Finance Commission terms of reference takes a conservative stance

Press release on terms of reference doesn't name people who will be part of the commission

A government gazette notification announcing the formation of the 16th Finance Commission is not yet ready, as the name of the members and the chairperson have not finalised. Among the names in contention are at least one former secretary from the finance ministry, it is understood. But in every other respect, a government source said a press release announcing the commission’s terms of reference (ToR) was candid.

Breaking a more than two-decade old pattern, the Finance Ministry on Wednesday issued the press release without naming the people who will be part of the commission. The releases for the years, 2002, 2007, 2013 and 2017 came with both. The releases were based on the gazette notifications, signed by the President of India. Without the names, the notification cannot be issued though the union cabinet has approved the ToR. The release said the formal ToR shall be “notified in due course of time”.

The Commission, set up every five years, makes recommendations about the distribution of the net proceeds of taxes between the Union and the States and the principles which should govern the grants-in-aid of the revenues of the States.

The government source said the appointment of the commission now, even though its award will begin only from 31 March 2026, gives it the space to “consider and appraise the finances of the Union and the States for the period immediately, preceding the period of its recommendations' '. This is significant as there shall be elections in several state governments from now, and the general elections are also due in 2024. So the changes in the expenditure pattern of the new incumbents could be monitored by the new Commission.

The source also pointed to the clear acknowledgement in Wednesday’s press release of the reasons for the delay in the announcement of the Commission. Article 280 o the Indian Constitution mandates there shall be a Finance Commission, to be set up every five year. “It is pertinent to mention that there are precedents where the Eleventh Finance Commission was constituted six years after the Tenth Finance Commission. Similarly, the Fourteenth Finance Commission was constituted five years and two months after the Thirteenth Finance Commission”, said the release by the Press Information Bureau.