India has established the 16th Finance Commission, led by economist Arvind Panagariya

16th Finance Commission: The Indian government has formed the 16th Finance Commission which will headed by economist Arvind Panagariya. This commission is tasked with recommending the distribution of tax revenues between the central and state governments for 5 years from 2026.

Constitutional provisions related to the Finance Commission of India:

The Finance Commission of India is a constitutional body established under Article 280 of the Constitution of India. This article empowers the President of India to constitute a Finance Commission every five years or at such earlier intervals as deemed necessary. The primary mandate of the Finance Commission is to make recommendations to the President regarding the distribution of the net proceeds of taxes between the Union (central government) and the States, and the principles governing the grants-in-aid of the revenues of the States out of the Consolidated Fund of India. Article 280 of the Constitution of India lays down the framework for the establishment and functioning of the Finance Commission, which plays a crucial role in ensuring fiscal federalism and equitable distribution of resources among the Union and the States.

1. Article 280: This article empowers the President to constitute a Finance Commission to recommend the distribution of tax revenues between the Union and the States.
2. Recommendations: The Finance Commission’s recommendations cover various aspects such as tax revenue sharing, grants-in-aid principles, resource augmentation for states, and disaster management financing.
3. Five-Year Term: The Finance Commission is typically constituted for a five-year term, but it can be established earlier if deemed necessary by the President.
4. Independence: The Finance Commission operates independently and provides impartial recommendations to ensure equitable distribution of financial resources between the Union and the States.
5. Review of Reports: The reports and recommendations of the Finance Commission are reviewed by the President and presented before both houses of Parliament. The recommendations are not binding, but they carry significant weight in fiscal matters.

Key Focus Areas of the Sixteenth Finance Commission:

1. Distribution of Net Proceeds of Taxes:

• Involves dividing the net proceeds of taxes between the Union and the States as per Chapter I, Part XII of the Constitution.
• Addresses the allocation of shares of these proceeds among the States.

1. Grants-in-Aid Principles:

• Outlines principles governing grants-in-aid of the revenues of the States from the Consolidated Fund of India.
• Specifies sums to be paid to the States as grants-in-aid for purposes other than those outlined in the provisos to clause (1) of Article 275.

1. Resource Augmentation for States:

• Suggests measures to augment the Consolidated Fund of a State to enhance resources of Panchayats and Municipalities based on its recommendations.

1. Review of Disaster Management Financing:

• Reviews current arrangements for financing Disaster Management initiatives, considering funds under the Disaster Management Act, 2005 (53 of 2005).

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