Revision summary
Article 280 creates a Finance Commission to recommend tax devolution, State shares, and grants-in-aid. The Fourteenth Commission raised the States’ share to 42 per cent; the Fifteenth recommended 41 per cent. Horizontal criteria include income distance, population, area, and forest cover. Cesses and surcharges are not shared, which shrinks the real pool. Tied Union schemes and partial acceptance limit how far the award restores State autonomy.
Model answer
Introduction
The Finance Commission is the Constitution’s periodic umpire of vertical and horizontal fiscal shares. A critical examination must show Article 280 awards and also what the Union still keeps off the divisible pool.
Body
Constitutional role
- Article 280 requires a Finance Commission every five years to recommend distribution of Union taxes between the Centre and the States, inter-se shares of States, and grants-in-aid under Article 275.
- Article 281 makes the President lay the report in Parliament with an explanatory memorandum, so the award is political as well as technical.
- Successive Commissions have raised the States’ share of the divisible pool (Fourteenth Commission 42 per cent; Fifteenth 41 per cent after J&K’s change of status) and have used forest, income-distance, and demographic indicators for horizontal equity.
Critical limits
- Cesses and surcharges stay outside the divisible pool, so a high percentage of a shrinking pool can still starve States.
- Tied grants, GST-era compensation politics, and Centrally Sponsored Schemes pull spending back to Union priorities even after a generous devolution.
- Recommendations are not self-executing; the Union can accept them in part, and local-body grants depend on State finance commissions that often lag.
Balanced view
- The Commission remains the fairest constitutional channel for fiscal federalism; its weakness is the Union’s residual tax design and conditional transfers, not the Commission’s silence.
Flow diagram
flowchart TD FC[Finance Commission Art 280] --> V[Vertical tax share] FC --> H[Horizontal State shares] FC --> G[Art 275 grants] U[Cesses CSS] --> L[Pool and autonomy squeezed]
Conclusion
In Centre–State finance the Finance Commission sets tax shares and grants that keep the federation solvent. Critically, cesses, tied schemes, and incomplete acceptance still let the Union steer money after the award, so the Commission is umpire, not treasury.
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Is a Finance Commission award a court decree?
No. It is a recommendation. The Union government decides the extent of acceptance and places an explanatory memorandum in Parliament.
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Does GST make the Finance Commission redundant?
No. GST changed the tax mix, but vertical and horizontal shares and many grants still need a constitutional commission.
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