All questions of Finance Commission for BPSC (Bihar) Exam

The main purpose of the State Finance Commissions (SFCs) is to rationalize and systematize State/sub-state fiscal relations in India.

The State Finance Commissions (SFCs) are constitutional bodies that play a crucial role in the fiscal governance of states in India. Their primary objective is to ensure a fair and equitable distribution of financial resources between the state government and local governments (panchayats and municipalities) within the state.

1. Background:
- The formation of State Finance Commissions is mandated by Article 243-I of the Indian Constitution.
- The 73rd and 74th Constitutional Amendments in 1992 made it compulsory for every state to set up its own State Finance Commission.
- The SFCs are constituted every five years or as per the discretion of the state government.

2. Function and Role:
- The SFCs are responsible for reviewing the financial position of the state government and local governments.
- They make recommendations on the sharing of resources between the state government and local governments, taking into account factors like population, area, revenue, and expenditure.
- SFCs also suggest measures for improving the financial position of local governments and recommend the distribution of grants-in-aid to them.
- They also examine the budgets and accounts of local governments and suggest measures to improve financial management.

3. Determining Grants and Devolution:
- One of the primary functions of SFCs is to determine the distribution of grants-in-aid to local governments from the state government.
- The grants are provided for various purposes, including basic services, infrastructure development, and social welfare programs.
- SFCs consider the financial needs and responsibilities of local governments and recommend a fair share of resources to ensure their smooth functioning.

4. Strengthening Fiscal Federalism:
- The establishment of SFCs is a crucial step towards strengthening fiscal federalism in India.
- It ensures that local governments have access to adequate resources to fulfill their constitutional responsibilities.
- SFCs promote decentralization by empowering local governments and making them financially self-reliant.

5. Monitoring and Accountability:
- SFCs also play a role in monitoring the financial performance of local governments.
- They review the budgets and accounts of local governments to ensure transparency, accountability, and effective financial management.
- SFCs suggest measures for improving financial management and reducing wasteful expenditure.

In conclusion, the main purpose of the State Finance Commissions (SFCs) is to rationalize and systematize State/sub-state fiscal relations in India. They play a crucial role in determining the distribution of financial resources between the state government and local governments, thereby promoting decentralization and strengthening fiscal federalism. SFCs also monitor the financial performance of local governments and suggest measures for improvement.

Introduction:
State Finance Commissions (SFCs) are constitutional bodies responsible for recommending the principles and formulae for the allocation of resources between the state and local governments. They play a crucial role in ensuring fiscal autonomy and financial stability at the state level. However, there are several concerns related to SFCs that need to be addressed for effective functioning.

Concerns related to State Finance Commissions:

1. Lack of regular establishment:
- One of the major concerns is that some states do not set up their SFCs regularly as mandated by the Constitution.
- This hampers the effective functioning of SFCs and delays the allocation of funds to local governments.

2. Lack of proficiency:
- Another concern is the lack of proficiency among SFC members in understanding financial matters and formulating effective recommendations.
- This can lead to biased or inadequate allocation of resources, undermining the purpose of SFCs.

3. Reliable data:
- SFCs face a crucial problem of reliable data on various aspects such as revenue generation, expenditure patterns, and development needs of local governments.
- Without accurate and up-to-date data, it becomes challenging for SFCs to make informed decisions and recommendations.

4. Political interference:
- SFCs sometimes face political interference in their functioning, which can compromise their independence and objectivity.
- This interference can result in biased recommendations that do not prioritize the needs and aspirations of local governments.

5. Limited role in managing state finances:
- Contrary to the options given in the question, SFCs actually have a limited role in managing state finances.
- Their primary function is to recommend the principles and formulae for the distribution of resources, while the actual management of state finances lies with the state government.

Conclusion:
State Finance Commissions are essential institutions for ensuring fiscal decentralization and equitable distribution of resources. While concerns related to their establishment, proficiency, data availability, and political interference need to be addressed, their limited role in managing state finances is not a concern. It is important to strengthen the functioning of SFCs to promote financial stability and local governance at the state level.

The correct answer is option 'C', the President appoints the members of the Finance Commission.

Appointment Authority:
The Finance Commission is appointed by the President of India.

Explanation:
1. Role and Purpose of the Finance Commission:
The Finance Commission is a constitutional body in India that plays a crucial role in the fiscal federalism of the country. Its primary purpose is to recommend the distribution of financial resources between the Union government and the state governments. The Finance Commission is established under Article 280 of the Indian Constitution.

2. Composition of the Finance Commission:
The Finance Commission consists of a Chairman and four other members. These members are appointed by the President of India. Typically, the Chairman is a person with significant experience in public finance or economics, while the other members may include individuals with expertise in various fields such as finance, taxation, or administration.

3. Appointment Process:
The President appoints the members of the Finance Commission based on the recommendations of the Prime Minister. The Prime Minister, in turn, consults various stakeholders such as the Speaker of the Lok Sabha, the Chairman of the Rajya Sabha, the leaders of opposition parties in both houses of Parliament, and other relevant authorities.

4. Tenure and Independence:
The members of the Finance Commission serve a term of five years or until the President reconstitutes the Commission. The Finance Commission operates independently and is not subject to the control or influence of the Union or state governments. This independence ensures that the Commission can make unbiased recommendations regarding the distribution of financial resources.

5. Functions of the Finance Commission:
The Finance Commission performs several functions, including:
- Recommending the principles governing the distribution of tax revenues between the Union government and the state governments.
- Making recommendations on grants-in-aid to states from the Union Consolidated Fund.
- Reviewing the state of finances of both the Union and state governments.
- Suggesting measures to improve the financial position of the states.

In conclusion, the President of India appoints the members of the Finance Commission based on the recommendations of the Prime Minister. The Finance Commission plays a crucial role in the distribution of financial resources between the Union and state governments, and its independence ensures unbiased recommendations.

The correct answer is option 'A', the Planning Commission.

Explanation:
The Planning Commission was a non-constitutional and non-statutory body that undermined the role of the Finance Commission in Centre-state fiscal relations. The Planning Commission was established in 1950 and functioned as the main policy-making body in India's centralized planning system.

Undermining the Role of the Finance Commission:
1. Allocation of Resources: The Planning Commission played a significant role in the allocation of financial resources between the Centre and the states. It determined the share of resources to be allocated to each state based on its own criteria, thereby undermining the role of the Finance Commission.

2. Discretionary Grants: The Planning Commission had the power to provide discretionary grants to states for specific projects or schemes. These grants were not determined by the Finance Commission and were often used by the central government to influence and control state governments.

3. Centralized Planning: The Planning Commission formulated five-year plans that set targets for economic growth and development. The allocation of resources under these plans was done by the Planning Commission, bypassing the Finance Commission's role in determining the distribution of financial resources between the Centre and the states.

4. Vertical Imbalance: The Planning Commission's approach often resulted in vertical imbalance in fiscal relations between the Centre and the states. This means that the Centre retained a larger share of financial resources, limiting the fiscal autonomy of the states.

5. Lack of Transparency: The Planning Commission's decision-making process lacked transparency and was not based on objective criteria. This undermined the principles of cooperative federalism and the role of the Finance Commission in ensuring a fair and equitable distribution of resources.

Replacement by NITI Aayog:
To address the issues associated with the Planning Commission, it was replaced by the NITI Aayog (National Institution for Transforming India) in 2015. The NITI Aayog is a policy think tank that provides strategic and technical advice to the central and state governments. Unlike the Planning Commission, the NITI Aayog does not have the power to allocate financial resources or provide discretionary grants, ensuring a more balanced and transparent approach to Centre-state fiscal relations.

Article 280 of the Indian Constitution provides for the Finance Commission as a quasi-judicial body. The Finance Commission is a constitutional body that plays a crucial role in the financial relations between the Union government and the state governments in India.

Role and Functions of the Finance Commission:
The Finance Commission is responsible for making recommendations on matters related to the distribution of tax revenues between the Union and the states, grants-in-aid to states, and other financial matters. Its core functions include:

1. Distribution of Taxes: The Finance Commission recommends the principles that determine the distribution of taxes between the Union and the states. It takes into account various factors such as population, income levels, area, and fiscal capacity of the states in making its recommendations.

2. Grants-in-Aid: The Commission recommends the grants-in-aid that the Union government should provide to the states. These grants are given to address the fiscal imbalances and to meet the specific needs of the states.

3. Financial Autonomy: The Finance Commission ensures the financial autonomy of the states by providing them with adequate resources to carry out their functions effectively. It aims to maintain a balance between the revenue requirements of the Union and the states.

4. Review of Fiscal Position: The Commission reviews the fiscal position of the Union and the states and suggests measures to improve the fiscal management of the country. It also examines the impact of the fiscal policies on the economy and suggests corrective measures, if required.

5. Quasi-Judicial Body: The Finance Commission is considered a quasi-judicial body because it performs its functions independently and impartially. It follows a quasi-judicial procedure while making its recommendations, taking into account the views of the Union and state governments, as well as other stakeholders.

Conclusion:
Article 280 of the Indian Constitution provides for the Finance Commission as a quasi-judicial body. The Finance Commission plays a vital role in ensuring fiscal federalism and equitable distribution of resources between the Union and the states. Its recommendations are crucial in maintaining financial stability and promoting cooperative federalism in India.

The correct answer is option 'D' - the 73rd Constitutional Amendment mandated the creation of State Finance Commissions.

Explanation:
The 73rd Constitutional Amendment Act, also known as the Panchayati Raj Act, was passed by the Parliament of India in 1992. This amendment aimed to strengthen and empower the local self-government bodies in rural areas, i.e., the Panchayats. It added Part IX to the Constitution, which contains provisions related to the Panchayats.

One of the important provisions of the 73rd Amendment Act is the creation of State Finance Commissions. These commissions are responsible for making recommendations on financial matters related to the Panchayats.

Here is a detailed explanation of the provisions related to State Finance Commissions under the 73rd Constitutional Amendment:

1. Article 243I: This article mandates the establishment of a State Finance Commission by the Governor of every state within one year of the amendment's enactment. The composition, powers, and functions of the commission are determined by the state government.

2. Composition: The State Finance Commission consists of a Chairman and such other members as determined by the Governor. The members are appointed by the Governor and can include individuals with knowledge or experience in finance, administration, or Panchayati Raj institutions.

3. Functions: The State Finance Commission has several key functions, including:
- Reviewing the financial position of Panchayats and making recommendations on their financial powers, resources, and devolution of funds from the state government.
- Making recommendations on the distribution of taxes, duties, tolls, and fees between the state government and Panchayats.
- Suggesting measures for improving the financial systems and procedures of Panchayats.
- Any other matter referred to it by the Governor in relation to Panchayat finances.

4. Report and implementation: The State Finance Commission submits its report to the Governor, who in turn lays it before the state legislature. The state government is then obligated to take appropriate action on the recommendations of the commission.

In conclusion, the 73rd Constitutional Amendment mandated the creation of State Finance Commissions to review the financial position of Panchayats and make recommendations on matters related to their finances. These commissions play a crucial role in empowering local self-government bodies and ensuring their financial autonomy.

Article 243I of the Constitution

Article 243I of the Indian Constitution mandates the State Governor to constitute a State Finance Commission every five years. The purpose of this commission is to review the financial position of the Panchayats and municipalities in the state and to make recommendations on various financial matters.

Functions of the State Finance Commission

- The State Finance Commission is responsible for making recommendations on the distribution of financial resources between the State Government and the local bodies.
- It also suggests measures to improve the financial condition of the local bodies.
- The commission reviews the financial powers of the Panchayats and municipalities and recommends ways to strengthen their financial autonomy.
- It also examines the revenue sources of the local bodies and suggests ways to augment their resources.

Importance of the State Finance Commission

- The State Finance Commission plays a crucial role in ensuring financial accountability and transparency in the functioning of local bodies.
- It helps in promoting fiscal federalism by ensuring a fair distribution of financial resources between the State Government and local bodies.
- The recommendations of the commission are aimed at strengthening the financial position of Panchayats and municipalities, thereby empowering them to deliver better services to the citizens.

In conclusion, Article 243I of the Constitution highlights the significance of the State Finance Commission in promoting financial decentralization and strengthening the financial management of local bodies in the country.