Article 281 of the Indian Constitution plays a crucial role in the financial governance of the country. It pertains to the recommendations of the Finance Commission, which is a constitutional body responsible for the allocation of financial resources between the Union government and the State governments.

Understanding Article 281

Article 281 states that the recommendations of the Finance Commission shall be laid before both Houses of Parliament, along with an explanatory memorandum. This provision ensures transparency and accountability in the distribution of funds between the Union and the States.

The Finance Commission is constituted every five years or at such earlier intervals as the President may deem necessary. The President appoints the members of the Commission, including a Chairman and four other members with expertise in finance and economics.

Functions of the Finance Commission

The primary function of the Finance Commission is to make recommendations to the President on the distribution of the net proceeds of taxes between the Union and the States. It also determines the principles governing the grants-in-aid to be given to the States from the Consolidated Fund of India.

The Commission takes into account various factors while making its recommendations, such as the needs and resources of the States, the revenue potential of the States, the cost of administration, and the fiscal capacity of the Union government. It aims to promote fiscal federalism and ensure a fair distribution of resources.

Significance of Article 281

Article 281 is significant for several reasons:

1. Financial Autonomy:

Article 281 ensures that the States have financial autonomy and are not solely dependent on the Union government for their financial needs. It empowers the States to receive grants-in-aid based on their requirements and resources.

2. Balanced Regional Development:

The Finance Commission takes into account the needs and resources of the States while making its recommendations. This helps in promoting balanced regional development by allocating funds to the States that require them the most.

3. Fiscal Discipline:

The Finance Commission encourages fiscal discipline by considering the fiscal capacity of the Union government and the States. It ensures that the distribution of funds is done in a manner that promotes responsible financial management.

4. Transparency and Accountability:

Article 281 mandates that the recommendations of the Finance Commission be laid before both Houses of Parliament. This promotes transparency and allows for scrutiny and debate on the allocation of financial resources.

Recent Recommendations of the Finance Commission

The 15th Finance Commission, chaired by N.K. Singh, submitted its report for the period 2021-2026. Some of the key recommendations made by the Commission include:

1. Vertical Distribution:

The Commission recommended that the vertical distribution of taxes between the Union and the States be maintained at the existing level of 41% for the States.

2. Horizontal Distribution:

The Commission proposed a new formula for the horizontal distribution of funds among the States, taking into account factors such as population, area, forest cover, and income distance.

3. Grants-in-Aid:

The Commission recommended grants-in-aid to States for specific purposes, such as health, education, and disaster management. It also proposed the creation of a non-lapsable fund for defense and internal security.

4. Fiscal Consolidation:

The Commission emphasized the need for fiscal consolidation and recommended measures to improve the fiscal health of the Union and the States.

Conclusion

Article 281 of the Indian Constitution ensures a fair and transparent distribution of financial resources between the Union government and the State governments. The recommendations of the Finance Commission play a crucial role in promoting fiscal federalism and balanced regional development. It is through the implementation of these recommendations that the country can achieve economic growth and social progress.