Question

Which of the following statements are correct about the State Finance Commission?

1. The State Finance Commission reviews the financial position of panchayats and municipalities.

2. The Commission has the powers of a civil court under the Code of Civil Procedure, 1908.

3. The State Finance Commission’s recommendations are binding on the state government.

• A. 1 and 2
• B. 1 and 3
• C. 2 and 3
• D. All are correct

Answer 1

Answer:

A. 1 and 2

State Finance Commission

• Constitutional Mandate: The establishment of the State Finance Commission (SFC) is mandated by Article 243-I and Article 243-Y of the Constitution of India. These articles were added by the 73rd and 74th Constitutional Amendments in 1992, which aimed to strengthen local self-governance.

• Primary Functions: The SFC's core responsibility, as outlined in the Constitution, is to review the financial position of panchayats and municipalities within the state. This includes examining their revenues, expenditure, and overall fiscal health.

• Distribution of State's Own Resources: A crucial role of the SFC is to recommend the distribution of the net proceeds of taxes, duties, tolls, and fees levied and collected by the state government among the state and the local bodies (panchayats and municipalities).

• Grants-in-Aid: The SFC also recommends the principles governing the grants-in-aid to be given to panchayats and municipalities from the Consolidated Fund of the state.

• Powers of a Civil Court: While the SFC has significant advisory powers, it does not possess the powers of a civil court under the Code of Civil Procedure, 1908. Its functions are primarily recommendatory, and it operates within the framework set by the state legislature.

• Non-Binding Recommendations: The recommendations made by the State Finance Commission are advisory in nature and are not binding on the state government. The state legislature has the authority to decide on the extent to which these recommendations will be implemented.

• Composition: The SFC typically consists of a Chairman and four other members. The qualifications and method of selection of these members are determined by the Governor of the state.

• Frequency: The Constitution stipulates that an SFC should be constituted every five years or earlier, as the Governor deems fit.