Consider the following statements regarding the Finance Commission of India:

Question

Consider the following statements regarding the Finance Commission of India:

i. The Article 380(1) of the Constitution lays down that the modalities for setting up of a Finance Commission to make recommendations on the distribution of net proceeds of taxes between the Union and the States during the award period.

ii. The 15th Finance Commission made its recommendations for a six-year period from 2020-21 to 2025-26.

iii. Dr. Arvind Panagariya is the Chairman of the 16th Finance Commission.

iv. The 16th Finance Commission shall make its report available by 31st March, 2025.

v. The 16th Finance Commission's recommendations would cover the period of five years commencing 01 April 2026.

Which of the above statements is/are correct:

1. A. i, ii and iii only
2. B. i, iv and v only
3. C. ii, iii and iv only
4. D. ii, iii and v only (Correct answer)

Correct Answer

Option D — ii, iii and v only

Detailed Solution & Explanation

The correct answer is ii, iii and v only.

Key Points

• Statement i is incorrect. It is Article 280(1), not Article 380, that provides for the constitution of a Finance Commission. Article 380 does not deal with this at all.
• Statement ii is correct. The 15th Finance Commission's recommendations covered six years, 2020-21 to 2025-26 — an interim report for 2020-21, followed by the main report for the five years 2021-26.
• Statement iii is correct. Dr Arvind Panagariya is the Chairman of the 16th Finance Commission, constituted on 31 December 2023.
• Statement iv is incorrect. The 16th Finance Commission was asked to submit its report by 31 October 2025, not 31 March 2025.
• Statement v is correct. Its recommendations cover a five-year period commencing 1 April 2026.

Additional Information

• Article 280 requires the President to constitute a Finance Commission every fifth year or earlier, consisting of a Chairman and four other members. Parliament determines their qualifications and the manner of selection.
• Its mandate is to recommend the distribution of the net proceeds of taxes between the Union and the states and the allocation among the states (vertical and horizontal devolution), the principles governing grants-in-aid to the states out of the Consolidated Fund of India, and measures to augment the consolidated fund of a state to supplement the resources of panchayats and municipalities — the last added by the 73rd and 74th Amendments.
• The recommendations are advisory, not binding on the government, but by convention the core devolution recommendations have always been accepted. An explanatory memorandum on the action taken is laid before Parliament.
• The 15th Finance Commission, chaired by N.K. Singh, recommended a vertical devolution of 41% of the divisible pool — reduced from the 14th Commission's 42% to account for the reorganisation of Jammu & Kashmir into Union Territories. Its horizontal formula weighted income distance (45%), population 2011 (15%), area (15%), forest and ecology (10%), demographic performance (12.5%) and tax effort (2.5%).
• The 14th Finance Commission, chaired by Y.V. Reddy, made the sharpest single change in the history of Indian fiscal federalism, raising devolution from 32% to 42%.
• The first Finance Commission (1951) was chaired by K.C. Neogy.