Previous Year Question
Which one of the following authorities makes recommendations to the Governor of a State as to the principles for determining the taxes and duties which may be appropriated by the Panchayats in that particular State?
District Planning Committees
State Finance Commission
Finance Ministry of that State
Panchayati Raj Ministry of that State
Correct Answer: B
Detailed Solution
Under Article 243I, the State Finance Commission is responsible for reviewing the financial position of Panchayats and making recommendations to the Governor on specified financial matters.
The Governor constitutes a State Finance Commission within one year of the commencement of the Seventy-third Amendment and every fifth year thereafter. The State Legislature determines by law the composition of the Commission, qualifications of its members and the manner of their selection.
The State Finance Commission recommends to the Governor the principles governing:
Distribution between the State and Panchayats of the net proceeds of taxes, duties, tolls and fees leviable by the State, and their allocation among different levels of Panchayats.
Determination of taxes, duties, tolls and fees that may be assigned to or appropriated by Panchayats.
Grants-in-aid to Panchayats from the Consolidated Fund of the State.
Measures required to improve the financial position of Panchayats.
The Governor is required to place the Commission’s recommendations, together with an explanatory memorandum regarding the action taken on them, before the State Legislature.
Under Article 243Y, the same State Finance Commission also reviews the financial position of Municipalities. It therefore performs an important role in the financial decentralisation of both rural and urban local bodies.
A District Planning Committee prepares a district development plan. The State Finance Ministry and Panchayati Raj Ministry may perform policy and administrative functions, but the constitutional recommendation under Article 243I is made by the State Finance Commission.