The primary function of the Finance Commission in India is to

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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.

Why the other options are wrong — (a) 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) 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) 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.

Concept: 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.

State PCS 2025 Q142 — Polity & Governance PYQ with Answer

State PCS 2025 Q142 — Polity & Governance PYQ with Answer