UPSC Prelims 2000 Q10: Indian Polity – Public Finance & Finance Commission
- (a) distribute revenue between the Centre and the States
- (b) prepare the Annual Budget
- (c) advise the President on financial matters
- (d) allocate funds to various ministries of the Union and State Governments
Answer: (a) distribute revenue between the Centre and the States
Explanation
Primary function of the Finance Commission
| Body | Function |
|---|---|
| Finance Commission (Article 280, every five years) | Recommends how tax revenue is shared between the Centre and the States, and among the States |
| Union Finance Ministry | Prepares the Annual Financial Statement (Budget), Article 112 |
| Comptroller and Auditor General | Audits government accounts |
| Union and State Governments | Allocate funds to their own ministries through the Budget |
The Finance Commission, set up by the President under Article 280 every five years, recommends the distribution of the net proceeds of taxes between the Centre and the States (vertical sharing) and among the States (horizontal sharing).
It also recommends grants-in-aid to States under Article 275.
Preparing the Budget is the job of the Finance Ministry, and ministries get their funds through the Budget passed by the legislature.
Answer: (a) distribute revenue between the Centre and the States.
Why each option is right or wrong
- (a) CORRECT. Sharing tax revenue between the Centre and the States is its main task.
- (b) Incorrect. The Annual Budget is prepared by the Finance Ministry.
- (c) Incorrect. It advises only on the matters listed in Article 280, not on finance in general.
- (d) Incorrect. Funds for ministries are allocated through the Budget.
Key point
15th Finance Commission (N. K. Singh) set the States' share of the divisible pool at 41%; the 16th is chaired by Arvind Panagariya.
Remember
Finance Commission: Centre-State sharing of tax revenue, every five years.
Common mistakes
- Thinking the Finance Commission prepares the Budget.
- Confusing it with the old Planning Commission, which gave plan grants.
- Forgetting that it is a constitutional body under Article 280.
Exam tip
Article 280 = sharing the tax cake between Centre and States.
Sources
- Constitution of India — Articles 270, 275 and 280
- M. Laxmikanth — Indian Polity, chapter 'Finance Commission'