Question

Read the following two statements, Assertion (A) and Reason (R).

Assertion (A): The State Finance Commission can be different in size from one state to another, as long as it does not exceed three members.

Reason (R): The Constitution allows the state government to determine the exact number of members of its Commission.

Choose the correct answer from the options given below:

• A. Both (A) and (R) are true and (R) is the correct explanation of (A).
• B. Both (A) and (R) are true, but (R) is not the correct explanation of (A).
• C. (A) is true, but (R) is false.
• D. (A) is false, but (R) is true.

Answer 1

Answer:

A. Both (A) and (R) are true and (R) is the correct explanation of (A).

State Finance Commission

• Constitutional Basis: The establishment of State Finance Commissions is mandated by Article 243-I of the Indian Constitution, introduced by the 73rd Constitutional Amendment Act, 1992 (for Panchayats) and Article 243-Y (for Municipalities).

• Purpose: These commissions play a crucial role in the financial federalism of India by recommending the distribution of financial resources between the State government and its local bodies (Panchayats and Municipalities).

• Composition and Appointment:

  • The Constitution empowers the Governor of a State to constitute a State Finance Commission.

  • The exact number of members in a State Finance Commission is determined by the State Legislature, providing flexibility in its size.

  • Typically, a State Finance Commission consists of a Chairman and such other members as the Governor considers necessary.

  • While there's no upper limit specified in the Constitution for the total number of members, the practical understanding and common practice suggest a size that is manageable and effective, often not exceeding three or four members for optimal functioning.

• Key Recommendations: State Finance Commissions recommend:

  • The principles that should govern the distribution between the State and the Panchayats/Municipalities of the net proceeds of taxes, duties, tolls, and fees leviable by the State.

  • The assignment of taxes, duties, tolls, and fees to Panchayats/Municipalities.

  • Grants-in-aid to Panchayats/Municipalities.

• Significance for Competitive Exams:

  • Understanding the constitutional articles related to SFCs is vital.

  • Knowledge of the role of SFCs in fiscal decentralization is often tested.

  • The flexibility in the composition of SFCs, as determined by state legislatures, is a key point to remember.