Question

Which statement(s) accurately reflect the process and nature of the Finance Commission's report?

i. The Central Finance Commission submits its report directly to the Parliament for implementation.
ii. The recommendations are considered the "balancing wheel of fiscal federalism" and, as per P.V. Rajamannar, should not be turned down without compelling reasons.
iii. The State Finance Commission's report is laid before the state legislature by the Governor, along with an explanatory memorandum on the action taken.
iv. Failure by the Union government to implement the CFC's recommendations gives the beneficiary states a legal right to receive the recommended funds.

• A. Only i and iv
• B. Only ii and iii
• C. Only i, ii, and iii
• D. All the above (i, ii, iii and iv)

Answer 1

Answer:

B. Only ii and iii

The Finance Commission

• The Finance Commission (FC) is a constitutional body established under Article 280 of the Indian Constitution.

• It makes recommendations on the distribution of net proceeds of taxes between the Union and the states, and the allocation of the same between the states.

• It also recommends principles that should govern grants-in-aid to states from the Consolidated Fund of India.

Key Aspects of Finance Commission Reports:

• Union Finance Commission's Report: The President lays the report of the Union Finance Commission before each House of Parliament. While the recommendations are highly persuasive, they are not binding on the government. Parliament then considers these recommendations.

• P.V. Rajamannar Committee: This committee, set up by the Tamil Nadu government in 1969, recommended that the Finance Commission's recommendations should be made binding on the government. The committee famously described the Finance Commission's role as the "balancing wheel of fiscal federalism." Their view was that the recommendations should not be rejected without very strong reasons.

• State Finance Commission (SFC): A State Finance Commission is constituted under Article 243-I and 243-Y of the Constitution for every state.

• SFC's Report Presentation: The Governor of the state is required to lay the report of the State Finance Commission, along with an explanatory memorandum detailing the action taken on the recommendations, before the state legislature. This ensures transparency and accountability at the state level regarding fiscal matters.

• Legal Enforceability: The recommendations of the Finance Commission, whether Union or State, are generally advisory in nature. There is no explicit legal right for beneficiary states to automatically receive the recommended funds if the government chooses not to implement them, although strong political and constitutional conventions exist.