Fiscal Policy & Revenue (Part – V)

21. The distribution of finances between Centre and States is done on the recommendation of: [M.P.P.C.S. (Pre) 1991, U.P.P.C.S. (Pre) 2007]

(a) Finance Ministry
(b) Finance Commission
(c) Reserve Bank of India
(d) NABARD

Correct Answer: (b) Finance Commission

Solution:The Finance Commission is constituted by the President under Article 280 of the Constitution at every fifth year or at such earlier time as he considers necessary. It is the duty of the Finance Commission to make recommendations to the President as to:

(a) the distribution of the net proceeds of taxes to be shared between the Union and the States, and the allocation between the States of the respective shares of such proceeds;

(b) the principles which should govern the grants-in-aid of the revenues of the States out of the Consolidated Fund of India;

(c) the measures needed to augment the Consolidated Fund of a State to supplement the resources of the Panchayats and Municipalities in the State on the basis of the recommendation made by the Finance Commission of the State;

(d) any other matter referred to the commission by the President in the interests of sound finance.

22. The primary duty of the Finance Commission of India is: [U.P.P.C.S. (Pre) 2021, I.A.S. (Pre) 2000]

(a) To give the recommendations on distribution of tax revenue between the Union and States
(b) To prepare the Union Annual Budget
(c) To advise the President on financial matters
(d) To allocate funds to various Ministries/Departments of the Union and State Government

Correct Answer: (a) To give the recommendations on distribution of tax revenue between the Union and States

Solution:The Finance Commission is constituted by the President under Article 280 of the Constitution at every fifth year or at such earlier time as he considers necessary. It is the duty of the Finance Commission to make recommendations to the President as to:

(a) the distribution of the net proceeds of taxes to be shared between the Union and the States, and the allocation between the States of the respective shares of such proceeds;

(b) the principles which should govern the grants-in-aid of the revenues of the States out of the Consolidated Fund of India;

(c) the measures needed to augment the Consolidated Fund of a State to supplement the resources of the Panchayats and Municipalities in the State on the basis of the recommendation made by the Finance Commission of the State;

(d) any other matter referred to the commission by the President in the interests of sound finance.

23. The non-plan grants to the States by the Central Government are made on the recommendations of: [U.P.P.C.S. (Mains) 2017]

(a) Finance Commission
(b) Reserve Bank of India
(c) Ministry of Finance
(d) State Bank of India

Correct Answer: (a) Finance Commission

Solution:The non-plan grants to the States by the Central Government are made on the recommendations of Finance Commission. As per the Article 280(3) (b) of the Constitution of India, it shall be the duty of the Finance Commission to make recommendations to the President as to the principles which should govern the grant-in-aid of the revenues of the States out of the Consolidated Fund of India.

24. Consider the following statements with regard to the Planning Commission (PC) and Finance Commission (FC) and state which of these statements is not correct. [U.P.P.C.S. (Mains) 2009]

(a) Both, the Planning Commission and the Finance Commission are institutions for the transfer of resources from Centre to the States
(b) Recommendations given by both are binding on the Government
(c) While PC is a permanent body, FC is constituted every 5 years
(d) FC awards non-plan resources while PC allocates plan resources

Correct Answer: (b) Recommendations given by both are binding on the Government

Solution:The Planning Commission (Now NITI Aayog) and the Finance Commission both are recommendatory bodies and recommendations given by them are not binding on the Government. Hence statement of option (b) is incorrect, while statements of all other options regarding to both commissions are correct.

NITI Aayog or the National Institution for Transforming India, established on January 1, 2015, is the policy think tank of the Indian government, replacing the Planning Commission. It focuses on inclusive development, cooperative federalism, and sustainable growth. The organization is led by the Prime Minister and members include state representatives and experts.
NITI Aayog works on key initiatives like the Atal Innovation Mission and the Aspirational District Programme, promoting innovation and addressing socio-economic disparities. Despite its advisory role and limitations in resource allocation, it plays a pivotal role in shaping India's policies and governance.

25. Which among the following taxes is not shared by the Central Government with U.P. Government under the Finance Commission award: [U.P.P.C.S. (Pre) 2000]

(a) Income tax
(b) Excise duty
(c) Custom duty
(d) Agriculture Income Tax

Correct Answer: (d) Agriculture Income Tax

Solution:After the Eightieth Amendment to the Constitution of India (2000), net proceeds of all taxes (after deducting cess, surcharge, and cost of collection) collected by the Union are shareable with the States. Agriculture Income Tax is under the purview of State Governments and State Governments can levie this tax under their jurisdiction. It does not come under the Finance Commission's purview.

26. Who among the following is not a member of the 15th Finance Commission? [B.P.S.C. (Pre) 2022]

Correct Answer: (b) Sudipto Mundle

Solution:The Fifteenth (15th) Finance Commission was constituted on 27 November, 2017. The composition of 15th Finance Com- mission of India was as follows:

Position	NAME
Chairman	N.K Singh
Member (Full Time)	Ajay Narayan Jha, Dr. Anoop Singh,Dr. Ashok Lahiri
Member (Part Time)	Dr. Ramesh Chand
Secretary	Arvind Mehta

The Sixteenth (16th) Finance Commission is constituted on 31 December, 2023 with Arvind Panagariya former Vice-Chair- man, NITI Aayog as its Chairman. Ajay Narayan Jha, Annie George Mathew and Dr. Niranjan Rajadhyaksha are full time members while Dr. Soumya Kanti Ghosh is part time member of 16th Finance Commission.

27. Which one of the following statements about Fifteenth Finance Commission is NOT correct? [U.P.B.E.O. (Pre) 2019]

(a) Fifteenth Finance Commission was appointed by the Government of India on November 27, 2017.
(b) Sri N.K. Singh is its Chairman.
(c) The recommendations of the commission will cover the five year period 2020-25.
(d) The commission has been asked to submit its report by October 30, 2020.

Correct Answer: (c) The recommendations of the commission will cover the five year period 2020-25.

Solution:The Fifteenth (15th) Finance Commission was appointed by the President of India on November 27, 2017 under the chairmanship of N.K. Singh. The 15th Finance Commission was required to submit two reports. The first report, consisting of recommendations for the financial year 2020- 21, was submitted to the President on December 5, 2019. The commission had been asked to submit its final report with recommendations for the 2021-26 period by October 30, 2020. 15th Finance Commission submitted its final report (for 2021- 26 period) to the President on November 9, 2020.

The Sixteenth (16th) Finance Commission is constituted on 31 December, 2023 under the chairmanship of Arvind Panagariya. The 16th Finance Commission has been requested to make its recommendations available by 31 October, 2025, covering an award period of 5 years commencing 1 April, 2026.

28. What is the share of Bihar in the divisible pool of Central Taxes on the recommendation of the 15th Finance Commission? [B.P.S.C. (Pre) (Re-Exam) 2020]

Correct Answer: (a) 10.06%

Solution:The share of Bihar in the divisible pool of Central Taxes on the recommendation of the 15th Finance Commission (FC) is 10.061% for 2020-21 and 10.058% for 2021-26, which was at 9.67% previously on the basis of 14th FC. Among all the States, Uttar Pradesh's share (17.931% for 2020-21 and 17.939 for 2021-26; according to 15th FC) is largest and Bihar is at the second place.

29. According to the 15th Finance Commission's recommen- dations, how much share will Bihar receive in divisible pool of Central taxes from 2021-26? [B.P.S.C. (Pre) 2022]

Correct Answer: (e) None of the above / More than one of the above

Solution:The share of Bihar in the divisible pool of Central Taxes on the recommendation of the 15th Finance Commission (FC) is 10.061% for 2020-21 and 10.058% for 2021-26, which was at 9.67% previously on the basis of 14th FC. Among all the States, Uttar Pradesh's share (17.931% for 2020-21 and 17.939 for 2021-26; according to 15th FC) is largest and Bihar is at the second place.

30. Consider the following: [I.A.S. (Pre) 2023]

1. Demographic performance

2. Forest and ecology

3. Governance reforms

4. Stable government

5. Tax and fiscal efforts

For the horizontal tax devolution, the Fifteenth Finance Commission used how many of the above as criteria other than population area and income distance?

(a) Only two
(b) Only three
(c) Only four
(d) All five

Correct Answer: (b) Only three

Solution:For the horizontal tax devolution, the 15th Finance Commission used the following criteria:

Criteria	Weight (%)
1. Population (2011)	15.0
2. Area	15.0
3. Income distance	45.0
4. Forest and ecology	10.0
5. Demographic performance	12.5
6. Tax and fiscal effort	2.5
Total	100

Governance reforms and stable government are not used as criteria by the 15th Finance Commission. Hence, option (b) is the correct answer.