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.
Over 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.
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
The 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.
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.
Recently, the Supreme Court collegium reiterated its recommendations for the appointment of 11 judges to certain High Courts. It had first recommended these names earlier this year and in August last year, but these appointments were not made. The Indian judiciary faces high vacancies across all levels (the Supreme Court, High Courts, and subordinate courts). Vacancy of judges in courts is one of the reasons for delays and a rising number of pending cases, as there are not enough judges to hear and decide cases. As of today, more than four crore cases are pending across all courts in India. In this blog post, we discuss vacancies across courts over the years, delays in appointment of judges, and methods to determine the adequate judge strength required to handle the caseload courts face.
High vacancy of judges across courts
Vacancies in courts keep on arising periodically due to retirement, resignation, demise, or elevation of judges. Over the years, the sanctioned strength of judges in both High Courts and subordinate courts has been increased gradually. However, vacancies persist due to insufficient appointments (see Figures 1 and 2). Between 2010 and 2020, vacancies increased from 18% to 21% across all levels of courts (from 6% to 12% in the Supreme Court, from 33% to 38% in High Courts, and from 18% to 20% in subordinate courts).
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Figure 1: Vacancy of judges in High Courts |
Figure 2: Vacancy of judges in subordinate courts |
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Sources: Court News 2010-2018; Vacancy Statement, and Rajya Sabha replies, Part I, Budget Session (2021), Department of Justice; PRS. |
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As on November 1, 2021, the Supreme Court had a vacancy of one judge (out of a sanctioned strength of 34). Vacancy in High Courts stood at 37% (406 posts vacant out of a sanctioned strength of 1,098). Since May, 2021, the Supreme Court collegium has recommended more than 130 names for appointment as High Court judges. In three High Courts (Telangana, Patna, and Calcutta), at least half of the posts are vacant (see Figure 3). The Standing Committee on Personnel, Public Grievances, Law and Justice (2020) noted that every year, 35-40% of posts of High Court judges remain unfilled.
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Figure 3: Vacancy of judges across High Courts (in %) (as on November 1, 2021)
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Source: Vacancy Statement, Department of Justice; PRS. |
Appointments of High Court judges are guided by a memorandum of procedure. As per this memorandum, the appointment process is to be initiated by the concerned High Court at least six months before a vacancy occurs. However, the Standing Committee (2021) noted that this timeline is rarely adhered to by High Courts. Further, in the final stage of the process, after receiving recommendations from the Supreme Court collegium, the executive appoints judges to the High Court. No timeline is prescribed for this stage of the appointment process. In 2018 and 2019, the average time taken to appoint High Court judges after receiving the collegium’s recommendations was five to seven months.
As of today, over 3.6 crore cases are pending before subordinate courts in India. As on February 20, 2020, 21% posts for judges were vacant (5,146 posts out of the sanctioned strength of 24,018) in subordinate courts. Subordinate courts in Bihar, Haryana, and Jharkhand (among the states with high population) had a high proportion of vacancies of judges (see Figure 4). Note that the Supreme Court is monitoring the procedure for appointment of judges to subordinate courts.
For an analysis of the data on pendency and vacancies in the Indian judiciary, see here.
Figure 4: Vacancy of judges across subordinate courts (in %) (as on February 20, 2020)
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Source: Report No. 101, Standing Committee on Personnel, Public Grievances, Law and Justice (2020); PRS. |
How many judges do we need?
The Law Commission of India (1987) had noted the importance of manpower planning for the judiciary. Lack of adequate number of judges means a greater workload per judge. Thus, it becomes essential to arrive at an optimal judge strength to deal with pending and new cases in courts. Over the years, different methods of calculating the required judge strength for subordinate courts (where the backlog of cases in the Indian judiciary is concentrated) have been recommended (see Table 1).
Table 1: Methods recommended for calculating the required number of judges for subordinate courts
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Method of calculation |
Recommendation and its status |
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Judge-to-population ratio: optimum number of judges per million population |
The Law Commission of India (1987) had recommended increasing this ratio to 50 judges per million people. This was reiterated by the Supreme Court (2001) and the Standing Committee on Home Affairs (2002). For 2020, the judge-to-population ratio was 21 judges per million population. Note that this figure is calculated based on the sanctioned strength of judges in the Supreme Court, High Courts and subordinate courts. |
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Rate of disposal: number of additional judges required (to clear the existing backlog of cases and ensure that new backlog is not created) based on the average number of cases disposed per judge |
The Law Commission of India (2014) proposed this method. It rejected the judge-to-population ratio method, observing that filing of cases per capita varies substantially across geographic units depending on socio-economic conditions. |
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Weighted case load method: calculating judge strength based on the disposal by judges, taking into account the nature and complexity of cases in local conditions |
The National Court Management Systems Committee (NCMS) (2016) critiqued the rate of disposal method. It proposed, as an interim measure, the weighted case load method, which addresses the existing backlog of cases as well as the new flow of cases every year in subordinate courts. In 2017, the Supreme Court accepted this model. |
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Time-based weighted case load method: calculating the required judge strength taking into account the actual time spent by judges in different types of cases at varying stages based on an empirical study |
Used widely in the United States, this was the long-term method recommended by the NCMS (2016) to assess the required judge strength for subordinate courts. It involves determining the total number of ‘judicial hours’ required for disposing of the case load of each court. The Delhi High Court used this approach in a pilot project (January 2017- December 2018) to calculate the ideal judge strength for disposing of pending cases in certain courts in Delhi. |
Sources: Reports No. 120 (1987) and 245 (2014), Law Commission of India; Report No. 85, Standing Committee on Home Affairs (2002); Note for Calculating Required Judge Strength for Subordinate Courts, National Court Management Systems Committee (NCMS) (2016); Imtiyaz Ahmad vs. State of Uttar Pradesh, Supreme Court (2017); PRS.
