Article 280 of the COI

Introduction 

Article 280 of the Indian Constitution establishes the Finance Commission as a vital constitutional body responsible for federal fiscal arrangements between the Union and States. This quasi-judicial institution serves as the cornerstone of India's federal financial structure, ensuring equitable distribution of resources and maintaining fiscal federalism. 

Constitutional Mandate and Composition 

• The Finance Commission operates under a mandatory constitutional framework requiring the President to constitute it within two years of the Constitution's commencement and subsequently every fifth year. The President retains discretionary power to constitute it earlier if circumstances demand. The Commission comprises five members: a Chairman and four other members, all appointed by the President. 
• Parliament holds the authority to prescribe qualifications for membership and selection procedures through legislation. This provision ensures that the Commission maintains professional competence while allowing legislative oversight of its composition. 

Core Functions and Responsibilities 

The Commission's primary mandate encompasses several critical areas: 

• Tax Devolution: The Commission recommends the distribution formula for net proceeds of Union taxes between the Center and States. This includes determining each State's share of divisible pool taxes, considering factors like population, area, fiscal capacity, and revenue efforts. 
• Grants-in-Aid: It establishes principles governing grants-in-aid from the Consolidated Fund of India to State revenues. These grants address vertical and horizontal fiscal imbalances, ensuring States can fulfill their constitutional obligations. 
• Local Government Finance: Through constitutional amendments, the Commission now addresses resource augmentation for Panchayats and Municipalities based on State Finance Commission recommendations. This three-tier fiscal federalism ensures grassroots institutions receive adequate funding. 
• Special Mandates: The President may refer additional matters concerning sound finance to the Commission, providing flexibility to address emerging fiscal challenges. 

Operational Framework 

The Commission enjoys procedural autonomy, determining its own working methods. Parliament may confer additional powers through legislation to enhance the Commission's effectiveness in discharging its functions. 

Significance in Federal Structure 

• The Finance Commission represents a unique constitutional innovation, balancing federal autonomy with national unity. Unlike many federal systems where fiscal arrangements are politically negotiated, India's Constitution mandates an expert body to make recommendations based on objective criteria and sound financial principles. 
• The Commission's recommendations, though not legally binding, carry significant constitutional weight. The President must lay these recommendations before Parliament, ensuring democratic scrutiny of fiscal arrangements. 

Conclusion 

Article 280 creates an institutional mechanism that has successfully managed India's complex federal finances for over seven decades. By combining constitutional mandate, expert composition, and democratic accountability, the Finance Commission continues to evolve as a stabilizing force in India's federal fiscal architecture, adapting to changing economic realities while maintaining constitutional principles.