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 TERMS OF REFERENCE
OF THE SEVENTH FINANCE COMMISSION
Paras 4 to 9 of the Presidential Order dated the 22nd June,
1977 containing the terms of reference of the Seventh Finance
Commission are reproduced below:-
"4. The Commission shall make recommendations as to the following
matters:-
(a) the distribution between the Union and the States of
the net proceeds of taxes which are to be, or may be, divided
between them under Chapter I of Part XII of the Constitution
and the allocation between the States of the respective
shares of such proceeds;
(b) the principles which should govern the grants-in-aid
of the revenues of the States out of the Consolidated Fund
of India and the sums to be paid to the States which are
in need of assistance by way of grants-in-aid of their revenues
under Article 275 of the Constitution for purposes other
than those specified in the provisos to clause (1) of that
Article.
5. In making its recommendations, the Commission shall have
regard, among other considerations, to:-
(i) the resources of the Central Government and the demands
thereon on account of the expenditure on civil administration,
defence and border security, debt servicing and other committed
expenditure or liabilities;
(ii) the existing practice in regard to determination and
distribution of Central assistance for financing State Plans;
(iii) the revenue resources of those States for the five
years ending with the financial year 1983-84 on the basis
of the levels of taxation likely to be reached at the end
of the financial year 1978-79 and the targets set for additional
resource mobilisation for the Plan;
(iv) the requirements on revenues account of those States
to meet the expenditure on administration and other non-plan
commitments or liabilities, keeping however in view national
policies and priorities. In assessing such requirements,
the Commission shall take into account:-
(a) such provision for emoluments of Government employees,
teachers and local body employees as obtaining on a specified
date as the Commission deem it proper and with reference
to appropriate objective criteria rather than in terms
of actual increases that may have been given effect to;
and
(b) commitments in regard to interest charges on their
debt, transfer of funds to local bodies and aided institutions;
(v) adequate maintenance and upkeep of capital assets and
maintenance of plan schemes completed by the end of 1978-79,
the norms, if any, on the basis of which specified amounts
are allowed for the maintenance of different categories
of capital assets and the manner in which such maintenance
expenditure could be monitored being indicated by the Commission;
(vi) the requirements of States which are backward in general
administration for upgradation of standards in non-developmental
sectors and services with a view to bringing them to the
levels obtaining in the more advanced States over the period
covered by the Report of the Commission; the manner in which
such expenditure could be monitored, being also indicated
by the Commission;
(vii) the scope for better fiscal management and economy
in expenditure consistent with efficiency; and
(viii) the need for ensuring reasonable returns on investments
in irrigation and power projects, transport undertakings,
industrial and commercial enterprises and the like.
6. The Commission may suggest changes, if any, to be made
in the principles governing the distribution among the States
of:-
(a) the net proceeds in any financial year of estate duty
in respect of property other than agricultural land;
(b) the net proceeds in any financial year of the additional
excise duties leviable under the Additional Duties of Excise
(Goods of Special Importance) Act, 1957, in replacement
of the sales tax levied formerly by the State Governments
on each of the following commodities, namely:-
(i) Cotton fabrics
(ii) Woolen fabrics
(iii) Rayon or artificial silk fabrics
(iv) Sugar, and
(v) Tobacco including manufactured tobacco.
Provided that the share accruing to each State shall
not be less than the revenue realised from the levy of
sales tax for the financial year 1956-57 in that States;
(c) the grant to be made available to the States in lieu
of the tax under the repealed Railway Passenger Fares Tax
Act, 1957; and
(d) the grant to be made available to the States on account
of Wealth Tax on agricultural property
7. In making its recommendations on the various matters aforesaid,
the Commission shall adopt the population figures of 1971
in all cases where population is regarded as a factor for
determination of devolution of taxes and duties and grants-in-aid.
8. The Commission may make an assessment of the non-plan
capital gap of the States on a uniform and comparable basis
for the five years ending with 1983-84. In the light of such
an assessment, the Commission may undertake a general review
of the States' debt position with particular reference to
the Central Loans advanced to them and likely to be outstanding
as at the end of 1978-79 and suggest appropriate measures
to deal with the non-Plan capital gap, having regard inter-alia
to the overall non-plan gap of the States, their relative
position and the purposes for which the loans have been utilised,
and the requirements of the Centre.
9. The Commission may review the policy and arrangements
in regard to the financing of relief expenditure by the States
affected by natural calamities and suggest such modifications
as it considers appropriate, in the existing arrangements,
having regard, among other considerations, to the need for
avoidance of wasteful expenditure.
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