Question

Consider the following statements regarding the State Finance Commission (SFC):
i. The SFC is a statutory body established by an Act of the State Legislature.
ii. It is constituted by the Governor of the state every five years.
iii. Its primary mandate is to review the financial position of Panchayats and Municipalities.

Which of the above statements are correct?

• A. i and ii only
• B. ii and iii only
• C. i and iii only
• D. All i, ii, and iii are correct

Answer 1

Answer:

B. ii and iii only

State Finance Commission (SFC)

• Constitutional Basis: The State Finance Commission (SFC) is established under Article 243-I and Article 243-Y of the Indian Constitution.

• Establishment: The Governor of a state constitutes the SFC.

• Tenure: The SFC is typically constituted every five years, or earlier if deemed necessary by the Governor.

• Functions: The primary role of the SFC is to review the financial position of:
  

  • Panchayats (local self-government bodies at the rural level)

  • Municipalities (local self-government bodies at the urban level)

• Mandate: The SFC recommends measures to improve the financial health of these local bodies. This includes:
  

  • Distribution of taxes, duties, tolls, and fees between the state and local bodies.

  • Assignment of taxes, duties, tolls, and fees to local bodies.

  • Grants-in-aid to local bodies from the state consolidated fund.

• Distinction from Central Finance Commission: While the Finance Commission (Article 280) deals with the division of finances between the Union and the States, the SFC focuses on the financial relationship between the State government and its local self-government bodies.

• Statutory vs. Constitutional Body: While the Constitution mandates the establishment of SFCs, the specific details of their composition, powers, and functioning are often laid down by State Acts or executive orders. Therefore, it is a constitutionally recognized body, but its specific operational framework is statutory. Statement (i) is partially correct in that state legislature plays a role in defining its functioning, but its existence is rooted in the Constitution itself, not solely by an Act of the State Legislature.

• Reporting: The SFC submits its report to the Governor, who then causes it to be laid before the State Legislature.