Question

Which of the following statements are correct about the reporting process of the Finance Commissions?

i. The Central Finance Commission submits its report to the President of India.

ii. The State Finance Commission submits its report to the State Legislative Assembly.

iii. The President lays the Central Finance Commission’s report before Parliament with an explanatory memorandum.

iv. The Governor submits the State Finance Commission’s report to the State Legislative Assembly.

v. The recommendations of both Commissions are binding on the respective governments.

• A. i, iii, and iv 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 iv only

Finance Commissions in India

• Central Finance Commission: The Finance Commission of India, established under Article 280 of the Constitution, is a quasi-judicial body. Its primary role is to recommend the distribution of tax revenues between the Union and the States, and among the States themselves.

  • Submission of Report: The Central Finance Commission submits its report directly to the President of India. This report contains its recommendations on various fiscal matters.

  • Laying Before Parliament: Upon receiving the report, the President causes it to be laid before each House of Parliament. This is accompanied by an explanatory memorandum from the Union Government, detailing the action taken on the recommendations. This process ensures transparency and accountability in fiscal federalism.

• State Finance Commission: While the Central Finance Commission deals with national-level fiscal distribution, States are also empowered to constitute Finance Commissions under Article 243-I and 243-Y of the Constitution to review their financial position and recommend devolution of funds within the State.

  • Submission of Report: The State Finance Commission submits its report to the Governor of the State.

  • Laying Before State Legislature: The Governor then causes the report to be laid before the State Legislative Assembly (and the State Legislative Council, if it exists). Similar to the central level, an explanatory memorandum from the State Government is usually attached.

• Binding Nature of Recommendations: It is crucial to understand that the recommendations made by both the Central and State Finance Commissions are of an advisory nature. They are not binding on the respective governments. The government has the discretion to accept or reject these recommendations, though rejection usually requires justification.

• Key Constitutional Articles:

  • Article 280 deals with the Finance Commission of India.

  • Article 243-I empowers the Governor to constitute State Finance Commissions for Panchayats.

  • Article 243-Y empowers the Governor to constitute State Finance Commissions for Municipalities.

• Significance for Competitive Exams: Understanding the reporting hierarchy and the non-binding nature of recommendations is a common point of examination in Indian Polity and Governance papers. Pay close attention to the specific authorities involved in the submission and laying of reports at both the Union and State levels.