The correct answer is: a) Allocating resources between the Centre and States.
The Finance Commission is an independent body constituted by the President of India every five years to review the financial relations between the Centre and the States. It is responsible for making recommendations on the distribution of net proceeds of taxes between the Centre and the States, the principles governing grants-in-aid to the States, and the measures needed to augment the Consolidated Fund of India.
The Finance Commission plays a vital role in ensuring fiscal federalism in India. It helps to ensure that the States have adequate resources to meet their expenditure needs and that the Centre does not encroach on the financial powers of the States. The Finance Commission’s recommendations have a significant impact on the fiscal health of the States and the Centre.
The other options are incorrect because:
- The Finance Commission does not have any role in resolving inter-state disputes. This is the responsibility of the Inter-State Council.
- The Finance Commission does not have any role in formulating economic policies. This is the responsibility of the Ministry of Finance.
- The Finance Commission does not have any role in regulating financial markets. This is the responsibility of the Reserve Bank of India.