Finance Commission is established for the purpose of allocation of certain resources of revenue between the Union and the State Governments and it is established under Article 280 of the Constitution of India by the President. The Operational duration for the finance commission is five years. So far 13 Finance Commissions have been appointed.
The 1st finance Commission was established in the year 1951 headed by K C Neogy for the period 1952-57. 13th Finance Commission is established in the year 2007 headed by Vijay kelkar for the period 2010-15.
The following are some of the key recommendations of the FC-XIII:
- The share of States in net proceeds of shareable Central taxes shall be 32 per cent every year for the period of the award.
- Revenue accruing to a State is to be protected to the levels that would have accrued to it had service tax been a part of the shareable Central taxes, if the 88th Amendment to Constitution is notified and followed up by a legislations enabling States to levy service tax.
- Centre is to review the levy of cesses and surcharges with a view to reducing their share in its gross tax revenue.
- The indicative ceiling on overall transfers to States on revenue account may be set at 39.5 per cent of gross revenue receipts of the Centre.
- The Medium Term Fiscal Plan (MTFP) should be a statement of commitment rather than intent.
- New disclosures have been specified for the Budget/MTFP including on tax expenditure, public-private partnership liabilities and the details of variables underlying receipts and expenditure projections.
- The Fiscal Responsibility and Budget Management (FRBM) Act needs to specify the nature of shocks that would require relaxation of the targets there under.
- States are expected to be able to get back to their fiscal correction path by 2011-12 and amend their FRBM Acts to the effect.
- State Governments are to be eligible for the general performance and special area performance grants only if they comply with the prescribed stipulation in terms of grants to local bodies.
- The National Calamity Contingency Fund (NCCF) should be merged with the National Disaster Response Fund (NDRF) and the Calamity Relief Fund (CRF) with the State Disaster Response Funds (SDRFs) of the respective States.
- A total non-Plan revenue grant of Rs 51,800 crore is recommended over the award period for eight States. A performance grant of Rs 1500 crore is recommended for three special category States that have graduated from a non-Plan revenue deficit situation.
- An amount of Rs 19,930 crore has been recommended as grant for maintenance of roads and bridges for four years (2011-12 to 2014-15).
- An amount of Rs 24,068 crore has been recommended as grant for elementary education.
- An amount of Rs 27,945 crore has been recommended for State-specific needs.
- Amounts of Rs 5,000 crore each as forest, renewable energy and water sector-management grants have been recommended.
- A total sum of Rs 3,18,581 crore has been recommended for the award period as grants-in-aid to States.