The Finance Commission

1. Which one of the following statements about the Finance Commission is

Which one of the following statements about the Finance Commission is not correct?

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It is a Constitutionally mandated body, set up under Article 280 of the Constitution of India.
The 14th Finance Commission was set up in 2017 against the backdrop of the introduction of GST.
Its core responsibility is to evaluate the state of finances of the Union and the State Governments.
The first Finance Commission was set up in 1951.
This question was previously asked in
UPSC CISF-AC-EXE – 2021
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The correct answer is B) The 14th Finance Commission was set up in 2017 against the backdrop of the introduction of GST.
Statement A is correct: The Finance Commission is a constitutional body established under Article 280 of the Constitution of India.
Statement D is correct: The first Finance Commission was constituted in 1951.
Statement C is correct: A core responsibility of the Finance Commission is to evaluate the state of finances of the Union and State Governments and recommend the distribution of tax revenues.
Statement B is incorrect: The 14th Finance Commission was set up in 2013 under the chairmanship of Dr. Y. V. Reddy and its recommendations covered the period 2015-2020. The 15th Finance Commission was set up in November 2017 under the chairmanship of N. K. Singh, and its recommendations cover the period 2020-2025. The introduction of GST happened in July 2017, which was against the backdrop of the setting up of the *15th*, not the 14th, Finance Commission.
The Finance Commission makes recommendations on the distribution of net proceeds of taxes between the Union and the States (vertical devolution) and the allocation of shares among the States (horizontal devolution), principles governing grants-in-aid to the States by the Centre, and measures needed to augment the Consolidated Fund of a State to supplement the resources of Panchayats and Municipalities.

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2. Who among the following was the Chairperson of the Fifteenth Finance C

Who among the following was the Chairperson of the Fifteenth Finance Commission ?

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A.N. Jha
N.K. Singh
Anoop Singh
Ashok Lahiri
This question was previously asked in
UPSC CISF-AC-EXE – 2021
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The Fifteenth Finance Commission (XV-FC) was constituted by the President of India under Article 280 of the Constitution. Mr. N.K. Singh (Nand Kishore Singh), a former Member of Parliament and retired IAS officer, was appointed as the Chairman of the Commission.
The Finance Commission is a constitutional body that recommends the division of tax revenues between the Union and the States, and among the States themselves, based on established criteria. It also suggests principles for grants-in-aid to States from the Consolidated Fund of India. The recommendations of the XV-FC covered the period from 2020-21 to 2025-26.
The XV-FC was initially mandated to submit recommendations for the period 2020-2025 but was later given an extended term and submitted two reports: a report for 2020-21 and a final report for 2021-2026. Other members of the commission included Ajay Narayan Jha (former Finance Secretary), Anoop Singh, Ashok Lahiri, and Ramesh Chand. Shaktikanta Das was also a member initially but resigned later.

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3. Consider the following: 1. Demographic performance 2. Forest and ecolo

Consider the following:
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?

Only two
Only three
Only four
All five
This question was previously asked in
UPSC IAS – 2023
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The Fifteenth Finance Commission (FC-XV) used several criteria for horizontal tax devolution (distribution of the divisible pool of central taxes among the states). The criteria used were:
1. **Population (2011):** 15% weight
2. **Area:** 15% weight
3. **Forest and Ecology:** 10% weight
4. **Income Distance:** 45% weight
5. **Demographic Performance:** 12.5% weight
6. **Tax and Fiscal Efforts:** 2.5% weight

The question asks for the number of criteria from the given list used by the FC-XV, *other than* population, area, and income distance.
Let’s examine the provided list against the FC-XV criteria:
1. Demographic performance: Yes, used (12.5%).
2. Forest and ecology: Yes, used (10%).
3. Governance reforms: No, not a quantitative criterion used for horizontal devolution. While good governance is important and discussed in reports, it was not a formula-based criterion for distributing funds to states.
4. Stable government: No, this is a political condition, not an economic or demographic criterion used by the Finance Commission for devolution.
5. Tax and fiscal efforts: Yes, used (2.5%).

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The criteria from the list, other than population, area, and income distance, that were used by the Fifteenth Finance Commission are: Demographic performance, Forest and ecology, and Tax and fiscal efforts. This is a total of three criteria.

– The Fifteenth Finance Commission used multiple criteria for horizontal tax devolution among states.
– Population, Area, and Income Distance were significant criteria.
– Other criteria included Demographic Performance, Forest and Ecology, and Tax and Fiscal Efforts.
– Governance reforms and Stable government were not formula-based criteria for horizontal devolution.
The weights assigned to each criterion reflect the Commission’s judgment on how to balance equity, need, and performance among states. Using the 2011 population census data instead of 1971 data (used by previous commissions) was a significant change, and the Demographic Performance criterion was introduced partly to address concerns of states that had successfully controlled population growth. Forest and Ecology and Tax and Fiscal Efforts were included to incentivize positive outcomes in these areas.

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4. With reference to the Fourteenth Finance Commission, which of the foll

With reference to the Fourteenth Finance Commission, which of the following statements is/are correct?

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  • It has increased the share of States in the central divisible pool from 32 percent to 42 percent.
  • It has made recommendations concerning sector-specific grants.

Select the correct answer using the code given below.

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1 only
2 only
Both 1 and 2
Neither 1 nor 2
This question was previously asked in
UPSC IAS – 2015
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Both statements regarding the recommendations of the Fourteenth Finance Commission are correct.
Statement 1 is correct. The Fourteenth Finance Commission (Chairman: Y. V. Reddy) recommended a significant increase in the share of states in the divisible pool of central taxes from 32% (recommended by the 13th FC) to 42% for the period 2015-2020. This was a major shift towards greater fiscal decentralization.
Statement 2 is correct. While the 14th FC focused on increasing the untied share of states in central taxes, it also made recommendations concerning various grants, including grants to local bodies (Panchayats and Municipalities) and sector-specific grants, particularly for health and education, although the emphasis on tied sector-specific grants was reduced compared to earlier commissions.
The Finance Commission is a constitutional body under Article 280 of the Constitution, established every five years to recommend the distribution of tax revenues between the Union and the States and among the States. The 14th Finance Commission’s recommendations were implemented for the period 2015-16 to 2019-20. The Fifteenth Finance Commission (Chairman: N. K. Singh) made recommendations for the period 2020-21 to 2025-26, recommending the states’ share at 41% (a reduction by 1% due to the creation of the Union Territories of Jammu & Kashmir and Ladakh).

5. What is the percentage weightage assigned to Forest and Ecology in the

What is the percentage weightage assigned to Forest and Ecology in the devolution formula given by the Fifteenth Finance Commission of India for sharing of Union tax revenue with the States ?

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10%
15%
7.5%
2.5%
This question was previously asked in
UPSC CAPF – 2024
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The Fifteenth Finance Commission (15th FC) used several criteria for determining the share of individual states in the divisible pool of central taxes for the period 2021-26. The weightage assigned to ‘Forest and Ecology’ was 10%. This criterion was included to incentivize states to maintain and increase forest cover.
The 15th Finance Commission’s horizontal devolution formula included Population (2011), Area, Forest and Ecology, Income Distance, Demographic Performance, and Tax and Fiscal Effort.
The 14th Finance Commission also used ‘Forest Cover’ as a criterion with a 7.5% weightage. The 15th FC increased this weightage to 10% and broadened the term to ‘Forest and Ecology’, reflecting an increased emphasis on environmental factors in resource devolution.

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6. Consider the following statements: 1. The 15th Finance Commission us

Consider the following statements:

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  • 1. The 15th Finance Commission used fiscal effort as a criterion for horizontal devolution unlike the 14th Finance Commission.
  • 2. Both the 14th and the 15th Finance Commission used pre-2011 demographic variables as a criteria for horizontal devolution.

Which of the statements given above is/are correct ?

1 only
2 only
Both 1 and 2
Neither 1 nor 2
This question was previously asked in
UPSC CAPF – 2024
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Statement 1 is incorrect: Both the 14th Finance Commission (2015-20) and the 15th Finance Commission (2020-25) used criteria related to fiscal performance/effort for horizontal devolution. The 14th FC used ‘Fiscal Discipline’ (10% weightage), and the 15th FC used ‘Tax and Fiscal Effort’ (2.5% weightage).
Statement 2 is incorrect: The 14th Finance Commission used the 1971 population data (17.5% weightage) and Forest Cover (7.5% weightage). The 15th Finance Commission used the 2011 population data (15% weightage) and Demographic Performance based on TFR (12.5% weightage). Therefore, while the 14th FC used pre-2011 population data, the 15th FC shifted to using 2011 population data.
Since both statements are incorrect, option D is the correct answer.
Finance Commissions use various criteria for horizontal devolution of taxes to states, including population, area, income distance, demographic performance, forest cover/ecology, and fiscal effort. The specific weights and choice of demographic data (1971 vs 2011 population) have varied between commissions.
The shift from 1971 to 2011 population data by the 15th FC was a point of contention among states, particularly southern states which have shown better demographic control and lower TFRs since 1971. The inclusion of ‘Demographic Performance’ was intended to somewhat compensate states that controlled their population growth.

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7. Which of the following are the essential requirements for a person to

Which of the following are the essential requirements for a person to be appointed as a member of Finance Commission?

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  • 1. A Supreme Court judge or one qualified to be appointed as such
  • 2. A person having wide experience in financial matters and administration
  • 3. A person having special knowledge of economics

Select the correct answer using the code given below :

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1, 2 and 3
1 and 2 only
2 and 3 only
1 and 3 only
This question was previously asked in
UPSC CAPF – 2019
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The correct answer is C) 2 and 3 only.
Article 280 of the Indian Constitution deals with the Finance Commission. Article 280(2) states that Parliament may by law determine the qualifications for appointment as members of the Commission.
The Finance Commission (Miscellaneous Provisions) Act, 1951 lays down these qualifications. It states that the Chairman should be a person who has had experience in public affairs. The other four members shall be selected from among persons who are:
1. a Judge of a High Court or one who is qualified to be appointed as a Judge of a High Court;
2. persons who have special knowledge of the finances and accounts of Government;
3. persons who have had wide experience in financial matters and in administration;
4. persons who have special knowledge of economics.

Let’s check the given statements against these qualifications:
1. A Supreme Court judge or one qualified to be appointed as such. The Act specifies High Court judge or qualified to be High Court judge. This statement is incorrect as it mentions Supreme Court instead of High Court.
2. A person having wide experience in financial matters and administration. This matches qualification number 3 in the Act. This statement is correct.
3. A person having special knowledge of economics. This matches qualification number 4 in the Act. This statement is correct.

Based on the Finance Commission (Miscellaneous Provisions) Act, 1951, statements 2 and 3 describe essential requirements for members (other than the Chairman). Statement 1 is inaccurate regarding the court level specified in the Act.

The Finance Commission is a constitutional body constituted every five years by the President of India to recommend the distribution of financial resources between the Union and the States, and between the States themselves. The composition and qualifications of its members are determined by Parliament.

8. Consider the following statements: 1. The Finance Commission is est

Consider the following statements:

  • 1. The Finance Commission is established under Article 280 of the Constitution of India.
  • 2. The Finance Commission makes recommendations on the distribution of tax revenues between the Union and the States.
  • 3. The Finance Commission is a statutory body.

Which of the statements given above are correct?

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1 and 2 only
1 and 3 only
2 and 3 only
1, 2 and 3
This question was previously asked in
UPSC CAPF – 2010
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Statements 1 and 2 are correct, while statement 3 is incorrect.
– Statement 1: The Finance Commission is constituted under Article 280 of the Constitution of India by the President. This statement is correct.
– Statement 2: One of the primary functions of the Finance Commission is to make recommendations regarding the distribution of net proceeds of taxes between the Union and the States (vertical devolution) and among the States themselves (horizontal devolution). This statement is correct.
– Statement 3: The Finance Commission is a constitutional body because it is established directly by the Constitution under Article 280. A statutory body is created by an Act of Parliament or a State Legislature. This statement is incorrect.
The Finance Commission is constituted every five years or earlier as deemed necessary by the President. Its recommendations cover the division of taxes, principles governing grants-in-aid to states, and measures needed to augment the Consolidated Fund of a State to supplement resources of Panchayats and Municipalities.

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9. Which of the following statements with regard to the constitution of F

Which of the following statements with regard to the constitution of Finance Commission is/are correct ?

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  • 1. The Government of India has recently constituted the Sixteenth Finance Commission under the Chairmanship of Dr. Arvind Panagariya.
  • 2. Finance Commission is constituted in pursuance to Article 263 of the Constitution of India.

Select the answer using the code given below :

1 only
2 only
Both 1 and 2
Neither 1 nor 2
This question was previously asked in
UPSC NDA-1 – 2024
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Statement 1 is correct, but statement 2 is incorrect.
The Finance Commission is a constitutional body in India responsible for recommending the distribution of taxes between the Union and States and among the States themselves.
1. The Government of India recently constituted the Sixteenth Finance Commission in December 2023. Dr. Arvind Panagariya, former Vice Chairman of NITI Aayog, was appointed as the Chairman of the Commission. So, statement 1 is correct.
2. The Finance Commission is constituted by the President of India every fifth year or earlier as deemed necessary, under the provisions of Article 280 of the Constitution of India. Article 263 deals with the provisions relating to an Inter-State Council for coordinating between States. So, statement 2 is incorrect.

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10. Which one of the following statements about the Finance Commissions, p

Which one of the following statements about the Finance Commissions, periodically established by the Government of India, is NOT true?

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It recommends distribution of taxes between the Union and the states
It recommends the principles governing the grants-in-aid of revenues of states
It recommends measures to augment the consolidated fund of a state
It recommends measures regarding the salary of government employees
This question was previously asked in
UPSC Geoscientist – 2020
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The statement that the Finance Commission recommends measures regarding the salary of government employees is NOT true.
The Finance Commission is a constitutional body established under Article 280 of the Indian Constitution to define the financial relations between the central government and the state governments.
Its primary functions include recommending the distribution of net proceeds of taxes between the Union and the States (vertical devolution), allocation of proceeds among the States (horizontal devolution), principles governing grants-in-aid to states, and measures to augment the Consolidated Fund of a State to supplement the resources of Panchayats and Municipalities.

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