BPSC 70th CCE Re-exam Prelims General Studies · Question 142 of 142

Correct — D, Distribution of revenue between the Centre and the States. The Constitution states the Commission's primary duty in one clause, and the option reproduces it. Article 280(3)(a) makes it the duty of the Finance Commission to recommend to the President 'the distribution between the Union and the States of the net proceeds of taxes which are to be, or may be, divided between them under this Chapter and the allocation between the States of the respective shares of such proceeds'. Two distinct exercises live inside that sentence, and both belong to this option. Vertical devolution decides what share of the Union's divisible pool of tax revenue goes to the states as a whole — the Fourteenth Finance Commission raised it from 32 to 42 per cent and the Fifteenth set it at 41 per cent after Jammu and Kashmir became a Union Territory. Horizontal devolution then decides how that pool is split among the states, using a formula whose criteria the Commission chooses; the Fifteenth used population, area, forest and ecology, income distance, demographic performance and tax-and-fiscal effort. The remaining clauses of Article 280(3) fill out the same revenue-sharing purpose rather than adding a different one: clause (b) covers the principles governing grants-in-aid to the states out of the Consolidated Fund of India, clauses (bb) and (c) cover measures to augment a state's Consolidated Fund so it can support its Panchayats and Municipalities, and clause (d) is a residuary head for anything the President refers in the interests of sound finance. Structurally, the Commission is constituted by the President under Article 280(1) every fifth year or earlier, consists of a Chairman and four other members, and Parliament may prescribe the qualifications by law under Article 280(2). It is a recommendatory body: its report, with a memorandum on the action taken, is laid before each House of Parliament. The Sixteenth Finance Commission, chaired by Arvind Panagariya, is the current one, and its report has been tabled in Parliament.

• (a)Advise the President on financial matters — True in form and wrong as a description of the function. The Commission does make its recommendations to the President — Article 280(3) says so — but that is the channel through which its work travels, not the work itself. Read as the primary function it is far too loose: it would fit the Comptroller and Auditor General, the Ministry of Finance and half a dozen other bodies equally well, and it names no subject matter at all.
• (b)Prepare the annual budget — The Annual Financial Statement required by Article 112 is prepared by the Ministry of Finance and presented to Parliament by the Finance Minister. The Finance Commission has no role in drafting it. The two are connected only in the sense that the devolution the Commission recommends becomes a line in the budget the ministry writes.
• (c)Allocate funds to various ministries of the Union and State Governments — Allocation between ministries is done through the budget and the appropriation process, and each government does it for itself; scheme-wise transfers to states were historically the Planning Commission's business and are now handled through central sector and centrally sponsored schemes. The Finance Commission divides revenue between levels of government, not between departments.

India's Constitution deliberately separates the power to tax from the responsibility to spend. The Union raises the most productive taxes, while the states carry the bulk of expenditure on health, education, police, agriculture and local administration. That gap is called vertical fiscal imbalance, and the Finance Commission exists to close it — which is why it is constituted afresh every five years rather than sitting permanently. Its instrument is Chapter I of Part XII of the Constitution: Article 270 makes taxes levied by the Union divisible with the states, Article 275 provides for statutory grants-in-aid, Article 280 creates the Commission, and Article 281 requires the President to lay its recommendations before both Houses along with a memorandum on the action taken. The Commission is advisory in law — no clause makes its recommendations binding — but by convention the core devolution recommendations have been accepted by successive governments, which is what gives the institution its weight. Below it sits a mirror image created by the 73rd and 74th Amendments: a State Finance Commission constituted by the Governor under Articles 243I and 243Y to review the finances of Panchayats and Municipalities.

Every option in a question like this is designed around one true-sounding association, so the test is whether the candidate can hold the constitutional text rather than the general impression. Three quick filters do it. First, who prepares the budget? The executive, never a commission — so option (b) goes. Second, who allocates money to ministries? The government that owns those ministries, through appropriation — so option (c) goes. Third, between the two remaining, prefer the one that names a subject over the one that names only a relationship: 'advise the President on financial matters' says whom the Commission speaks to, while 'distribution of revenue between the Centre and the States' says what it speaks about, and a function is defined by its subject. That third filter is the transferable skill here. Whenever two options are both defensible, the one that specifies the substance beats the one that specifies the procedure. It is also worth being able to distinguish the Union Finance Commission from the State Finance Commission, because BPSC has asked about both, and from the erstwhile Planning Commission, whose transfers were the discretionary counterpart to the Finance Commission's formula-based ones.

• Article 280(3)(a): the Commission's duty is to recommend the distribution between the Union and the States of the net proceeds of divisible taxes, and the allocation among the States of their respective shares
• Article 280(3)(b) covers the principles governing grants-in-aid out of the Consolidated Fund of India; (bb) and (c) cover augmenting a State's Consolidated Fund for its Panchayats and Municipalities; (d) is a residuary head for matters referred by the President
• Article 280(1): the President constitutes the Commission every fifth year or earlier, with a Chairman and four other members; Article 280(2) lets Parliament prescribe the qualifications by law
• Vertical devolution: the Fourteenth Finance Commission raised the States' share of the divisible pool from 32 to 42 per cent, and the Fifteenth set it at 41 per cent
• The Fifteenth Finance Commission's horizontal devolution formula used population, area, forest and ecology, income distance, demographic performance and tax-and-fiscal effort
• The Sixteenth Finance Commission is chaired by Arvind Panagariya, and its report has been tabled in Parliament; recommendations are laid before both Houses with an action-taken memorandum

• Choosing 'advise the President' because the Commission does report to the President; that is the channel, not the function
• Confusing the Finance Commission with the Planning Commission or NITI Aayog — formula-based statutory transfers versus discretionary or advisory ones
• Forgetting that the Commission is advisory in law; nothing in Article 280 or 281 makes its recommendations binding on the government

BPSC asks the function in one line with four plausible-sounding paraphrases, so the mark goes to whoever can recall what Article 280(3)(a) actually says rather than what the body broadly does. UPSC has asked the same institution from every other angle — which authority recommends the principles of grants-in-aid, who lays the report before Parliament, what criteria the Fifteenth Commission used for horizontal devolution — so the article has to be known clause by clause.

• practice — not a real PYQ

  Under which Article is every recommendation of the Finance Commission, with an explanatory memorandum on the action taken, laid before each House of Parliament ?

  • (a)Article 275
  • (b)Article 280
  • (c)Article 281
  • (d)Article 282

  Answer(c) Article 281 — Article 280 constitutes the Commission and sets out its duties, while Article 275 provides for grants-in-aid and Article 282 for discretionary grants.

• practice — not a real PYQ

  The Finance Commission consists of a Chairman and how many other members ?

  • (a)Two
  • (b)Three
  • (c)Four
  • (d)Six

  Answer(c) Four — Article 280(1) provides for a Chairman and four other members, all appointed by the President.