Question

Given below are two statements:

Statement I: The State Finance Commission is a constitutional body.

Statement II: It is established to recommend principles for financial devolution from the state government to urban and rural local bodies.

Which one of the following is correct in respect of the above statements?

• A. Both Statement I and Statement II are correct.
• B. Both Statement I and Statement II are incorrect.
• C. Statement I is correct, but Statement II is incorrect.
• D. Statement I is incorrect, but Statement II is correct.

Answer 1

Answer:

A. Both Statement I and Statement II are correct.

State Finance Commission

• Constitutional Status: The State Finance Commission (SFC) is indeed a constitutional body, established under Article 243-I of the Constitution of India. This article mandates the Governor of a State to constitute a Finance Commission.

• Purpose and Function: The primary role of the SFC, as outlined in Article 243-Y, is to review the financial position of Panchayats and Municipalities and to recommend to the Governor the principles that should govern:

  • The distribution between the State and the Panchayats and Municipalities of the net proceeds of the taxes, duties, tolls and fees leviable by the State which may be divided between them.

  • The assignment to the Panchayats and Municipalities of all or any of the revenues which may be assigned to them in whole or in part by the State.

  • The grants-in-aid that may be made to the Panchayats and Municipalities from the Consolidated Fund of the State.

• Frequency of Establishment: Each SFC is constituted normally for a period of five years.

• Significance for Local Governance: The SFC plays a crucial role in strengthening the financial autonomy and capacity of local self-governing institutions (Panchayats and Municipalities), ensuring a more equitable distribution of state resources.

• Comparison with Central Finance Commission: While the Union Finance Commission (Article 280) recommends devolution of funds from the Union to the States, the State Finance Commission focuses on the devolution from the State to its local bodies.