Who is empowered to review financial position of the Panchayats?

Question

UnlockIAS · Accepted Answer

Correct — D, Finance Commission constituted by the Governor. The stem is a near-verbatim lift from the Constitution, and spotting that is the whole question. Article 243-I(1), inserted into the new Part IX by the Constitution (Seventy-third Amendment) Act, 1992, opens: "The Governor of a State shall, as soon as may be within one year from the commencement of the Constitution (Seventy-third Amendment) Act, 1992, and thereafter at the expiration of every fifth year, constitute a Finance Commission to review the financial position of the Panchayats". The examiner's phrase — 'review financial position of the Panchayats' — is that clause's own wording, so the only option that can be right is the one naming both the body (a Finance Commission) and the authority that constitutes it (the Governor). What this State Finance Commission then does is spelt out in the rest of 243-I(1). It recommends to the Governor: under (a)(i) the principles that should govern the distribution between the State and the Panchayats of the net proceeds of the taxes, duties, tolls and fees leviable by the State, and the allocation of those shares between Panchayats at all levels; under (a)(ii) which taxes, duties, tolls and fees may be assigned to, or appropriated by, the Panchayats; under (a)(iii) the grants-in-aid to the Panchayats from the Consolidated Fund of the State; under (b) the measures needed to improve the financial position of the Panchayats; and under (c) any other matter referred to it by the Governor in the interests of sound finance. Article 243-I(4) closes the loop — the Governor must cause every recommendation, together with an explanatory memorandum on the action taken on it, to be laid before the Legislature of the State, which is what converts an advisory report into a document the House can debate. Note the deliberate division of labour written into the Article: the Governor constitutes the Commission and lays its report; the State Legislature, under 243-I(2), fixes by law the Commission's composition, the qualifications for its members and the manner of their selection; and under 243-I(3) the Commission determines its own procedure. Because the 73rd Amendment came into force on 24 April 1993, the first round of State Finance Commissions was constitutionally due by 24 April 1994, and a fresh one has been due every fifth year since.

Why the other options are wrong — (a) The strongest distractor, because in political practice the Chief Minister heads the government that receives the report and decides how much of it to accept. But Part IX gives the Chief Minister no role whatever in this: Article 243-I names the Governor as the authority who constitutes the Commission, and 243-I(4) makes the Governor — not the CM — lay the recommendations before the House. UPSC set this exact substitution in 2025, where Statement III read 'The Chief Minister of a State constitutes a commission to review the financial position of Panchayats…' and the key marked it as not correct.  (b) The 'Block Committee' is the intermediate-level Panchayat that Article 243B(1) requires between the village and the district — commonly called the Panchayat Samiti. It is therefore one of the bodies whose financial position is being reconsidered, not the reviewer of it. Article 243-I deliberately puts the review outside the Panchayati Raj structure, because a tier that audits its own accounts and then bids for a share of State taxes is no audit at all.  (c) The same defect as (b), one tier higher. The 'District Council' is the Zila Parishad, the district-level Panchayat under Article 243B(1), and its chairperson is an elected office-holder of a body that stands to gain from a favourable devolution formula. His genuine financial role lies elsewhere — consolidating district plans through the District Planning Committee under Article 243ZD, which came with the 74th Amendment, not with the 73rd.

Concept: The 73rd Amendment did far more than order elections to Panchayats every five years; it built them a fiscal constitution, because devolving 29 subjects from the Eleventh Schedule to a body with no money only devolves responsibility. That fiscal architecture has three storeys. At the bottom, Article 243-I obliges the Governor to constitute a State Finance Commission every fifth year to review Panchayat finances and to recommend how State tax revenue should be shared with them, which local taxes they may levy or appropriate, and what grants-in-aid should flow from the Consolidated Fund of the State. In the middle, Article 243-Y makes that same Commission perform the identical exercise for the urban local bodies created by the 74th Amendment under Part IX-A, so one body covers rural and urban local government alike. At the top, Articles 280(3)(bb) and 280(3)(c) require the Union Finance Commission to recommend measures to augment the Consolidated Fund of a State so that the State can supplement the resources of its Panchayats and Municipalities — and, critically, it must do so 'on the basis of the recommendations made by the Finance Commission of the State'. Both of those Union-level clauses were themselves inserted by the 73rd and 74th Amendments. Read the chain in that order and it is obvious why the reviewer must sit outside the Panchayats: the State Finance Commission's report is the document on which both the State's own devolution and the State's claim on Union grants for local bodies rest.

State PCS 2025 Q66 — Polity & Governance PYQ with Answer

State PCS 2025 Q66 — Polity & Governance PYQ with Answer