Introduction

India’s governance structure uses different institutions to manage fiscal relations, economic planning and policy advice. Among them, the Finance Commission, the former Planning Commission and the present NITI Aayog hold special significance. They differ in legal status, purpose, powers and their role in shaping Centre–State relations. This article explains these differences in simple language using short, active sentences. It stays SEO-friendly and clear for UPSC, academic and general readers.

What Is the Finance Commission?

The Finance Commission is a constitutional body. Article 280 of the Constitution creates it. The President sets it up every five years. It recommends how the Union should share taxes with States. It also suggests how to give grants to States and local bodies. It acts as a quasi-judicial institution because it uses objective data and formal criteria. It supports fiscal federalism by creating a fair financial balance between the Centre and the States.

The Finance Commission does not allocate money directly. It only recommends. The Union government places its report before Parliament with an action-taken note. Though advisory, its recommendations carry strong weight because they rest on constitutional mandate and impartial analysis.

What Was the Planning Commission?

The Planning Commission was an extra-constitutional body. The Government of India created it in 1950 through a resolution. It led centralised economic planning for several decades. It prepared Five-Year Plans and annual plans. It decided plan priorities for the country. It allocated plan funds to States and ministries. Its decisions had direct financial implications for States.

The Prime Minister chaired the Planning Commission. It had a Deputy Chairperson and full-time Members. Its top-down planning style often concentrated power at the Centre. Many States felt that the Commission reduced their fiscal autonomy because it controlled plan funds.

In 2014, the government abolished the Planning Commission. Its approach no longer matched the needs of a liberalised economy. The country needed more flexibility, innovation and cooperative federalism rather than rigid planning.

What Is NITI Aayog?

NITI Aayog replaced the Planning Commission in 2015. It is extra-constitutional and advisory like the former Commission but works with a very different model. The Union Cabinet created it through a resolution. NITI Aayog functions as a policy think tank. It provides strategic and technical advice to the government on economic and social issues.

The Prime Minister chairs NITI Aayog. The Governing Council includes all Chief Ministers and Lieutenant Governors. This structure promotes cooperative and competitive federalism. NITI Aayog does not allocate funds. It encourages States to innovate and compete based on performance. It also runs initiatives like the Aspirational Districts Programme and Atal Innovation Mission. It supports long-term reforms instead of preparing Five-Year Plans.

How Does Their Legal Status Differ?

The Finance Commission is constitutional. The Constitution defines its creation, structure and functions. The Planning Commission and NITI Aayog are extra-constitutional. The government created them through executive resolutions.

This difference explains why the Finance Commission has stronger institutional authority. Its recommendations influence fiscal relations directly. Meanwhile, the Planning Commission and NITI Aayog shape planning and policy without constitutional backing.

How Do Their Structures Compare?

The Finance Commission has a Chairman and four Members. The President appoints them. Parliament prescribes their qualifications. It is not permanent because the government reconstitutes it every five years. The Planning Commission had a permanent structure. The Prime Minister served as Chair. It had a Deputy Chairperson and several Members who worked continuously.

NITI Aayog has a dynamic structure. The Prime Minister chairs it. The Governing Council includes Chief Ministers. It has a Vice-Chairperson, full-time Members and part-time experts. This setup aims to create partnership rather than centralised planning.

How Do Their Functions Differ?

The Finance Commission deals with fiscal devolution. It recommends how to divide taxes between Union and States. It also suggests grants and measures to improve State finances. It works strictly within the financial domain.

The Planning Commission controlled planning and allocation of plan funds. It set national goals through Five-Year Plans. It decided how much money States would get for development. Its role was both planning and resource distribution. NITI Aayog focuses on policy advice. It prepares long-term strategies. It promotes innovation, cooperative federalism and evidence-based policymaking. It monitors flagship programmes but does not allocate money.

How Do They Impact Federalism?

The Finance Commission strengthens fiscal federalism. It gives objective, formula-based recommendations that protect State interests.

The Planning Commission often centralised power because it controlled plan grants. States depended on it for funds and felt constrained. NITI Aayog aims to reverse this centralisation. It allows States to participate in policymaking. It promotes performance-based competition and collaborative development.

Conclusion

The Finance Commission, the former Planning Commission and NITI Aayog perform distinct roles in India’s governance framework. The Finance Commission ensures fair financial distribution through constitutional authority. The Planning Commission once directed centralised planning and fund allocation but no longer exists. NITI Aayog now guides policy with cooperative and competitive federalism at its core. Together, these institutions show how India’s development strategy has shifted from rigid planning to flexible, innovation-driven governance.