The Constitution of India mandates that the Finance Commission should make its recommendations on __:
1. Distribution of net proceeds of taxes between Centre and States
2. Principles which should govern the grants-in-aid to states from Consolidated Fund of India
3. Measures which the state governments need to augment the Consolidated Fund of a State to supplement resources of Local Bodies
4. Principles on which the Plan and Non-plan expenditures should be divided
Which among the above statements is / are correct?

Answer: [C] Only 1, 2 & 3

It is the duty of the Commission to make recommendations to the President as to—

  1. The distribution between the Union and the States of the net proceeds of taxes which are to be, or may be, divided between them and the allocation between the States of the respective shares of such proceeds;
  2. The principles which should govern the grants-in-aid of the revenues of the States out of the Consolidated Fund of India;
  3. The measures needed to augment the Consolidated Fund of a State to supplement the resources of the Panchayats in the State on the basis of the recommendations made by the Finance Commission of the State;
  4. The measures needed to augment the Consolidated Fund of a State to supplement the resources of the Municipalities in the State on the basis of the recommendations made by the Finance Commission of the State;
  5. Any other matter referred to the Commission by the President in the interests of sound finance.
  6. The Commission determines its procedure and have such powers in the performance of their functions as Parliament may by law confer on them.

A major debate regarding the recommendations of Finance Commissions relates to Finance Commissions restricting their assessment of State finances to non-Plan revenue account. There is no distinction between the expenditure on the Plan and non-Plan account in the Constitution. The budgetary classification of expenditure into Plan and non-Plan came into vogue with the introduction of centralized planning in India.  Thirteenth Finance Commission, for the first time, was asked to take into account the gross budgetary support to the Central and State Plans as a demand on the resources of the Centre.

This question is a part of GKToday's Integrated IAS General Studies Module