What major approval was granted by the Union Cabinet on November 29, 2023, regarding the finance sector?a)Approval for the Seventeenth Finance Commission's Terms of Reference.b)Approval for the Fifteenth Finance Commission's Budget Allocation.c)Approval for the Sixteenth Finance Commission's Terms of Reference.d)Approval for the Extension of Pradhan Mantri Garib Kalyan Anna Yojana.Correct answer is option 'C'. Can you explain this answer?

Question

Answer

The Union Cabinet approved the Terms of Reference (ToR) for the Sixteenth Finance Commission on November 29, 2023. This commission's recommendations, covering a 5-year period from April 1, 2026, to March 31, 2031, are expected to be submitted by October 31, 2025. The Finance Commission plays a crucial role in suggesting financial allocations and recommendations for effective fiscal management.

Answer

On November 29, 2023, the Union Cabinet granted major approval for the Sixteenth Finance Commission's Terms of Reference. This decision is of significant importance to the finance sector in India. Let's delve into the details of this approval and its implications.

What is the Finance Commission?
The Finance Commission is a constitutional body in India responsible for distributing financial resources between the central government and the state governments. It is constituted every five years and consists of a Chairman and four other members.

The Role of the Finance Commission
The primary role of the Finance Commission is to recommend the distribution of tax revenues between the central and state governments. It also suggests measures to augment the Consolidated Fund of a state to supplement the resources of local bodies.

The Sixteenth Finance Commission
The Sixteenth Finance Commission was constituted in 2021 under the chairmanship of Shri N.K. Singh. Its term extends from 2021 to 2026. The commission's primary task is to make recommendations on the sharing of central taxes with the states, grants-in-aid to states, and other fiscal matters.

Approval for the Terms of Reference
The Union Cabinet's approval for the Sixteenth Finance Commission's Terms of Reference is a crucial step in the functioning of the commission. The Terms of Reference define the scope and objectives of the commission's work. They determine the issues to be examined and the recommendations to be made by the commission.

Implications of the Approval
The approval of the Sixteenth Finance Commission's Terms of Reference paves the way for the commission to commence its work effectively. It enables the commission to analyze the financial resources available to the central government, review the fiscal position of the states, and make recommendations on the distribution of funds.

Furthermore, the approval allows the commission to assess the impact of the Goods and Services Tax (GST) on the finances of the center and states. It empowers the commission to recommend measures to enhance the quality of public expenditure and promote fiscal discipline.

Conclusion
The Union Cabinet's approval for the Sixteenth Finance Commission's Terms of Reference signifies a major development in the finance sector. It allows the commission to fulfill its constitutional mandate of recommending the distribution of financial resources between the central and state governments. This approval sets the stage for the commission to undertake its responsibilities and make crucial recommendations that will impact the fiscal landscape of the country.

Answer

The major approval granted by the Union Cabinet on November 29, 2023, regarding the finance sector was the approval for the Sixteenth Finance Commission's Terms of Reference.

One of the key functions of the Finance Commission in India is to make recommendations to the President on the distribution of tax revenues between the central government and the state governments. The Terms of Reference (TOR) lay down the scope and guidelines for the Finance Commission to carry out its functions.

Explanation of the approval for the Sixteenth Finance Commission's Terms of Reference:

1. Significance of the Sixteenth Finance Commission:
The Sixteenth Finance Commission is a constitutional body appointed every five years to review the fiscal relations between the central government and the state governments. It plays a crucial role in determining the allocation of resources and grants-in-aid to the states.

2. Approval by the Union Cabinet:
The Union Cabinet, which is the highest decision-making body in the government, granted approval for the Terms of Reference of the Sixteenth Finance Commission. This implies that the government has agreed to the guidelines and scope outlined by the Commission for its functioning.

3. Objectives of the Terms of Reference:
The Terms of Reference provide a framework for the Finance Commission to carry out its responsibilities effectively. It defines the key areas that the Commission will focus on while making recommendations, such as horizontal and vertical devolution of funds, grants-in-aid to states, revenue deficit grants, and measures to improve fiscal discipline.

4. Horizontal and Vertical Devolution:
One of the important aspects that the Sixteenth Finance Commission will consider is the horizontal and vertical devolution of funds. Horizontal devolution refers to the distribution of funds among the states, while vertical devolution refers to the allocation of funds between the central government and the state governments.

5. Grants-in-Aid and Revenue Deficit Grants:
The Finance Commission also considers the needs of states in terms of grants-in-aid and revenue deficit grants. Grants-in-aid are provided to states for specific purposes, such as infrastructure development or social welfare programs. Revenue deficit grants are given to states to cover the gap between their revenue receipts and expenditure.

6. Fiscal Discipline Measures:
The Terms of Reference may also include measures to promote fiscal discipline and financial stability. This could involve recommendations on improving tax administration, expenditure management, and debt sustainability.

In conclusion, the approval granted by the Union Cabinet on November 29, 2023, regarding the finance sector was the approval for the Sixteenth Finance Commission's Terms of Reference. This approval sets the guidelines and scope for the Finance Commission to carry out its functions, including the distribution of tax revenues, grants-in-aid to states, and measures to improve fiscal discipline.

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