Cabinet Approves Terms For 16th Finance Commission

Recently, the Union Cabinet greenlit the terms of reference for the Sixteenth Finance Commission (SFC). In a press briefing on Wednesday, Information and Broadcasting Minister Anurag Singh Thakur revealed that the chairman and members of the SFC would be appointed “as soon as possible.” The SFC is slated to submit its comprehensive report by October 31, 2025, covering a five-year period set to take effect on April 1, 2026.

Constitutional Mandates and Provisions

The terms of reference, as released by the Cabinet, predominantly encompass constitutionally mandated provisions. These include the distribution of net proceeds of taxes between the Central government and the states, principles governing grants-in-aid of state revenues from the Consolidated Fund of India, and measures to supplement resources for panchayats and municipalities in the states.

Departure from Tradition: Focus on Constitutional Obligations

Traditionally, Finance Commissions have been consulted on a range of matters beyond constitutional mandates. The Fifteenth Finance Commission (FFC), chaired by N K Singh, for instance, delved into the impact of the Goods and Services Tax (GST) on states, performance-based incentives, and expenditures on populist measures. Additionally, an extra clause was added to the FFC’s agenda, exploring the possibility of states contributing to the country’s defense spending.

Special Focus on Disaster Management Fund

The terms of reference also include a notable clause concerning the disaster management fund. It states, “The Commission may review the present arrangements on financing Disaster Management initiatives, with reference to the funds constituted under the Disaster Management Act, 2005 (53 of 2005), and make appropriate recommendations thereon.” This indicates a potential shift in the commission’s role towards addressing critical issues like disaster preparedness and recovery.

Establishment and Purpose of the Finance Commission

The Finance Commission, established under Article 280 of the Indian Constitution by the Indian President in 1951, is a constitutional body tasked with allocating specific revenue resources between the Union and State Governments. Its primary objective is to delineate and govern the financial relations between the Centre and the states.

Important Questions Related to Exams

Q. When was the Finance Commission established, and under which article of the Indian Constitution?

A: The Finance Commission was established under Article 280 of the Indian Constitution by the Indian President in 1951.

Q. Who chaired the Fifteenth Finance Commission (FFC), and what were some additional matters it delved into?

A: The Fifteenth Finance Commission (FFC) was chaired by N K Singh, and it delved into matters such as the impact of the Goods and Services Tax (GST) on states, performance-based incentives, and expenditures on populist measures.

Q. What are the constitutional mandates and provisions that the terms of reference for the SFC predominantly encompass?

A: The terms of reference for the SFC predominantly encompass constitutionally mandated provisions, including the distribution of net proceeds of taxes, principles governing grants-in-aid of state revenues, and measures to supplement resources for panchayats and municipalities.

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