RAS question
The Finance Commission recommends on all of the following EXCEPT:
Correct answer: (D) Monetary policy and interest rate fixation.
The Finance Commission does not recommend monetary policy or fix interest rates; those fall outside its constitutional remit and belong to the RBI's domain.
Explanation
Article 280 makes the Finance Commission a recommending body for fiscal transfers within India’s federal system. Its duties cover the distribution between the Union and the States of the net proceeds of divisible taxes, the principles for grants-in-aid from the Consolidated Fund of India to States, and measures to augment a State’s Consolidated Fund so that Panchayats and Municipalities can receive supplementary resources. This Panchayat-Municipality role flows from the 73rd and 74th Amendments. The Commission may also consider any other matter referred to it by the President in the interests of sound finance. Monetary policy and interest rate fixation are therefore the odd one out, because they are not part of this Article 280 mandate and belong to the RBI’s domain.
Why the other options are wrong
- (A) This is within the Finance Commission’s remit because Article 280 expressly includes the principles governing grants-in-aid of State revenues from the Consolidated Fund of India.
- (B) This is within the Finance Commission’s remit because Article 280 includes measures to augment a State’s Consolidated Fund for supplementing Panchayat and Municipality resources.
- (C) This is within the Finance Commission’s remit because Article 280 covers the distribution of net tax proceeds between the Union and the States, along with allocation among States.
Concept
This tests constitutional fiscal federalism, especially Article 280 and the Finance Commission’s role in Centre-State financial transfers. It recurs in RAS because questions often contrast fiscal devolution bodies with monetary-policy institutions.