Today, some Members of Parliament initiated proceedings for the removal of the current Chief Justice of India by submitting a notice to the Chairman of Rajya Sabha.  A judge may be removed from office through a motion adopted by Parliament on grounds of ‘proven misbehaviour or incapacity’.  While the Constitution does not use the word ‘impeachment’, it is colloquially used to refer to the proceedings under Article 124 (for the removal of a Supreme Court judge) and Article 218 (for the removal of a High Court judge).

The Constitution provides that a judge can be removed only by an order of the President, based on a motion passed by both Houses of Parliament.  The procedure for removal of judges is elaborated in the Judges Inquiry Act, 1968.  The Act sets out the following steps for removal from office:

  • Under the Act, an impeachment motion may originate in either House of Parliament. To initiate proceedings: (i) at least 100 members of Lok Sabha may give a signed notice to the Speaker, or (ii) at least 50 members of Rajya Sabha may give a signed notice to the Chairman.  The Speaker or Chairman may consult individuals and examine relevant material related to the notice.  Based on this, he or she may decide to either admit the motion or refuse to admit it.
  • If the motion is admitted, the Speaker or Chairman (who receives it) will constitute a three-member committee to investigate the complaint. It will comprise: (i) a Supreme Court judge; (ii) Chief Justice of a High Court; and (iii) a distinguished jurist.  The committee will frame charges based on which the investigation will be conducted.  A copy of the charges will be forwarded to the judge who can present a written defence.
  • After concluding its investigation, the Committee will submit its report to the Speaker or Chairman, who will then lay the report before the relevant House of Parliament. If the report records a finding of misbehaviour or incapacity, the motion for removal will be taken up for consideration and debated.
  • The motion for removal is required to be adopted by each House of Parliament by: (i) a majority of the total membership of that House; and (ii) a majority of at least two-thirds of the members of that House present and voting. If the motion is adopted by this majority, the motion will be sent to the other House for adoption.
  • Once the motion is adopted in both Houses, it is sent to the President, who will issue an order for the removal of the judge.

In November 2017, the 15th Finance Commission (Chair: Mr N. K. Singh) was constituted to give recommendations on the transfer of resources from the centre to states for the five year period between 2020-25.  In recent times, there has been some discussion around the role and mandate of the Commission.  In this context, we explain the role of the Finance Commission.

What is the Finance Commission?

The Finance Commission is a constitutional body formed every five years to give suggestions on centre-state financial relations.  Each Finance Commission is required to make recommendations on: (i) sharing of central taxes with states, (ii) distribution of central grants to states, (iii) measures to improve the finances of states to supplement the resources of panchayats and municipalities, and (iv) any other matter referred to it.

Composition of transfers:  The central taxes devolved to states are untied funds, and states can spend them according to their discretion.  Over the years, tax devolved to states has constituted over 80% of the total central transfers to states (Figure 1).  The centre also provides grants to states and local bodies which must be used for specified purposes.  These grants have ranged between 12% to 19% of the total transfers.

Fig 1Over the years the core mandate of the Commission has remained unchanged, though it has been given the additional responsibility of examining various issues.  For instance, the 12th Finance Commission evaluated the fiscal position of states and offered relief to those that enacted their Fiscal Responsibility and Budget Management laws.  The 13th and the 14th Finance Commissionassessed the impact of GST on the economy.  The 13th Finance Commission also incentivised states to increase forest cover by providing additional grants.

15th Finance Commission:  The 15th Finance Commission constituted in November 2017 will recommend central transfers to states.  It has also been mandated to: (i) review the impact of the 14th Finance Commission recommendations on the fiscal position of the centre; (ii) review the debt level of the centre and states, and recommend a roadmap; (iii) study the impact of GST on the economy; and (iv) recommend performance-based incentives for states based on their efforts to control population, promote ease of doing business, and control expenditure on populist measures, among others.

Why is there a need for a Finance Commission?

The Indian federal system allows for the division of power and responsibilities between the centre and states.  Correspondingly, the taxation powers are also broadly divided between the centre and states (Table 1).  State legislatures may devolve some of their taxation powers to local bodies.

Table 1

The centre collects majority of the tax revenue as it enjoys scale economies in the collection of certain taxes.  States have the responsibility of delivering public goods in their areas due to their proximity to local issues and needs.

Sometimes, this leads to states incurring expenditures higher than the revenue generated by them.  Further, due to vast regional disparities some states are unable to raise adequate resources as compared to others.  To address these imbalances, the Finance Commission recommends the extent of central funds to be shared with states.  Prior to 2000, only revenue income tax and union excise duty on certain goods was shared by the centre with states.  A Constitution amendment in 2000 allowed for all central taxes to be shared with states.

Several other federal countries, such as Pakistan, Malaysia, and Australia have similar bodies which recommend the manner in which central funds will be shared with states.

Tax devolution to states

Table 2The 14th Finance Commission considerably increased the devolution of taxes from the centre to states from 32% to 42%.  The Commission had recommended that tax devolution should be the primary source of transfer of funds to states.  This would increase the flow of unconditional transfers and give states more flexibility in their spending.

The share in central taxes is distributed among states based on a formula.   Previous Finance Commissions have considered various factors to determine the criteria such as the population and income needs of states, their area and infrastructure, etc.  Further, the weightage assigned to each criterion has varied with each Finance Commission.

The criteria used by the 11th to 14thFinance Commissions are given in Table 2, along with the weight assigned to them.  State level details of the criteria used by the 14th Finance Commission are given in Table 3.

  • Population is an indicator of the expenditure needs of a state. Over the years, Finance Commissions have used population data of the 1971 Census.  The 14th Finance Commission used the 2011 population data, in addition to the 1971 data.  The 15th Finance Commission has been mandated to use data from the 2011 Census.
  • Area is used as a criterion as a state with larger area has to incur additional administrative costs to deliver services.
  • Income distance is the difference between the per capita income of a state with the average per capita income of all states. States with lower per capita income may be given a higher share to maintain equity among states.
  • Forest cover indicates that states with large forest covers bear the cost of not having area available for other economic activities. Therefore, the rationale is that these states may be given a higher share.

Table 3

Grants-in-Aid

Besides the taxes devolved to states, another source of transfers from the centre to states is grants-in-aid.  As per the recommendations of the 14th Finance Commission, grants-in-aid constitute 12% of the central transfers to states.  The 14th Finance Commission had recommended grants to states for three purposes: (i) disaster relief, (ii) local bodies, and (iii) revenue deficit.