What is a Finance Commission?

It is a body set up under Article 280 of the Constitution. Its primary job is to
recommend measures and methods on how revenues need to be distributed between t
he Centre and states.
What else is its job?
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 bodie
s. In the case of 14th Commission, these principles will apply for a five-year p
eriod beginning April 1, 2015.
What kind of work a Finance Commission has to do?
The commission has to take on itself the job of addressing the imbalances that o
ften arise between the taxation powers and expenditure responsibilities of the c
entre and the states, respectively. Primarily, it has to ensure a sense of equal
ity in public services across the states.
Who is the head of the latest i.e. 14th Finance Commission?
Former Governor of the Reserve Bank of India, Mr. Y.V. Reddy, is the Chairman.
Who are the other members of the Commission?
The Commission comprise Abhijit Sen, Member, Planning Commissio; Sushama Nath, F
ormer Union Finance Secretary; M Govinda Rao, former Director of National Instit
ute of Public Finance and Policy; Sudipto Mundle, former Acting Chairman, Nation
al Statistical Commission; and AN Jha, Secretary to the Commission.
Are the recommendations of the 14th Finance Commission unanimous?
It appears there is a dissent. The report is believed to contain a dissent note
from Planning Commission member Abhijit Sen.
What is the key recommendation of the 14th Finance Commission?
It has recommended an increase in the share of states in the centre's tax revenu
e 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, t
he total devolution to the States in 2015-16 will be Rs. 5.26 lakh crore approxi
mately, a year-on-year increase of Rs. 1.78 lakh crore approximately
What will the impact of this recommendation if accepted by the Centre?
"The higher tax devolution will allow States greater autonomy in financing and d
esigning schemes as per their needs and requirements," says the report. Practica
lly, it will give more power to states in determining how they spend this money.
What is the implication of this recommendation?
Well, it comes at a time when the Centre is trying to push GST (goods and servic
es tax). Perhaps, higher devolution will help to reassure the States that they w
ill not be at the wrong end of the stick if GST is introduced.