Article 280 of the Constitution states that the President shall constitute a Finance Commission at the expiration of every fifth year or at such earlier time as the President considers necessary.
Simply put, this means that while the Commission can give recommendations for six years through two reports (2020-21 to 2025-26), when the Sixteenth Finance Commission is set up, it will consider devolution for 2025-26 to 2029-30, and not from 2026-27, an official explained. This will essentially keep the award period of the 15th Finance Commission
at five years, since these are just recommendations which the government accepts.
“The Constitution just mandates that every five years a Finance Commission has to be set up. Today’s cabinet decision is not in contravention of that,” said an official.
Sources told Business Standard the commission was given more time, considering the creation of new union territories of Jammu and Kashmir and Ladakh.
The commission has sought time from President Ram Nath Kovind to submit an interim report on Saturday. The interim report will enable Finance Minister Nirmala Sitharaman and her bureaucrats to prepare the 2020-21 Budget. This course of action has precedence in at least three previous Finance Commissions.
Union territories usually get their resources from the central government’s share of the divisible pool, but the Jammu and Kashmir Reorganization Act mandates the commission to treat the two union territories as a state. Ladakh, on the other hand, is expected to get funds out of the centre’s share, like any other union territory.