Question

Which of the following functions falls exclusively within the purview of the Central Finance Commission?

i. Recommending the measures needed to augment the consolidated fund of a state to supplement the resources of the panchayats.
ii. Reviewing the financial position of the Panchayats and recommending the criteria for financial aid from the State Consolidated Fund.
iii. Recommending the principles that should govern grants-in-aid to the states by the Centre.
iv. Fixing the taxes, duties, cess and fees which may be marked for the Panchayats.

• A. Only i and iii
• B. Only iii
• C. Only ii and iv
• D. Only i, iii and iv

Answer 1

Answer:

B. Only iii

Central Finance Commission

• The Finance Commission of India is a constitutional body appointed by the President of India under Article 280 of the Constitution.

• Its primary role is to advise the President on the distribution of financial resources between the Union and the States, and among the States themselves.

• Key Functions:

  • Recommending the distribution of net proceeds of taxes: It recommends the share of taxes to be divided between the Union and the States, and the allocation of the States' share among the individual States.

  • Recommending principles for Grants-in-Aid: It suggests the principles that should govern Grants-in-Aid to States from the Consolidated Fund of India. This ensures that states with fiscal deficits receive adequate financial assistance. (Relevant to statement iii)

  • Recommending measures to augment Consolidated Funds: It suggests measures to supplement the resources of Panchayats and Municipalities, drawing from the Consolidated Fund of a State. (Relevant to statement i)

  • Reviewing financial position: It reviews the financial position of Panchayats and Municipalities and recommends criteria for financial assistance from the State's Consolidated Fund. (Relevant to statement ii)

  • Other matters: The President may refer any other matter relating to public finance to the Finance Commission.

• Distinction from State Finance Commissions: While the Central Finance Commission deals with the distribution of resources between the Union and the States, State Finance Commissions (established under Article 243-I and 243-Y of the Constitution) are responsible for reviewing the financial position of Panchayats and Municipalities and recommending the distribution of resources within the State. Statement iv, regarding fixing taxes for Panchayats, falls under the purview of State legislatures and State Finance Commissions, not the Central Finance Commission.

• Significance for Competitive Exams: Understanding the distinct roles of the Central Finance Commission and State Finance Commissions is crucial for exam preparation, especially for questions related to fiscal federalism and local governance.