14th Finance Commission

The Finance Commission of India came into existence in 1951. It was established under Article 280 of the Indian Constitution by the President of India. It was formed to define the financial relations between the centre and the state. The Finance Commission Act of 1951 states the terms of qualification, appointment and disqualification, the term, eligibility and powers of the Finance Commission. As per the Constitution, the commission is appointed every five years and consists of a chairman and four other members.

14th Finance Commission under the chairmanship of former RBI Governor Y. V. Reddy. The five-member panel is to submit its report by October 31, 2014.

The Commission, the Finance Minister said, would review the state of finances, deficit and debt levels of the Centre and States, keeping in view, in particular, the fiscal consolidation roadmap recommended by the 13th Finance Commission.

Other members of the Commission are former Finance Secretary Sushma Nath, NIPFP Director M. Govinda Rao, Planning Commission Member Abhijit Sen and Former Acting Chairman of National Statistical Commission Sudipto Mundle.

The Commission would look into the “need for insulating the pricing of public utility services like drinking water, irrigation, power and public transport from policy fluctuations through statutory provisions

Apart from its recommendations on the sharing of tax proceeds between the Centre and the States which will apply for a five-year period beginning April 1, 2015, the Commission has been asked to suggest steps for pricing of public utilities such as electricity and water in an independent manner and also look into issues like disinvestment, GST compensation, sale of non-priority PSUs and subsidies.

Functions of the Finance Commission can be explicitly stated as:

1. Distribution of net proceeds of taxes between Centre and the States, to be divided as per their respective contributions to the taxes.
2. Determine factors governing Grants-in Aid to the states and the magnitude of the same.
3. To make recommendations to president as to the measures needed to augment the Consolidated Fund of a State to supplement the resources of the panchayats and municipalities in the state on the basis of the recommendations made by the Finance Commission of the state.

The Thirteenth Finance Commission ( 13^th FC) recommendations  relating to urban local bodies inter alia aim at strengthening municipal finances and urban governance in India. The 13th FC, making a departure from the previous Finance Commissions, divided the grants to be distributed to the states for local bodies into two parts - general basic grant and general performance grant. The performance grant can be accessed only if the state complies with nine conditions, which in other words can be called reforms. They are:

·         The State Government must put in place a supplement to the budget documents for local bodies.

·         The State Government must put in place Audit System.

·         The State Government must put in place  a system of independent local body Ombudsmen.

·         The State Government put in place a system to electronically transfer local body grants provided by the Commission.

·         The State Government must prescribe through an Act  the qualifications of persons eligible for appointment as a members of the SFC.

·         All local bodies should be fully enabled to Levy Property Tax with out hindrance.

·         The State Government must put in place a State Property Tax Board.

·         The State government must gradually put in place standards for delivery of essential services.

·         All municipal corporations with a population of more than one million (2001 census) must put in place a Fire -hazard Response and Mitigation plan for their respective jurisdictions.

States are given one year i.e., 2010-2011 to comply with these conditions before they can access the performance grant from 2011-2012. Complying with these conditions within the stipulated timeframe, require comprehensive understanding and capacity at the State and ULB level.

SOurce: Financa comission , wikipedia , theHindu.com , asci.org.in