UPSC Prelims 2011 · Question 70 of 100
UPSC Prelims 2011 question on Finance Commission Functions
- ExamUPSC CSE
- Year2011
- PaperGeneral Studies Paper I
- SubjectPolity
- TopicConstitutional Bodies
- DifficultyEasy
- TypeDirect
With reference to the Finance Commission of India, which of the following statements is correct?
Show answer
Answer: D. None of the statements (a), (b) and (c) given above is correct in this context
Verdict
Correct Answer: None of the statements (a), (b) and (c) given above is correct in this context
Analysis
The Finance Commission is a constitutional body under Article 280. Its main role is to recommend the distribution of financial resources between the Union and the States.
Statement by statement
1. It encourages the inflow of foreign capital for infrastructure development — Incorrect
This is not a function of the Finance Commission.
Foreign capital, FDI and external financial flows are mainly handled by the Ministry of Finance, Department of Economic Affairs and RBI-related policy frameworks.
2. It facilitates proper distribution of finances among Public Sector Undertakings — Incorrect
The Finance Commission does not distribute funds among PSUs.
PSU-related financial matters are handled by the concerned administrative ministries, Department of Public Enterprises and the government’s budgetary process.
3. It ensures transparency in financial administration — Incorrect
The Finance Commission may promote fiscal discipline through its recommendations, but ensuring transparency in financial administration is not its primary constitutional function.
This role is more closely linked with institutions like the Comptroller and Auditor General and parliamentary committees such as the Public Accounts Committee.
Extra UPSC info
* Finance Commission is constituted under Article 280 of the Constitution.
* It is appointed by the President of India.
* It recommends distribution of net tax proceeds between the Union and States.
* It also recommends allocation of States’ share among different States.
* It recommends principles for grants-in-aid to States from the Consolidated Fund of India.
* The 16th Finance Commission is chaired by Arvind Panagariya and its award period begins from 1 April 2026.
How to crack it
The Finance Commission deals with Centre-State financial relations, not foreign capital, PSU finance distribution or general administrative transparency.