How is the Finance Commission of India constituted? What do you know about the terms of reference of the recently constituted Finance Commission? Discuss. (15) (250 words)

The Finance Commission is a constitutional mechanism for periodically recalibrating fiscal relations between the Union and the States.

• Under Article 280, the President constitutes it every five years or earlier, comprising a Chairperson and four members qualified by Parliament-made law.
• It recommends distribution of divisible Union taxes, principles for grants-in-aid, measures to augment State funds for Panchayats and municipalities, and other referred matters.
• The President lays its recommendations and an explanatory memorandum before Parliament; they are advisory but constitutionally weighty.

The Commission’s recommendations also illuminate the tension between vertical imbalance and State autonomy. Transparent criteria, credible data and consultation with States are necessary because fiscal transfers influence public services, macroeconomic stability and the viability of India’s cooperative federal structure.

Regular reporting to the legislature, public disclosure of reasons and accessible remedies would make the arrangement durable and reduce needless institutional confrontation.

• The 15th Finance Commission, constituted in 2017, was asked to cover 2020–25 and address fiscal devolution, grants and local government resources.
• Its terms included effects of the Goods and Services Tax, fiscal consolidation, debt, population-related considerations and performance incentives.
• The 2011 Census reference generated federal concerns about demographic performance, while defence and security financing raised questions about the divisible pool.
• Its mandate therefore had to balance equity, efficiency, accountability and the constitutional promise of cooperative fiscal federalism.

Article 280; Finance Commission; fiscal federalism; tax devolution; 15th Finance Commission