*****Note: President can also constitute Finance Commission before the expiry of five years as he considers

necessary

Finance Commission of India Related Questions and Answers –

Q1. When was the first Commission Constituted and how many Commissions have been Constituted so far?
Ans. The First Finance Commission was constituted vide Presidential Order dated 22nd November 1951 under
the chairmanship of Shri K.C. Neogy on 6th April 1952.  Fifteen Finance Commissions have been constituted so
far at intervals of every five years.

Q3. Why is there a need for a Finance Commission?

Ans. The Indian federal system allows for the division of power and responsibilities between the centre and states.
Correspondingly, the taxation powers are also broadly divided between the centre and states. State legislatures
may devolve some of their taxation powers to local bodies.

Why is there a need for a Finance Commission?

The Indian federal system allows for the division of power and responsibilities between the centre
and states.  Correspondingly, the taxation powers are also broadly divided between the centre and
states.  State legislatures may devolve some of their taxation powers to local bodies.

Finance Commission Background

 Since the 90’s it has also started to recommend the augmentation of revenues at the local government
level.
 The usage of the population of 1971 for deciding on the horizontal devolution was made mandatory from
the 7th FC, having said so it should be remembered that the 6th FC also used the 1971 population but
wasn’t mandated to use it.
 2011 data along with the 1971 population data was used by the 14th FC (if it had used only the 1971
population then the data would have margin years of 45 years to 50 years during the implementation from
2015 to 2020).
 Before 2000, only Income tax and union excise on certain duties were shared but the constitutional
amendment in 2000 allowed all the central taxes to be shared with the states
Who established Finance Commission in India? --- Government of India

***Kshitish Chandra Neogy (1888–1970), also known as KC Neogy, was an Indian politician from West Bengal.

He was a member of the Constituent Assembly of India, member of the first Cabinet of independent India and the
chairman of the first Finance Commission of India.
Neogy was a member of the Indian National Congress and was elected as a member of the Central Legislative
Assembly in 1920, 1923, 1926, 1930 representing Bengal and was returned to the assembly in successive
elections. He held a number of important posts in Government of India including Chairman of the Planning
Advisory Board and Indian Railway Enquiry Committee. He was also a member of the United Nations Commission
on Human Rights.[1]
Neogy was elected as a member of the Constituent Assembly of India and after independence became a member
of the First Cabinet of Independent India under Jawaharlal Nehru as the Minister of Relief and Rehabilitation and
later as Minister for Commerce.[2] After the resignation of R. K. Shanmukham Chetty, Neogy took charge as the
second Finance Minister of India in 1950. He held office for just 35 days and did not get an opportunity to present
a Budget [3] since he resigned along with Syama Prasad Mookerjee.
On 22 November 1951, Neogy was appointed by the President of India as the chairman of the first Finance
Commission of India.[4]
Neogy had three children with his wife, Lila. His eldest son, Prithwish Neogy (1918–91), was a professor of art
history at the University of Hawaii at Manoa, USA.
First Finance commission of India Chairman & Memers
 First 1951 K. C. Neogy 1952–57

Members[edit]
 Shri K. C. Neogy, Chairman
 Shri V. P. Menon
 Shri Justice R. Kaushalendra Rao
 Dr. B. K. Madan
 Shri M.V. Rangachari Member-Secretary
 Shri V. L. Mehta
V. P. Menon resigned on 18 February 1952 and was replaced by V. L. Mehta. [1]

 *****grant-in-aid to Municipalities from the consolidated fund of the state.

 .

15th FINANCE COMMISSION

 To define financial relations between the Central government and state governments, there has been a
need to constitute such a body like the Finance Commission of India. The Fifteenth Finance
Commission was constituted on 27 November 2017 against the backdrop of the abolition of the Planning
Commission and the introduction of the goods and services tax (GST), which has fundamentally redefined
federal fiscal relations. under the chairmanship of NK Singh. Its recommendations will cover
a period of five years from the year 2021-22 to 2025-26.


 The 15th Finance Commission has released a report titled ‘Finance Commission in COVID Times’ on 1st
February 2021.

 ***Shri Ajay Narayan Jha joins as Member Fifteenth Finance Commission - 1st March,2019. Shri
Ajay Narayan Jha today joined the Fifteenth Finance Commission as its Member. He joins in place of Shri
Shaktikanta Das who had resigned as a Member of the Commission after being appointed as Governor,
Reserve Bank of India.


 ***As per the reports of the previous finance commission, the share of the
states in the net proceeds of the shareable Central Taxes was 32%. The
fourteenth commission raised it to 42%, The fourteenth commission raised it
to 41%.

 15TH MEMBER

N. K. Singh, IAS, Chairman
Commission
Ajay Narayan Jha, IAS,
executives
Member
 Prof. Anoop Singh, Member

Dr. Ashok Lahiri, Member

Prof. Ramesh Chand,

Member (part-time)
Arvind Mehta, IAS, Secretary

Frequently Asked Questions Related to Finance Commission of India

Who is the current chairman of the Finance Commission?

The commission’s chairman is Nand Kishore Singh, with its full-time members being Ajay Narayan Jha, Ashok
Lahiri and Anoop Singh.

What are the key recommendations of the Finance Commission

For horizontal devolution, the15th Finance Commission has suggested 12.5% weightage to demographic
performance, 45% to income, 15% each to population and area, 10% to forest and ecology and 2.5% to tax and
fiscal efforts AND15% AREA.

Who appoints the Finance Commissioner for a State?

Under Article 243-I of the Constitution of India, the governor of a state is required to constitute a Finance
Commission every five year

15th FINANCE COMMISSION REPORT

 The Finance Commission is a constitutional body formed by the President of India to give suggestions
on centre-state financial relations.  The 15th Finance Commission (Chair: Mr N. K. Singh) was required
to submit two reports.  The first report, consisting of recommendations for the financial year 2020-21,
was tabled in Parliament on February 1, 2020.  The final report with recommendations for the 2021-26
period will be submitted by October 30, 2020.  

Key recommendations in the first report (2020-21 period) include: 

 Devolution of taxes to states: The share of states in the centre’s taxes is recommended to be

decreased from 42% during the 2015-20 period to 41% for 2020-21.  The 1% decrease is to provide for
the newly formed union territories of Jammu and Kashmir, and Ladakh from the resources of the
central government.  The individual shares of states from the divisible pool of central taxes is provided
in Table 3 in the annexure.

Vertical devolution:

 In order to maintain predictability and stability of resources, especially during the pandemic,
XVFC has recommended maintaining the vertical devolution at 41 per cent – the same as in our report
for 2020-21. It is at the same level of 42 per cent of the divisible pool as recommended by FC-XIV.
However, it has made the required adjustment of about 1 per cent due to the changed status of the
erstwhile State of Jammu and Kashmir into the new Union Territories of Ladakh and Jammu and
Kashmir.

 On horizontal devolution, while XVFC agreed that the Census 2011 population data better represents
the present need of States, to be fair to, as well as reward, the States which have done better on the
demographic front, XVFC has assigned a 12.5 per cent weight to the demographic performance criterion.
  XVFC has re-introduced tax effort criterion to reward fiscal performance.
 Table 1: Criteria for devolution (2020-21)
14th FC 15th FC
Criteria
2015-20 2020-21
Income Distance 50.0 45.0
Population (1971) 17.5 -
Population (2011) 10.0 15.0
Area 15.0 15.0
Forest Cover 7.5 -
Forest and Ecology - 10.0
Demographic
- 12.5
Performance
Tax Effort - 2.5
Total 100 100
Grants-in-aid
In 2020-21, the following grants will be provided to states: (i) revenue deficit grants, (ii) grants to local
bodies, and (iii) disaster management grants.  The Commission has also proposed a framework for sector-
specific and performance-based grants.  State-specific grants will be provided in the final report.

 Volume I and II, as in the past, contain the main report and the accompanying annexes.
 Volume III is devoted to the Union Government and examines key departments in greater depth, with
the medium-term challenges and the roadmap ahead.
 Volume IV is entirely devoted to the States. We have analysed the finances of each State in great depth
and have come up with State-specific considerations to address the key challenges that individual States face.