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Q. How is Finance Commission constituted ? What are its functions?

Ans. According to Article 280 of the Constitution, the President shall, within two years from the commencement of the Constitution and thereafter at the interval of every five years, constitute a Finance Commission, which shall consist of a Chairman and four other members to be appointed by the President. Parliament has the power to determine by law the qualifications of these members and the manner of their select ion. Accordingly, the four members are appointed from four different fields as given below—
(1) One member should be either a judge of a High Court or should be qualified to become a judge of High Court.
(2) One member should be a person who has special knowledge of government finance and accounts.
(3) One person having vast experience of financial administration and other such matters.
(4) One person having special. knowledge of economics.
The following are the main functions of the Finance Commission— It shall be the duty of the
Finance Commission to make recommendations to the President as to
(1) the distribution between the Union and the States of the proceeds of the taxes which are to be divided between them and the allocation between the States of the respective share of such proceeds;
(2) the principles which should govern the grants-in-aid of revenues of the States out of the Consolidated Fund of India;
(3) as provided by the 73rd Amendment Act, 1992, the measures needed to augment the Consolidated Fund of the States to supplement the resources of Panchayats in the States;
(4) as provided by the 74th Amendment Act, 1992, the measures needed to augment the Consolidated Fund of the States to supplement the resources of the Municipalities in the States; and
(5) any other matter referred to the commission by the President in the interest of sound finance.
In brief, the Finance Commission makes recommendations with respect to the allocation of funds between the Centre and the States. The Government of India considers the report of the Commission and is free not to accept any of the recommendations of the Commission.


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13.1 Introduction

13.2 Initiatives towards Constitutional Status to Local Governance

13.2.1 Features of 73rd Constitutional Amendment

13.2.2 Features of 74th Constitutional Amendment

13.2.3 Decentralised Planning in Context of 73rd and 74th Constitutional Amendment Act

13.3 Initiatives after Economic Reforms

13.4 Functioning of PRIs in Various States after 73rd Amendment

13.5 Functioning of Local Governance after 73rd and 74th Constitutional Amendment: Observations

13.6 Conclusion

13.7 Key Concepts

13.8 References and Further Reading

13.9 Activities


After studying this Unit you should be able to:

• Identify the background of revitalisation of local governance;

• Understand the features of 73rd and 74th constitutional amendment;

• Discuss the initiatives after economic reforms; and

• Outlines the functioning of local governance in various states after the amendment.


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1.1 Introduction

1.2 Concept of Democratic Decentralisation

1.3 Evolution of Democratic Decentralisation

1.4 Significance of Democratic Decentralisation

1.5 Democratic Decentralisation in India

1.6 Conclusion

1.7 Key concepts

1.8 References and Further Reading

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After studying this unit, you should be able to:

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