Question

Consider the following statements about the Finance Commission of India:

1. It is a constitutional body established under Article 280.

2. Its recommendations are binding on the Union government.

3. The chairman must have experience in public affairs.

Which of these statements is/are correct?

• A. 1 and 3
• B. 1 only
• C. 2 and 3
• D. 1, 2, and 3

Answer 1

Answer:

A. 1 and 3

The Finance Commission of India

• Constitutional Mandate: The Finance Commission is a constitutional body, established under Article 280 of the Indian Constitution. This means it is a permanent and crucial part of India's federal fiscal architecture.
• Role and Recommendations: The President of India constitutes the Finance Commission every five years. Its primary role is to advise the President on the distribution of net proceeds of taxes between the Union and the states, and the allocation of the respective shares among the states. It also recommends measures to augment the consolidated fund of a state to supplement the resources of the panchayats and municipalities in the state.
• Nature of Recommendations: The recommendations of the Finance Commission are advisory in nature and are not binding on the Union government. While the government usually accepts the recommendations, it is not legally obligated to do so. Any rejection of recommendations must be laid before Parliament along with an explanatory memorandum.
• Composition: The Finance Commission consists of a Chairman and four other members appointed by the President.
• Qualifications for Chairman: The Chairman is required to be a person with experience in public affairs. The qualifications of other members are determined by Parliament.
• Historical Context: The first Finance Commission was constituted in 1951. The recommendations of each Finance Commission have a significant impact on fiscal federalism in India, influencing inter-governmental resource transfers.
• Exam Relevance: Understanding the constitutional basis (Article 280), the advisory nature of its recommendations, and the composition and qualifications of its members are key points often tested in competitive exams. The distinction between its recommendations and their binding nature is a frequent point of inquiry.