The Finance Commission recommends measures to__:
1. augment the consolidate fund of India
2. augment the Consolidated Fund of a State
3. augment the resources of Panchayats and Municipalities
Select the correct option from the codes given below:

Answer: [B] Only 2 & 3

Regarding Union

Finance Commission does not tell the Union Government on how to increase its funds. Its work is to make recommendations on distribution between the Union and the States of the net proceeds of taxes and the principles which should govern the grants-in-aid of the revenues of the States out of the Consolidated Fund of India and the sums to be paid to the States which are in need of assistance by way of grants-in-aid of their revenues.

Regarding States

Finance Commission suggests the measures needed to augment the Consolidated Fund of a State to supplement the resources of the Panchayat and Municipalities in the State on the basis of the recommendations made by the Finance Commission of the State.

On Panchayat and Municipalities

The role of the Finance Commission has widened after the 73rd and 74th Constitutional amendments to recognise the rural and urban local bodies as the third tier of government. Article 280 (3) (bb) and Article 280 (3) (c) of the Constitution mandate the Commission to recommend measures to augment the Consolidated Fund of a State to supplement the resources of Panchayats and Municipalities based on the recommendations of the respective State Finance Commissions (SFCs). This also includes augmenting the resources of Panchayat and municipalities.

For example, the FC-XII identified fourteen best practices, which included the following:

  1. measures for augmenting resources of panchayats such as compulsory levy of major taxes and exploring all non-tax revenue sources;
  2. obligatory levy of user charges
  3. insistence on collection of minimum revenue and providing incentive grants for collections beyond this prescribed minimum amount
  4. identifying revenue generating common property resources and ensuring adequate income from them; and
  5. giving powers to intermediate or district panchayats to levy tax or cess or surcharge on agricultural holdings.

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