Finance Commission of India is an independent and non-partisan institution which has contributed to its high credibility and fiscal federalism. Consultative process and close examination of finances of both central and state government provide the foundation of a finance commission’s recommendations. The main tasks of the commission are to strengthen cooperative federalism, improve the quality of public spending and help protect fiscal stability.
As undergone significant changes, each Finance Commission has its unique set of challenges. The Fifteenth Finance Commission was constituted in the backdrop of the abolition of Planning Commission, the abolition of distinction between plan and non-plan expenditure and the far reaching structural tax changes embedded in the Goods and Services tax. The working of the GST council is unique and new feature which is still in the nascent stage. The Niti Aayog is the new institution which does not replicate the functions of the Planning Commission but to act towards monitoring important flagship programmes of Government both of the Centre and States as well as act as the principal, think tank of Government. The Terms of Reference of this Commission are somewhat unique including monitrable performance criteria for important national flagship programmes, and examining the possibility of setting up permanent non lapsable funding for India’s Security needs. Replacing the state J&K, with the union territory of the J&K generate the new terms of reference according to the J&K reorganisation bill which will also pose some complex issue. On the whole the Finance Commission faces new challenges in the dynamic process of the evolution of our federal polity. As an important constitutional instrument, balancing competing claims and competing priorities among national, state and the third tiers level would need to be addressed in credible way.
Shri N.K. Singh
Chairman of 15th Finance Commision of India