Indian Economy Quiz: Public Finance and the Finance Commission

Article 280 requires the President to constitute a Finance Commission at the expiration of every fifth year, or earlier if the President considers it necessary, consisting of a Chairman and four other members, and lists the matters on which it is to make recommendations.

Statement A is correct: Article 280 provides that the Commission shall consist of a Chairman and four other members appointed by the President.

The Finance Commission is constituted by the President under Article 280, and it therefore makes its recommendations to the President.

Fiscal deficit measures the whole amount the government must borrow in a year, because it compares everything it spends with everything it earns from taxes, non-tax revenue, recovery of loans and disinvestment, leaving borrowing out of the receipts side.

Article 243-I, inserted by the seventy-third Constitutional Amendment of 1992, requires the Governor of a State to constitute a Finance Commission at the expiration of every fifth year to review the financial position of the Panchayats and to recommend how taxes, duties, tolls and fees should be divided between the…

The State Finance Commission owes its existence directly to the Constitution: Article 243-I, added by the seventy-third Amendment, requires the Governor to constitute it every fifth year for the Panchayats, and Article 243-Y extends the arrangement to the Municipalities.

Primary deficit equals fiscal deficit minus interest payments. Interest is the price of borrowing done in earlier years, so removing it leaves the gap created by the current year's own decisions on spending and taxation, which is why economists read the primary deficit as a measure of present fiscal discipline.

Article 112 requires the President to cause a statement of the estimated receipts and expenditure of the Government of India for every financial year to be laid before both Houses of Parliament, and that statement is the Annual Financial Statement.

K. C. Neogy chaired the first Finance Commission, which was constituted in 1951 under Article 280 soon after the Constitution came into force, and whose recommendations covered the sharing of income tax and union excise duties with the States.

A direct tax is one whose burden cannot be shifted: the person or company assessed both pays it and bears it.

The Fiscal Responsibility and Budget Management Act was passed by Parliament in 2003 and brought into force in 2004.

Article 267 allows Parliament by law to establish a Contingency Fund of India, held at the disposal of the President so that advances can be made for unforeseen expenditure before Parliament authorises it; the amount is afterwards recouped from the Consolidated Fund through a supplementary appropriation.