Q. Consider the following statements:
1.The Finance Commission decides how financial resources are shared between the Union and States.
2.The decision of Finance Commission influence both equitable resource distribution across states and growth incentives for developed states.
3.Vertical devolution of taxes refers to the distribution of funds among states, while horizontal devolution refers to the share of taxes allocated to States from the Union’s pool.
Which of the statements given above are correct?
Explanations –
Statements 1 and 2 are correct. The Finance Commission is a constitutional body established under Article 280 of the Indian Constitution. Its primary function is to recommend the distribution of financial resources between the Union and the States, as well as among the States themselves. This ensures equitable allocation of resources and promotes fiscal federalism. The Finance Commission’s recommendations influence both equitable resource distribution across states (to address regional disparities) and provide growth incentives for developed states by linking financial allocations to performance-based reforms, fiscal discipline, and governance efficiency.
Statement 3 is incorrect. Vertical devolution refers to the share of taxes allocated from the Union’s divisible pool to the States, whereas horizontal devolution refers to the distribution of these funds among individual states based on criteria like population, area, and economic backwardness.
Source: The Hindu
