THE FINANCE COMMISSION AND ITS IMPACT ON PUBLIC POLICY: A LONGITUDINAL STUDY

AUTHOR – JEEVARAJA S.D., STUDENT AT THE TAMIL NADU DR. AMBEDKAR LAW UNIVERSITY – SCHOOL OF EXCELLENCE IN LAW (SOEL)

BEST CITATION – JEEVARAJA S.D, THE FINANCE COMMISSION AND ITS IMPACT ON PUBLIC POLICY: A LONGITUDINAL STUDY, INDIAN JOURNAL OF LEGAL REVIEW (IJLR), 6 (9) OF 2026, PG. 331-343, APIS – 3920 – 0001 & ISSN – 2583-2344. DOI – https://doi.org/10.65393/IJLRV6I937

ABSTRACT

The Finance Commission occupies a central position in India’s constitutional framework of fiscal federalism. Established under Article 280 of the Constitution, it functions as an independent constitutional body entrusted with the responsibility of recommending the distribution of financial resources between the Union and the States. Since its inception in 1951, the Finance Commission has evolved from a mechanism primarily concerned with tax devolution and grants-in-aid into an institution addressing complex challenges such as fiscal discipline, local governance, disaster management, environmental sustainability, and cooperative federalism. The recommendations of successive Finance Commissions have significantly influenced public policy by determining the availability of financial resources necessary for implementing developmental programmes and welfare initiatives across the country. This study undertakes a longitudinal examination of the Finance Commission from the First Finance Commission to the Fifteenth Finance Commission. It analyses the constitutional foundations, historical evolution, policy contributions, and changing criteria adopted for intergovernmental fiscal transfers. The paper further evaluates the impact of Finance Commission recommendations on public policy sectors including health, education, infrastructure development, local self-government, disaster management, and regional equity. Particular attention is given to the changing dynamics of fiscal federalism following economic liberalisation, the introduction of the Goods and Services Tax (GST), and the challenges arising from demographic and regional disparities. The study argues that the Finance Commission has played a transformative role in strengthening cooperative federalism and ensuring fiscal justice among States. At the same time, the institution faces significant challenges including overlapping functions with the GST Council and NITI Aayog, political controversies surrounding population-based allocation criteria, and the need to address emerging concerns such as climate finance and digital governance. The paper concludes that while the Finance Commission remains one of the most successful constitutional institutions in India, reforms are necessary to enhance its effectiveness in addressing twenty-first century fiscal challenges and ensuring inclusive and sustainable development.

Keywords: Finance Commission, Fiscal Federalism, Public Policy, Tax Devolution, Cooperative Federalism, Grants-in-Aid, Constitutional Governance.