Don't Shoot the Commission

Among the institutions that have come to command a measure of respect in the country is the Finance Commission. Appointed periodically by the president under a constitutional mandate, the Finance Commission is a cornerstone of the country’s federal structure, being the statutorily empowered arbiter of the devolution of central funds to and among the states. Recognising the large gap between the resources to which the states were likely to have access and their requirements in order to meet the responsibilities assigned to them, the Constitution-makers provided for the appointment of a body at least once every five years comprising a chairman and four members to determine what proportion of the receipts from designated taxes collected by the union government must be passed on to the states and how much in addition must be provided as grants-in-aid to states in need of such assistance after taking account of the amounts likely to accrue to them by way of tax devolution. The Constitution further provides that while setting out the tasks of a Finance Commission the president may refer to it any other matter “in the interests of sound finance”. A constitutional provision to mandate the creation of a body by the country’s president to recommend how central revenues are to be shared between the two levels of government was obviously felt necessary to ensure that the dependence of the sub-national governments on the union government did not relegate them to a state of subservience.

In the 50 years since the adoption of the Constitution the country’s federal system has been marked by the flow of substantial proportions of central revenues to the states as determined quinquennially by 10 finance commissions. Bearing testimony to the sagacity and fairness of the men (no woman so far!) who have constituted these commissions, their substantive recommendations have been, almost as a rule, accepted, except once when the minority view in respect of the ambit of the commission’s purview prevailed over that of the majority. Misgivings have been sometimes expressed over the amplitude of the terms of reference as framed in the presidential orders appointing the commissions or over the framing of the terms unilaterally by the central ministry of finance or the tendency to circumscribe the discretion of the commissions in addressing their mandate, as happened in the case of the Ninth Finance Commission. But never until the Eleventh Finance Commission has the report of any commission been subjected to the kind of attacks and charges that have followed the publication of the report of this commission, submitted to the president in June. The primary task of the Finance Commission being to assess the resource position of the union and the states and the shortfall in revenue likely to be experienced by each state over the five-year period of the commission’s dispensation, it is inherent in the scheme of devolution that the respective shares of individual states as worked out by a particular commission may differ from those under the recommendations of earlier commissions. And that inevitably implies that some states may gain and some others lose under a commission’s report as compared to that of its predecessor. However, in deference to the Finance Commission’s constitutional status, the states as a whole have in the past accepted whatever has come to them under any particular commission’s dispensation, however unjust or arbitrary this may have looked to a loser state. In fact, the finance commissions’ recommendations have come to be regarded as akin to an ‘award’. The recommendations reach finality once the ‘Action Taken Report’ is submitted by the union ministry of finance to the president and the president causes it to be placed before parliament. Even the report of the Ninth Finance Commission whose terms evoked some sharp controversy was accepted without demur even though there had been a change of government at the centre meanwhile and parties which had been in the opposition at the time of the commission’s appointment had come to power.