|About Finance Commission (FC):
Their recommendations cover three main aspects:
- It is a constitutional body that provides recommendations on Centre-state financial relations.
- It is established every five years under Article 280 of the Constitution.
Recommendations are advisory, the Union government typically accepts them with minor modifications.
- Vertical Devolution (Union to state transfers): FCs suggest the share of states in the divisible pool of central taxes.
- The share of taxes is determined by a set of indicators that includes population, per capita income, area, and incentive-related factors such as forest cover and demographic change.
- Horizontal Distribution ((between states): Allocation of resources among states based on a formula considering their fiscal needs, capacities, and performance.
- Grants-in-aid: It also recommend additional transfers to specific states or sectors requiring assistance or reform. For instance, the 13th FC provided grants for justice delivery and the statistical system.