Question

Which of the key functions listed below fall under the mandate of the State Finance Commission?

1. Recommending the principles governing the division of net proceeds of state taxes between the state and Panchayats.

2. Auditing the annual accounts of the Panchayats to ensure financial discipline.

3. Determining the taxes, duties, cesses, and fees that may be assigned to and appropriated by the Panchayats.

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

Answer 1

Answer:

C. 1 & 3

State Finance Commission (SFC)

Background and Constitutional Basis:

• The State Finance Commission is a quasi-constitutional body established by the Constitution of India.

• It was recommended by the 73rd Constitutional Amendment Act of 1992, which added Part IX to the Constitution, dealing with the Panchayats.

• Article 243-I of the Constitution mandates the Governor to constitute a Finance Commission every five years.

Key Functions of the State Finance Commission:

• Distribution of State's Net Proceeds: Recommending the principles that govern the distribution of net proceeds of state taxes, duties, tolls, and fees between the State Government and the Panchayats. This ensures financial devolution to local bodies.

• Allocation to Panchayats: Recommending the share of the State's revenue that should be allocated to the Panchayats at different tiers (village, intermediate, and district levels).

• Assignment of Taxes and Fees to Panchayats: Determining the taxes, duties, cesses, and fees that may be assigned to and appropriated by the Panchayats. This empowers local bodies to raise their own resources.

• Grants-in-Aid: Recommending measures to augment the Consolidated Fund of a State to supplement the resources of the Panchayats. This includes recommending grants-in-aid to Panchayats.

• Financial Position of Panchayats: Reviewing the financial position of Panchayats and suggesting measures for their financial strengthening.

Functions NOT under SFC Mandate:

• Auditing Accounts: The auditing of the annual accounts of Panchayats is the responsibility of the Comptroller and Auditor General of India (CAG) or other designated audit bodies, not the State Finance Commission. The SFC's role is primarily recommendatory on financial matters, not executive oversight or auditing.

Significance for Competitive Exams:

• Understanding the SFC's role is crucial for questions related to Panchayati Raj, Federal Finance, and Local Governance.

• Key articles like 243-I and 243-Y (Functions of Panchayats) are often tested.

• The distinction between the SFC's recommendatory role and the CAG's auditing role is a common point of examination.