How is the Finance Commission of India constituted? What do you know about the terms of reference of the recently constituted Finance Commission? Discuss.

CONSTITUTIONAL ROLE

• Article 280 mandates setting up of FC periodically as per the exigencies
• It evaluates the fiscal needs of the states & sets out the guidelines to be observed for Grant-in-Aids under Article 275
• It looks into the horizontal (across states) & vertical (between state & Centre) devolution of funds.
• It also recommends measures to consolidate the funds of the State in the Consolidated fund
• Devolution shoring up of finances of local self governments.
• Constituent Assembly envisaged it as the Balancing Wheel of Indian Federalism

TOR of 15th FC

• Importance to the 2011 census population data
• Preference to the steps taken by states to increase investment & improve the Ease of Doing Business
• Steps taken to boost the collections under GST
• Quality of expenditure done by states, ie, the Fiscal Deficit & Capital development
• Performance in various NITI Aayog indices like Health Index

ISSUES

• Southern states, which have adopted population planning methods might be at disadvantage.
• Performance based on competitive indexes puts backward states at a disadvantage.
• Concerns of North East about less weightage to forests & greenery (only 7.5%) specially.
• The states are not eligible to challenge the ToR in the courts under Article 131 (original jurisdiction).
• Centre eroding the State's financial space by looking into expenditures.

WAY FORWARD