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Unit 26: 12 and 13 Finance Commissions
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Dilfraz Singh, Lovely Professional University
Unit 26: 12 and 13 Finance Commissions Notes
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CONTENTS
Objective
Introduction
26.1 12 Finance Commission
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26.2 13 Finance Commission
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26.3 Summary
26.4 Key-Words
26.5 Review Questions
26.6 Further Readings

Objectives

After reading this Unit students will be able to:
• Explain the 12 Finance Commissions.
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• Discuss about the 13 Finance Commissions.
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Introduction

The Finance Commission of India came into existence in 1951. It was established under Article 280 of
the Indian Constitution by the President of India. It was formed to define the financial relations
between the centre and the state. The Finance Commission Act of 1951 states the terms of qualification,
appointment and disqualification, the term, eligibility and powers of the Finance Commission. As
per the Constitution, the commission is appointed every five years and consists of a chairman and
four other members. Since the institution of the first finance commission, stark changes have occurred
in the Indian economy causing changes in the macroeconomic scenario. This has led to major changes
in the Finance Commission's recommendations over the years. Till date, Thirteen Finance Commissions
have submitted their reports.
26.1 12 Finance Commission
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The Twelfth Finance Commission was constituted by the President under Article 280 of the Indian
Constitution, with Dr. C. Rangarajan as chairman. This was the second finance commission after he
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80 Amendment Act (2000) of the Constitution. The terms of reference of the 12 FC were the same as
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those of the 11 FC, except the last one which was actually added later through a special notification.
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The terms of reference of the 12 FC were :
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(i) The distribution between the Centre and the States of the net proceeds of all taxes and the
allocation between the States of the respective shares of such proceeds;
(ii) The principles which should govern
(a) The grants-in-aid to the States out of the Consolidated Fund of India; and
(b) The sums to be paid to the States which are in need of assistance by way of grants-in-aid
under Article 275 of the Indian Constitution.
(iii) The measures needed to augment the Consolidated Fund of a State to supplement the resources
of the Panchayats and Municipalities in the States;
(iv) Review the Fiscal Reform Facility introduced by the Central Government on the basis of the
recommendations of the 11 FC and suggest measures for effective achievement of its objectives;
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