UPSC Prelims 2011 Q45: Indian Polity – Public Finance & Finance Commission
- (a) It encourages the inflow of foreign capital for infrastructure development
- (b) It facilitates the proper distribution of finances among the Public Sector Undertakings
- (c) It ensures transparency in financial administration
- (d) None of the statements (a), (b) and (c) given above is correct in this context
Answer: (d) None of the statements (a), (b) and (c) given above is correct in this context
Explanation
What the Finance Commission does
The Finance Commission is set up by the President under Article 280, every five years.
Its work is about sharing money between the Union and the States.
| Option | Verdict | Reason |
|---|---|---|
| (a) It encourages the inflow of foreign capital for infrastructure development | Incorrect | Foreign capital is no part of its work |
| (b) It facilitates the proper distribution of finances among the Public Sector Undertakings | Incorrect | It deals with States, not public sector companies |
| (c) It ensures transparency in financial administration | Incorrect | That is the role of audit (the CAG) |
| (d) None of the statements (a), (b) and (c) given above is correct in this context | Correct | None describes the Commission |
Its real duties (Article 280):
| Duty | Detail |
|---|---|
| Vertical sharing | Share of net tax proceeds between the Union and the States |
| Horizontal sharing | Share of each State |
| Grants-in-aid | Principles for grants to States (Article 275) |
| Local bodies | Measures to add to State funds for panchayats and municipalities |
It has a chairman and four members, and its advice is not binding.
Answer: (d) None of the statements (a), (b) and (c) given above is correct in this context.
Why each option is right or wrong
- (a) Incorrect. The Commission has no role in the inflow of foreign capital.
- (b) Incorrect. It does not distribute finances among Public Sector Undertakings.
- (c) Incorrect. Transparency in financial administration is not its task.
- (d) CORRECT. None of the statements describes the Finance Commission.
Key point
Finance Commission (Article 280): every five years, chairman and four members; divides net tax proceeds between Union and States, recommends grants-in-aid; advisory.
Remember
Finance Commission = Article 280, Union-State tax sharing.
Common mistakes
- Reading 'distribution of finances' in option (b) and missing 'Public Sector Undertakings'.
- Confusing the Finance Commission with the Finance Ministry.
- Thinking its recommendations are binding on the Government.
Exam tip
The Finance Commission has one subject: Union-State sharing of revenue. Anything else is wrong.
Sources
- Constitution of India — Articles 270, 275 and 280
- M. Laxmikanth — Indian Polity, Ch on Finance Commission