EPFO APFC 2023 General Studies · Question 94 of 120

Correct — D, (d) 1, 2 and 3. All three statements describe the Fifteenth Finance Commission's recommendations on grants to local bodies accurately, so the code selecting all three is the answer. Take them in turn. Statement 1 describes the basic grants, which are called untied because the local body chooses what to spend them on: they may be used for location-specific felt needs falling within the twenty-nine subjects listed in the Eleventh Schedule of the Constitution, and the one restriction is that they may not be spent on salaries or other establishment costs. That restriction is the point of the design — an untied grant is meant to finance works and services the community actually wants, not to become a wage subsidy for the panchayat office — and the statement records it correctly. Statement 2 describes the tied grants, which are earmarked for two categories of basic service. The first is sanitation and the maintenance of open-defecation-free status, including the management and treatment of household waste and of human excreta and faecal sludge, which is what the statement names; the second, not named here, is drinking water, rainwater harvesting and water recycling. Naming only one of the two categories does not make the statement wrong, because it does not claim to be exhaustive. Statement 3 records the Commission's health grants, which were routed through local governments and included the creation of diagnostic infrastructure at primary health care facilities, alongside support for public health units at the block level and for urban health and wellness centres. Read the ask carefully before deciding: it is positive, asking which statements are correct. The word 'except' that appears in statement 1 is not the ask turning negative; it is a clause inside the statement describing something the grants may not be used for, and the statement containing it is true.

• (a)1 only — This code accepts statement 1 and rejects statements 2 and 3, and both rejections are wrong. The tied grants named in statement 2 are exactly what the Commission recommended: the local body grants were divided so that a minority share was basic and untied and the larger share was tied, and the tied portion was earmarked for two categories of basic service — sanitation together with the maintenance of open-defecation-free status, including the management and treatment of household waste and human excreta, and separately drinking water supply, rainwater harvesting and water recycling. Statement 3 is equally sound: health grants routed through local governments were a distinctive feature of this Commission's award, and diagnostic infrastructure at primary health care facilities was among the purposes for which they were recommended. A candidate arriving here has usually recognised the untied grant description, which is the most familiar of the three, and treated the other two as embellishment.
• (b)2 and 3 only — This code rejects statement 1, which is the most accurately worded of the three. Basic grants are untied precisely so that a gram panchayat can spend them on what its own residents need, and the boundary of that discretion is the list of twenty-nine subjects in the Eleventh Schedule, which is where the functions of panchayats are enumerated. The restriction the statement records is real and is the feature most often tested: untied does not mean unconditional, and the grants may not be applied to salaries or other establishment costs. A candidate is usually pushed into rejecting this statement by the clause beginning 'except', which reads at speed like a qualification too specific to be true, or which is misread as turning the whole question negative. It does neither. It is an accurate description of a limitation written into the recommendation itself.
• (c)1 and 3 only — This code accepts statements 1 and 3 but rejects statement 2, and statement 2 is correct. Sanitation and the maintenance of open-defecation-free status, including the management and treatment of household waste and of human excreta and faecal sludge, is one of the two categories for which the Commission's tied grants to rural local bodies were earmarked; the other is drinking water supply, rainwater harvesting and water recycling. The most likely reason for rejecting the statement is the belief that it is incomplete, since it names one category and not both. Incompleteness is not falsity. A statement is false only if it asserts something untrue, and this one asserts that the tied grants can be used for the services it names, which they can. Reading a partial list as an exhaustive one is among the commonest ways of losing a statement-based question in this paper.

A Finance Commission is constituted by the President under Article 280 every fifth year, or earlier if required, and recommends how the net proceeds of shareable Union taxes should be divided between the Union and the States and among the States, what grants-in-aid should be paid to States out of the Consolidated Fund of India, and — since the seventy-third and seventy-fourth amendments — the measures needed to augment a State's Consolidated Fund to supplement the resources of its panchayats and municipalities on the basis of its own State Finance Commission's recommendations. That last head is how a Union Finance Commission comes to make recommendations about village-level spending at all. The Fifteenth Finance Commission, chaired by N. K. Singh, gave an interim report for a single year and then a report covering the award period from 2021 to 2026, in which it recommended devolving forty-one per cent of the divisible pool to the States. Its grants to local bodies were designed with a deliberate split between discretion and direction. A minority share was given as basic or untied grants, spendable on location-specific felt needs within the twenty-nine subjects of the Eleventh Schedule but not on salaries or establishment costs. The larger share was tied to two categories of basic service — sanitation with the maintenance of open-defecation-free status, and drinking water with rainwater harvesting and water recycling — chosen because they are the services whose absence does the most damage to rural health. Alongside these the Commission recommended health grants channelled through local governments, aimed at strengthening primary health care, including diagnostic infrastructure at primary health care facilities and public health units at the block level. The award also attached entry conditions designed to improve accountability, requiring local bodies to place their accounts in the public domain before drawing the money.

Fiscal federalism is a standing subject in this paper's polity and economy block, and it is asked at two levels: the constitutional machinery of the Finance Commission, and the substance of the most recent Commission's recommendations. This item is at the second level and is written in the paper's harder statement format, with three numbered statements and a code set in which no two options share the same combination. Three statements are materially harder than two, because certainty about one statement no longer halves the field: here, knowing that statement 1 is true removes only the codes that exclude it. The efficient route through such an item is to look for a statement that is either plainly true or plainly false and use it as a filter, then adjudicate the remaining two. There is one specific reading trap in this question and it is worth naming, because it has misled candidates on this paper before. Statement 1 contains the word 'except'. The ask above it is entirely positive — which of these statements is or are correct — and the 'except' is part of the description of the grants, not part of the question. A candidate who registers a negation and starts hunting for the false statement will do the opposite of what the item requires. The general lesson is to identify the ask from the interrogative sentence and never from a word buried inside a numbered statement, and this paper prints its genuine negative asks with the negation emphasised in bold italics, which no word here carries.

• The basic grants recommended by the Fifteenth Finance Commission for rural local bodies are untied: they may be spent on location-specific felt needs under any of the twenty-nine subjects listed in the Eleventh Schedule of the Constitution, but not on salaries or other establishment costs. Untied therefore means unearmarked, not unconditional.
• The tied grants are earmarked for two categories of basic service: sanitation and the maintenance of open-defecation-free status, including the management and treatment of household waste and of human excreta and faecal sludge; and drinking water supply, rainwater harvesting and water recycling.
• Of the grants to local bodies, the larger share, sixty per cent, is tied to those two service categories and the remaining forty per cent is given as basic untied grants, which is the Commission's chosen balance between local discretion and national priority.
• The Commission also recommended health grants routed through local governments, whose purposes included the creation of diagnostic infrastructure at primary health care facilities, public health units at the block level and support for urban health and wellness centres.
• A Finance Commission is constituted under Article 280 every fifth year, and its terms of reference include the measures needed to augment a State's Consolidated Fund to supplement the resources of panchayats and municipalities on the basis of the recommendations of that State's own Finance Commission.
• The Fifteenth Finance Commission was chaired by N. K. Singh. It gave an interim report for a single year and then a report for the award period from 2021 to 2026, in which it recommended devolving forty-one per cent of the divisible pool of Union taxes to the States.

• Reading the 'except' inside statement 1 as making the question a negative one. The ask is positive and asks which statements are correct; the exception is part of the description of what the untied grants may be spent on.
• Treating an incomplete statement as a false one. Statement 2 names one of the two categories of tied grant and does not claim to be exhaustive, and a statement is false only if what it asserts is untrue.
• Assuming that untied means unconditional. The basic grants are unearmarked as to purpose within the Eleventh Schedule subjects, but they still may not be applied to salaries or establishment costs.
• Underestimating a three-statement code set. Unlike the two-statement format, certainty about a single statement here does not halve the options, so each statement has to be judged on its own.
• Confusing the Union Finance Commission's grants to local bodies with the State Finance Commission's devolution to them. Both concern local body finance, and each is examined separately in this very paper.

Finance Commission questions appear in this exam in three shapes. The first is constitutional: which Article provides for the Commission, how often it is constituted, who appoints it, what its terms of reference must cover, and whether its recommendations bind the Government. The second is arithmetical and factual about the latest award: the share of the divisible pool devolved, the criteria used for distribution among States and their weights, and the categories of grant recommended. The third, of which this is an example, tests the design of a particular grant — what it may and may not be spent on, how it is split between tied and untied portions, and what conditions a local body must satisfy to draw it. All three are best prepared from the current Commission's headline recommendations rather than from a general account of fiscal federalism, because the numbers and the categories change with each award while the constitutional frame does not. Expect statement formats with two or three numbered claims and a code set, and expect at least one statement to be a partial rather than an exhaustive description, since that is the commonest way these items are made difficult.

No directly related past PYQ was found.

• practice — not a real PYQ

  Under the award of the Fifteenth Finance Commission, the grants to rural local bodies are divided between basic (untied) grants and tied grants in the ratio of

  • (a)25 : 75
  • (b)40 : 60
  • (c)50 : 50
  • (d)60 : 40

  Answer(b) 40 : 60 — forty per cent of the local body grants are given as basic untied grants, spendable on location-specific felt needs within the Eleventh Schedule subjects but not on salaries or establishment costs, and sixty per cent are tied to the two categories of basic service the Commission specified. The split is the Commission's deliberate balance between leaving discretion with the panchayat and directing money at services whose absence damages rural health.

• practice — not a real PYQ

  The tied grants recommended by the Fifteenth Finance Commission for rural local bodies may be used for which one of the following pairs of purposes?

  • (a)Sanitation with maintenance of open-defecation-free status; and drinking water supply with rainwater harvesting and water recycling
  • (b)Salaries of panchayat staff; and maintenance of panchayat office buildings
  • (c)Construction of district roads; and purchase of vehicles for local bodies
  • (d)Repayment of State government loans; and contributions to the State disaster relief fund

  Answer(a) sanitation with maintenance of open-defecation-free status; and drinking water supply with rainwater harvesting and water recycling — these are the two categories to which the tied portion of the local body grants is earmarked. The second option names precisely what even the untied grants may not be spent on, since salaries and other establishment costs are excluded from them.