Previous Year Question

Under Article 281, the President causes every recommendation made by the Finance Commission, together with an explanatory memorandum regarding the action taken on it, to be laid before each House of Parliament.

Thus, the Finance Commission’s report is placed before both the Lok Sabha and the Rajya Sabha.

Constitutional basis of the Finance Commission

Under Article 280, the President constitutes a Finance Commission:

• Within two years from the commencement of the Constitution; and

• Thereafter, at the expiration of every fifth year or earlier if necessary.

The Finance Commission is a constitutional body consisting of a Chairperson and four other members. Their qualifications and manner of selection are prescribed by Parliament through the Finance Commission (Miscellaneous Provisions) Act, 1951.

Principal functions of the Finance Commission

The Commission recommends to the President:

• Distribution of the net proceeds of divisible taxes between the Union and the States.

• Allocation of the States’ share among individual States.

• Principles governing grants-in-aid to States from the Consolidated Fund of India.

• Measures required to augment a State’s Consolidated Fund to supplement the resources of Panchayats, based on the recommendations of the State Finance Commission.

• Measures required to augment a State’s Consolidated Fund to supplement the resources of Municipalities, based on the recommendations of the State Finance Commission.

• Any other matter referred by the President in the interests of sound finance.

The functions relating to Panchayats and Municipalities were added through the 73rd and 74th Constitutional Amendments respectively.

Nature of the recommendations

The recommendations of the Finance Commission are generally advisory and are not automatically judicially enforceable against the Government. Nevertheless, Article 281 promotes transparency and parliamentary accountability because:

• The President causes the report to be laid before both Houses.

• An explanatory memorandum showing the action taken by the Government accompanies it.

• Parliament may discuss the Government’s acceptance or rejection of particular recommendations.

Why are the other options incorrect?

• Speaker of the Lok Sabha: The Speaker regulates Lok Sabha proceedings but has no constitutional responsibility to cause the Finance Commission’s report to be laid before both Houses.

• Prime Minister: The Prime Minister heads the Council of Ministers, but Article 281 expressly assigns this function to the President.

• Union Finance Minister: The Finance Minister may physically present the report and memorandum in the House, but constitutionally it is the President who causes them to be laid before Parliament.