CENTRAL FINANCE COMMISSION

Presented by Mr. Gonuguntla Vinod Kumar & Mr. Bandaru Trinadh

Consultants, Finance Commission Cell, O/o.C&DMA, A.P., Guntur. INTRODUCTION

❖ The Central Finance Commission is constituted by the President of India under Article 280 of the Constitution, mainly to give its recommendations on distribution of tax revenues between the Union and the States and amongst the States themselves.

❖ Two distinctive features of the Commission is redressing the vertical imbalances between the taxation powers and expenditure responsibilities of the Centre and the States respectively and equalization of all public services across the States.

❖ Fifteen (15) Finance Commissions have been Constituted since the promulgation of Indian Constitution in 1950, at intervals of every five years.

❖ The First Finance Commission was constituted vide Presidential Order dated:22-11-1951 under the Chairmanship of Shri K.C. Neogy on 6thApril, 1952. Appoints the Finance Commission and Qualifications for Members ➢ Who appoints the Finance Commission and what are the qualifications for Members?

❖ As per the Constitution, the Finance Commission is appointed every five years and consists of a Chairman and four other members.

❖ As per the provisions contained in the Finance Commission [Miscellaneous Provisions] Act, 1951 and The Finance Commission (Salaries & Allowances) Rules, 1951, the Chairman of the Finance Commission is selected from among persons, who have had experience in public affairs, and the four other members are selected from among persons who— (a)are, or have been, or are qualified to be appointed as Judges of a High Court; or (b)have special knowledge of the finances and accounts of Government; or (c)have had wide experience in financial matters and in administration; or (d)have special knowledge of economics. Functions of the Finance Commission:

It is the duty of the Finance Commission to make recommendations to the President of India as to

❖ The distribution between the Union and the States of the net proceeds of taxes which are to be, or may be, divided between them and the allocation between the States of the respective shares of such proceeds;

❖ The principles which should govern the Grants-in-aid of the revenues of the States out of the Consolidated Fund of India;

❖ The measures needed to augment the Consolidated Fund of a State to supplement the resources of the Panchayats & Municipalities in the State on the basis of the recommendations made by the Finance Commission of the State;

❖ Any other matter referred to the Finance Commission by the President of India in the interests of sound finance. List of Finance Commissions: So far 15 Finance Commissions have been appointed which are as follows: Finance Commission Year of Establishment Chairman (Sri) Operational duration 1st FC 1951 K.C Neogy 1952–57 2nd FC 1956 K.Santhanam 1957–62 3rd FC 1960 A.K. Chandra 1962–66 4th FC 1964 P.V. Rajamannar 1966–69 5th FC 1968 Mahveer Tyagi 1969–74 K.Brahmanan 6th FC 1972 1974–79 Reddy 7th FC 1977 J. M. Shelat 1979–84 8th FC 1983 Y.B. Chavan 1984–89 9th FC 1987 N. K. P. Salve 1989–95 10th FC 1992 K.C . Pant 1995–00 11th FC 1998 A. M. Kushro 2000–05 12th FC 2002 C. Rangarajan 2005–10 13th FC 2007 Dr. Vijay 2010–15 14th FC 2013 Dr. Y. V . Reddy 2015–20 15th FC 2017 N. K. Sing 2020–26 12th Finance Commission:

✓ Period is 2005-06 to 2009-2010.

✓ Released an amount of Rs.374.58 Crores.

✓ The main objective is implementation of Solid Waste Management in the ULBs. 13th Finance Commission:

✓ Period is 2010-11 to 2014-15. ✓ Released an amount of Rs.802.87 Crores. ✓ Releases made to ULBs based on Census-2001 Population. ✓ The main objective is strengthening Local Governance in India. ✓ Grants are divided into two parts: 1) Basic/General Grant and 2) Performance Grant. ✓ Basic Grant released to ULBs on furnishing of UCs for last releases. ✓ Performance Grants released to ULBs basing on their performance of the previous year, which comply and fulfillment of the nine (9) Urban Reform Conditions by 31st March of every financial year. ✓ These conditions can be considered as reforms to improve Financial status as well as Governance of ULBs. Contd.. 13th Finance Commission:

✓ Guidelines were issued to ULBs from time to time for utilization of 13th FC grants for the purpose of: o Solid Waste Management, o CC Drains, o Water Supply, o Street Lighting, o Service Level Benchmarking (SLB), o Double Entry Accrual Based Accounting System (DEABAS), o Construction of Toilets, o Water supply to Municipal Schools, o Protection of Lakes, Ponds, Water bodies, Open Spaces, o Development of Parks & Play grounds in the ULBs. o Fire Hazard Response & Mitigation Plan (in Million-Plus Cities) 14th Finance Commission:

✓ Period is 2015-16 to 2019-2020. ✓ Released an amount of Rs.3054.20 Crores. ✓ Releases made to ULBs based on Census-2011 Population (90%) & Area of the ULB (10%). ✓ Grants are divided into two parts: 1) Basic Grant and 2) Performance Grant. ✓ Basic Grant released to ULBs on furnishing of UCs for last releases. ✓ Performance Grants released to ULBs basing on their performance of the previous year, which comply and fulfillment of the three (3) Urban Reform Conditions by 31st March of every financial year. ✓ These grants released to duly constituted ULBs only. Contd.. 14th Finance Commission:

✓ Government in G.O.Ms.No.56, MA&UD (UBS) Dept., dt.09-03-2016 have issued Guidelines to execute the works under 14th FC for the purpose of following Basic Services: o Water Supply, o Sanitation including Septage Management, o Sewerage Management, o Solid Waste Management, o Storm Water Drainage, o Maintenance of community assets i.e. Development of Parks, Protection of Open spaces, Development of Play grounds, Maintenance of Municipal School Buildings, o CC/BT Roads, o Burial and Cremation grounds, o Street Lighting. Contd.. 14th Finance Commission:

✓ Government in G.O.Ms.No.85, MA&UD (UBS) Dept., dt.08-03-2017 have accorded permission to the ULBs selected under AMRUT scheme of GoI as to utilize their 14th FC Grants as ULB Share/Matching contribution under AMRUT Scheme.

✓ Government of India extended the time period upto 31st March, 2022 for utilization of the released & available balance of 14th FC Grants to the ULBs in the State of Andhra Pradesh. 15th Finance Commission:

✓ 15th FC was constituted by the President of India under Article 280 of the Constitution on 27th November 2017 to make recommendations for a period of five years commencing from 1st April, 2020. ✓ Shri Nanda Kishore Singh (N.K.Singh), Former Member of Parliament and former Secretary to the Government of India is the Chairman of 15th Finance Commission. ✓ Period is 2020-21 to 2025-26. ✓ Government of India published the 15th Finance Commission report for the F.Y.2020-2021 and informed that the Commission’s term has been extended to cover F.Ys 2021-22 to 2025-26.

Contd.. 15th Finance Commission:

✓ 15th Finance Commission divided the ULBs into two categories – (1) Million-Plus cities ➢ Greater Visakhapatnam Municipal Corporation ➢ Vijayawada Municipal Corporation & (2) Non Million-Plus cities & towns with less than one million population.

Contd.. 15th Finance Commission:

✓ Million-Plus Cities Grants are Tied Grants and intended to use for o Improving Ambient Air Quality (50%) and o Improving Conservation, Supply & Management of Water and efficient Solid Waste Management (SWM) (50%)

✓ Non Million-Plus Cities Grants are intended to use for o 50% are Basic/Untied Grants and for Location-specific felt needs, except for salary or other establishment expenditure. o Remaining 50% are Tied Grants and for Drinking Water (including rainwater harvesting and recycling) and Solid Waste Management.

Contd.. 15th Finance Commission:

✓ Allocated an amount of Rs.1264.00 Crores o Million-Plus Cities (GVMC & VMC) - Rs.270.00 Crores o Non Million-Plus Cities - Rs.994.00 Crores

✓ As of now, released an amount of Rs.767.00 Crores o Million-Plus Cities (GVMC & VMC) - Rs.270.00 Crores o Non Million-Plus Cities - Rs.497.00 Crores

✓ The releases of the amount to o Million-Plus cities are to be made by GoI by city-wise and based on Census-2011 Population basis. o Non Million-Plus cities are to be made based on Census-2011 Population (90%) and Area of the ULB (10%).

Contd.. 15th Finance Commission:

✓ Government in G.O.Ms.No.188, MA&UD (UBS) Dept., dt.26-10-2020 have issued Guidelines to execute the works in the following sectors under 15th FC in Non Million-Plus Cities for the year 2020-21 (Location Specific Needs): o Solid Waste Management/Liquid Waste Management, o Water supply including Water supply to Community Toilets, o Underground Drainage/CC Drains, o CC/BT Roads (in Grade-II, III Municipalities & Nagar Panchayats only), o Construction of Slaughter Houses, o Development of Parks, o Protection of Open Spaces, o Burial Grounds & Crematorium & o Repairs to Municipal Schools.

What is the State Finance Commission?

➢ The Indian Constitution makers proposed a two-tier democratic system with a strong National Government at the Centre and States as its units. ➢ They also clearly defined the duties and responsibilities of the Union Government and the States and further assigned revenue streams to both of them to discharge their duties and responsibilities. ➢ However, this model underwent a major change four decades after the Constitution came into effect. ➢ The 73rd Constitutional Amendment Act, 1992 formally recognised a three-tier system of local self-governance comprising at village level, block level and district level bodies. ➢ The Commission is of the view that 3Fs - Functions, Funds and Functionaries are important for uplifting the local governments so as to ensure a qualitative delivery of public services at local level. Appointment of the State Finance Commission:

➢ Under Article 243-I of the Constitution of India, the Governor of a State is required to constitute a Finance Commission every five years.

➢ To decide the resource allocation between the State Government and the Panchayati Raj Institutions.

➢ Article 243-Y also brought City Councils or Municipalities under the purview of the State Finance Commission. Role of State Finance Commission:

➢ A State Finance Commission has functions similar to that of the Central Finance Commission.

➢ It allocates resources of a State to its Local Bodies at all three levels in terms of taxes, duties and levies to be collected by the state and the Local Bodies. Recommendations of State Finance Commission:

➢ A State Finance Commission reviews the financial position of the Local Bodies in a State and makes recommendations to the Governor about the principles that should govern the distribution of tax proceeds – taxes, duties, levies, toll fee collected by the State between the State and its Local Bodies at all three levels – village level, block level and district level.

➢ Grants-in-aid to Local Bodies from the consolidated fund of a State.

➢ Ways to improve the financial position of the Local Bodies.

➢ Measures for the overall improvement of Local Bodies. Action taken on SFC’s Recommendations:

➢ Under Article 243-I of the Indian Constitution, the Governor of a State ensures the laying of a State Finance Commission’s recommendations to the table of the State Legislature.

➢ It also includes a memorandum of action taken by the Government on the Commission’s report.

➢ So far three (03) State Finance Commissions have been constituted and made releases of grants to ULBs as per recommendations of I, II and III State Finance Commissions. Details of State Finance Commissions: Amount Actual amount recommended released for the SFC Date of Award period Name of the Chairman by SFC per period mentioned No. Constitution annum in col. 3 (Rs. in Crores) (Rs. in Crores) 1 2 3 4 5 6 1997-1998 Sri Lakshmana I 22-06-1994 to 160.32 144.06 Swamy 1999-2000 2000-2001 Prof. II 08-12-1998 to 626.61 245.00 D.L. Narayana 2004-2005 2005-2006 Prof. III 29-12-2004 to 489.38 362.92 B.Satyanarayana 2009-2010 Total Amount 1276.31 751.98 Note: Government of Andhra Pradesh first constituted the Third State Finance Commission on 16-1-2003 and reconstituted the same in 2004 due to unavoidable reasons. III State Finance Commission:

✓ In consonance with the Constitutional provisions of the 73rd Amendment Act, 1992, and as per Section 235 of A.P. Panchayat Raj Act, 1994, the Governor of A.P. have constituted the Third State Finance Commission.

✓ Though, the Commission was constituted during the year 2003, then reconstituted in 2004, they submitted the report along with recommendations very belatedly during the year 2008 pertaining to the period from 2005-06 to 2009-10 and further extended the same recommendations from 2010-11 to 2015-16 also.

✓ Government in G.O.Ms.No.512, MA&UD (BUDGET.2) Dept., dt.31-12-2013 have finalized the recommendations of Third SFC and issued orders.

✓ An amount of Rs.879.21 crores were released to ULBs by the Government under SFC from 2010-11 to 2015-16. IV State Finance Commission:

✓ The Governor of Andhra Pradesh constituted the Fourth State Finance Commission as envisaged under Article 243-I and Article 243-Y of the Constitute of India and as provided in Sec.235 of the Andhra Pradesh Panchayati Raj Act 1994, and Sec.132-A of Municipal Act 1994, vide notification, dt:05-02-2018 with the Chairmanship of Prof. Gummadi Nancharaiah for a period of 3 years from the date of assuming office.

✓ Government in G.O.Ms.No.64, Finance (CASP & FC) Department, dt:15-05-2018 issued orders that, the Commission shall make its report available on or before 30th October, 2019 covering a period of forthcoming five years commencing on the 1st day of April 2020.

✓ Due to unavoidable reasons and Pandemic COVID-19, the report was not placed before the Legislative and the same is pending. Thank You

Finance Commission Cell, O/o.Commissioner & Director of Municipal Administration, Government of Andhra Pradesh, Gorantla, Guntur.