states from the Consolidated Fund of India.