Important Details you should know about 14th Finance Commission of India

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Friends, as you know, the 14th Finance Commission is recently in news. It is definitely going to be one of the important topics for upcoming competitive exams and interviews. So I feel, it will be useful for us to know about the Finance Commission of India. So here I am sharing a few important points (including basics) about the Finance Commission and will try to explain why 14th Finance Commission is in news. Happy Reading :)

Brief Introduction about Finance Commission

Finance Commission is a body set up under Article 280 of the Constitution by the President of India.  It came into existence in the year 1951. Its primary job is to recommend measures and methods on how revenues need to be distributed between the Centre and states. The Finance Commission Act of 1951 states the terms of qualification, appointment and disqualification, the term, eligibility and powers of the Finance Commission. Besides suggesting the mechanism to share tax revenues, the Commission also lays down the principles for giving out grant-in-aid to states and other local bodies.

As per the Constitution, the commission is appointed every five years and consists of a chairman and four other members. Till date, Fourteen Finance Commissions have submitted their reports. Yesterday (24th February 2015), the Finance Minister Arun Jaitley tabled the 14th Finance Commission report in Lok Sabha. The recommendations of 14th Commission will apply for a five-year period beginning April 1, 2015.

Important People behind 14th Finance Commission

• Chairman : Y.V. Reddy (former RBI Governor)
• Members 
• Abhijit Sen :  Former Member, Planning Commission
• Sushama Nath :  Former Union Finance Secretary
• M Govinda Rao : Former Director of National Institute of Public Finance and Policy
• Sudipto Mundle : Former Acting Chairman, National Statistical Commission
• Ajay Narayan Jha : Secretary to the Commission.

Key recommendation of the 14th Finance Commission ?

It has recommended an increase in the share of states in the centre's tax revenue from the current 32 per cent to 42 per cent. This is indeed the single largest increase ever recommended by a Finance Commission.

What does it means to States?

As against a total devolution of Rs. 3.48 lakh crore approximately in 2014-15, the total devolution to the States in 2015-16 will be Rs. 5.26 lakh crore approximately, a year-on-year increase of Rs. 1.78 lakh crore approximately

Impact of this recommendation

"The higher tax devolution will allow States greater autonomy in financing and designing schemes as per their needs and requirements," says the report. Practically, it will give more power to states in determining how they spend this money.

Implication of this recommendation?

Well, it comes at a time when the Centre is trying to push GST (goods and services tax). Perhaps, higher devolution will help to reassure the States that they will not be at the wrong end of the stick if GST is introduced.

Rajeshwari. M

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