Context

• Former Vice Chairman of NITI Aayog and Columbia University professor Arvind Panagariya has been appointed as the Chairman of the 16th Finance Commission.​

Key Points

• The Central Government issued a notification giving this information.
• With this, Hrithik Ranjan Pandey has been appointed as the new Secretary of the Finance Commission.
• The tenure of the Chairman and other members of the Commission will be till 31 October 2025 or till the submission of the report.

Finance Commission

• The Finance Commission is a constitutional body constituted under Article 280 of the Constitution.
• Its function is to evaluate the financial conditions of the Center and the States, recommend grants-in-aid, distribution of taxes between them and decide the framework for distribution of taxes among the States.

Previous Finance Commission

• The Fifteenth Finance Commission was constituted on 27 November 2017.
• The commission had given its recommendations for a six-year period from 2020-21 to 2025-26.
• The Finance Commission generally takes about two years to submit its recommendations.
• According to clause (1) of Article 280 of the Constitution, the Finance Commission is constituted every fifth year or earlier.
• The Advance Cell of the 16th Finance Commission was constituted in the Ministry of Finance on 21 November 2022, to monitor the preparatory work till the formal constitution of the Commission.

The Sixteenth Finance Commission will make recommendations with respect to the following matters, namely:-

• (i) The distribution between the Union and the States of the net income of taxes which is to be or may be divided between them under Chapter I, Part XII of the Constitution and the allocation among the States of their respective shares of such income;
• (ii) the principles which shall govern the grants-in-aid of the revenue of the States out of the Consolidated Fund of India and the grants-in-aid of their revenue to the States under article 275 of the Constitution for the purposes specified in the provisions of clause (1) of that article; Amounts to be paid for purposes other than; And
• (iii) Necessary measures to increase the Consolidated Fund of the State to supplement the resources of the Panchayats and Municipalities in the State on the basis of recommendations made by the Finance Commission of the State.
• Further, the Sixteenth Finance Commission may review the existing arrangements on financing of disaster management initiatives in terms of the funds constituted under the Disaster Management Act, 2005 (53 of 2005) and make appropriate recommendations thereon.
• The Sixteenth Finance Commission has been requested to provide its report by October 31, 2025, covering a period of five years starting from April 1,2026. 

Important Facts For Exam

NITI Aayog

• Formed: January 1, 2015
• Chairman: Prime Minister
• Vice President: Appointed by the Prime Minister
• Governing Council: Chief Ministers of all States and Lieutenant Governors of Union Territories.