Question

Which of the following statements are correct about the functions of the Central Finance Commission?

i. It recommends principles for grants-in-aid to states from the Consolidated Fund of India.

ii. It allocates funds directly to panchayats and municipalities.

iii. It advises on any matter referred by the President in the interest of sound finance.

iv. It supervises the financial accounts of the Union Government.

v. It recommends the distribution of tax proceeds between the Centre and states.

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

Answer 1

Answer:

A. i, iii, and v only

Central Finance Commission

• The Finance Commission is a constitutional body established under Article 280 of the Indian 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 of the Finance Commission:

• Distribution of Net Proceeds of Taxes: It recommends the principles governing the distribution of the net proceeds of taxes that are to be divided between the Union and the States (Statement v is correct). This includes recommending the respective shares of the Centre and the States in various centrally sponsored schemes and central taxes.

• Grants-in-Aid to States: It recommends the principles which should govern the grants-in-aid of the revenues of the States out of the Consolidated Fund of India (Statement i is correct). These grants are provided to States that are in need of assistance.

• Measures to Augment Consolidated Fund of a State: It can also suggest measures to supplement the resources of the Panchayats and Municipalities in the State out of the Consolidated Fund of the State. However, it does not allocate funds *directly* to these local bodies (Statement ii is incorrect).

• Recommendations on Financial Matters: It advises the President on any other matter referred to it by the President in the interest of sound finance (Statement iii is correct). This can include advice on fiscal management, debt management, and other financial issues.

• Not involved in Accounts Supervision: The Finance Commission does not supervise the financial accounts of the Union Government. This function is primarily carried out by bodies like the Comptroller and Auditor General of India (CAG) (Statement iv is incorrect).

Significance for Competitive Exams:

• Understanding the specific functions and limitations of the Finance Commission is crucial for questions related to fiscal federalism in India.

• Pay close attention to the wording regarding direct allocation versus recommending principles for grants.

• Remember the constitutional article (Article 280) and the distinction between its advisory role and executive functions.