Question

Choose the correct statement(s) regarding the constitutional basis and scope of the State Finance Commission (SFC).

1. The SFC is a constitutional body established under Article 243-I to review the financial position of Panchayats and under Article 243-Y for Municipalities.

2. The SFC's recommendations are exclusively focused on the distribution of taxes and do not cover grants-in-aid from the state.

• A. 1 only
• B. 2 only
• C. Both 1 and 2
• D. Neither 1 nor 2

Answer 1

Answer:

A. 1 only

Constitutional Basis and Scope of the State Finance Commission (SFC)

• Article 243-I of the Indian Constitution mandates the establishment of a State Finance Commission every five years. This commission is specifically tasked with reviewing the financial position of the Panchayats.
• Article 243-Y, enacted through the 73rd and 74th Constitutional Amendments, extends similar review functions to the Municipalities.
• The SFC's scope is comprehensive, encompassing the distribution of net proceeds of taxes, duties, tolls, and fees leviable by the State, which are to be assigned to or distributed among Panchayats and Municipalities.
• Beyond tax distribution, the SFC also recommends measures to augment the Consolidated Fund of a State to supplement the resources of Panchayats and Municipalities.
• Furthermore, it advises on matters relating to the devolution of financial resources, grants-in-aid from the State Consolidated Fund to Panchayats and Municipalities, and the measures needed to improve their financial position.
• Therefore, the recommendations of the SFC are not exclusively about tax distribution but also include grants-in-aid and other financial augmentation measures.
• The recommendations of the SFC are advisory in nature and are laid before the State Legislature. The State Government decides on the extent to which these recommendations are to be implemented.