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15th Finance Commission: Changes in the

  Jun 06, 2020

15th Finance Commission: Changes in the Terms of Reference (Art.280)

What are terms of reference to the Finance Commission? 

As given in Art.280 of the Constitution, the President of India may refer any matter for the opinion of the FC. It reads as follows: any other matter referred to the Commission by the President in the interests of sound finance. It is called terms of reference (ToR).  FC is expected to make its recommendations keeping the Presidential terms of reference in consideration. 

What took place in July 2019? 

When the 15th FC was set up in 2017, there was a substantial ToR. It was added to in July 2019 when the term of the FC was extended to the end of November 2019.  

What were the additional terms introduced? 

The addition was to address the funding requirements for defence and internal security.

The Union Cabinet has approved the amendment to enable the Fifteenth Finance Commission to address serious concerns regarding the allocation of adequate, secure and non-lapsable funds for defence and internal security of India. 

Under the expanded terms of reference (ToR) of the Commission, it is proposed to ensure an assured allocation of resources towards defence and internal security imperatives. 

The amendment provides that the Fifteenth Finance Commission will also examine whether a separate mechanism for funding of defence and internal security be set up and if so, how such a mechanism could be operationalised. 

Why were some states critical?

They were not consulted and also it was too close to the term of the FC. 

What was the original term of the 15th FC? Why was it extended? 

The Fifteenth Finance Commission was constituted by the President of India in November 2017 and was constituted to give recommendations for the five-year period starting April 1, 2020.The Union Cabinet has approved the extension of the Commission’s term up to November 30, 2019. It was done for two reasons 

1.   As the terms of reference were expanded and

2.   It will enable the Commission to make financial projections in view of reforms and the new realities to finalise its recommendations for the period 2020-2025. These new realities  include the

  • Closure of the Planning Commission and its replacement by NITl Aayog,
  • Removal of the distinction between non-plan and plan expenditure,
  • Advancing the Budget calendar by one month and passing the full Budget before the commencement of the new financial year, 
  • The introduction of the Goods and Services Tax (GST) and 
  • The new Fiscal Responsibility and Budget Management architecture