Finance Commission of India

• Finance Commissions (FCs) are pivotal in India's fiscal federalism and development, acting as quasi-judicial, constitutional bodies constituted by the President under the Constitution of India. 

• They are not permanent and are reconstituted every five years or as needed. 

• Articles 280 and 281 outline the FC's provisions. 

• The primary function of the FC is to recommend the distribution of financial resources between the Union and State Governments. 

• Each FC consists of a Chairman and four members appointed by the President. 

• The Parliament determines member qualifications through the Finance Commission Act of 1951.

Key Aspects of the recommendation by FC

Vertical Devolution:

• FCs determine the share of states in the divisible pool of central taxes.

Horizontal Distribution:

• FCs allocate resources among states based on a formula reflecting their fiscal needs, capacities, and performance

Grants-in-Aid:

• FCs provide additional transfers to specific states or sectors needing assistance or reform.