Fiscal Federalism and Finance Commission: RAS Prelims MCQs
99 RAS Prelims MCQs on fiscal federalism and the Finance Commission cover the constitutional financial provisions, the sharing of taxes between the Union and States, and the GST framework. The Articles on the Consolidated Fund and Contingency Fund, the duties of the Finance Commission and the criteria it uses are asked as facts and statements.
Practice questions based on the RPSC RAS Prelims syllabus. They follow the exam pattern but are not past-paper questions.
Showing 21–30 of 99 questions
RAS PrelimsIndian Economy · Fiscal Federalism and Finance Commission
Q21. Consider the following statements regarding the Finance Commission: I. It is a quasi-judicial body constituted under Article 280 of the Constitution. II. It is constituted by the President of India every five years or at such earlier time as he considers necessary. III. Its recommendations are binding on the Union Government. Which of the combinations given above is correct?
Explanation
The Finance Commission is a constitutional, quasi-judicial body formed every five years by the President under Article 280. It provides recommendations on tax sharing and grants to ensure fiscal balance. While its advice carries significant weight and is usually accepted, it is not legally binding on the Union Government, which retains final authority over implementation of these recommendations.
RAS PrelimsIndian Economy · Fiscal Federalism and Finance Commission
Q22. Consider Statement I and Statement II regarding the legal framework of the Finance Commission. Statement I: The Parliament determines the qualifications of the members of the Finance Commission and the manner in which they shall be selected. Statement II: The Finance Commission (Miscellaneous Provisions) Act, 1951 was enacted by Parliament to specify these qualifications.
Explanation
The Constitution empowers Parliament to define the qualifications and selection process for Finance Commission members. To fulfill this, the Finance Commission (Miscellaneous Provisions) Act of 1951 was enacted. This legislation ensures that the commission consists of experts in law, economics, and public administration, thereby maintaining the technical competence and integrity of this vital fiscal institution.
RAS PrelimsIndian Economy · Fiscal Federalism and Finance Commission
Q23. Find the odd one out with reference to the qualifications required for the members of the Finance Commission:
Explanation
The Finance Commission Act specifies that members must have expertise in judicial matters, government accounts, or financial administration. While a chairman must have experience in public affairs, sitting Members of Parliament are not among the technical qualifications listed. The aim is to maintain a professional, expert body that can objectively evaluate the complex financial needs of the federation.
RAS PrelimsIndian Economy · Fiscal Federalism and Finance Commission
Q24. Who appoints the Chairman and the members of the Finance Commission?
Explanation
As a constitutional body, the Finance Commission is appointed by the President of India. This appointment process occurs every five years or earlier if necessary. By placing this power with the President, the Constitution ensures that the commission operates with high level of institutional authority, facilitating impartial recommendations regarding the distribution of national financial resources among states.
RAS PrelimsIndian Economy · Fiscal Federalism and Finance Commission
Q25. The Terms of Reference (ToR) for a Finance Commission are formulated by the Central Government. What is the fundamental purpose of the ToR?
Explanation
The Terms of Reference act as the formal guidelines provided to the Finance Commission. They outline the specific fiscal issues, such as debt levels or performance incentives, that the commission must analyze. By setting these parameters, the government ensures that the commission’s recommendations address current economic priorities and help achieve broader national goals like fiscal consolidation and improved governance.
RAS PrelimsIndian Economy · Fiscal Federalism and Finance Commission
Q26. Given below are two statements, one labeled as Assertion (A) and the other as Reason (R): Assertion (A): The 15th Finance Commission was mandated to use the population data of 2011 for its calculations. Reason (R): Using the 1971 population data penalized states that had successfully implemented demographic management and family planning measures.
Explanation
The 15th Finance Commission used the 2011 population data to reflect current demographic realities across all regions fairly. Earlier commissions used 1971 data to avoid penalizing states with effective population control. The move to 2011 was balanced by a demographic performance criterion that rewards states for successfully managing their fertility rates and improving socio-economic outcomes, not penalizing them.
RAS PrelimsIndian Economy · Fiscal Federalism and Finance Commission
Q27. Which of the following statements about the Terms of Reference of the 15th Finance Commission is incorrect?
Explanation
The 15th Finance Commission’s mandate included reviewing debt levels, proposing performance-based incentives, and exploring a separate defence funding mechanism. It did not seek to abolish State Finance Commissions, as they are constitutional bodies essential for local governance. Instead, the commission aimed to strengthen fiscal relations and encourage states to adopt better administrative and business-friendly practices across the country.
RAS PrelimsIndian Economy · Fiscal Federalism and Finance Commission
Q28. Which constitutional article explicitly outlines the core duties of the Finance Commission, including the distribution of net proceeds of taxes?
Explanation
Article 280(3) sets out the duties of the Finance Commission, which include recommending how the net proceeds of taxes are shared between the Union and the States and among the States.
RAS PrelimsIndian Economy · Fiscal Federalism and Finance Commission
Q29. Consider the following matters regarding the duties of the Finance Commission: I. Distribution of the net proceeds of taxes between Union and States. II. Principles governing grants-in-aid to States out of the Consolidated Fund of India. III. Measures to augment the Consolidated Fund of a State to supplement resources of local bodies. IV. Resolution of inter-state water disputes having financial implications. Which combination represents the correct functions?
Explanation
The Finance Commission focuses on tax distribution, grants-in-aid principles, and measures to strengthen the resources of local bodies. These functions are vital for maintaining fiscal balance across various government tiers. While the commission deals with financial matters, resolving inter-state water disputes is not within its mandate; such issues are handled through separate judicial or administrative mechanisms and tribunals.
RAS PrelimsIndian Economy · Fiscal Federalism and Finance Commission
Q30. Match the horizontal devolution criteria in List I with the weights assigned by the 15th Finance Commission in List II:
The 15th Finance Commission assigned specific weights to various criteria for horizontal tax devolution. Income distance remained the most significant factor at forty-five percent. Population and area were each assigned fifteen percent. Forest and ecology received a ten percent weight, while demographic performance and tax effort were also included to reward states for policy success and efficiency in revenue collection.
Answer key for these questions
Q
Correct answer
21
(a) I and II only
22
(a) Both Statement I and Statement II are correct
23
(d) A person who is a sitting Member of Parliament
24
(a) The President of India
25
(a) Defining the parameters and specific issues for the Commission’s evaluation
26
(c) A is true but R is false.
27
(b) It was mandated to abolish the State Finance Commissions to centralize fiscal devolution.
28
(c) Article 280(3)
29
(a) I, II, and III only
30
(a) A-iii, B-ii, C-i, D-iv
Key facts from Fiscal Federalism and Finance Commission
The President appoints the Chairman and members of the Finance Commission; Article 280(3) lists its duties, including the distribution of net proceeds of taxes.
Article 266 provides for the Consolidated Funds; the Contingency Fund is at the disposal of the President.
Article 268 covers Union-levied duties that are collected and kept by the States.
Horizontal fiscal imbalance among States is addressed by the tax devolution formula recommended by the Finance Commission; revenue deficit grants help States that cannot meet basic needs.
The 15th Finance Commission dropped the criterion of the 1971 population for horizontal devolution.
The GST Council is an example of cooperative federalism; the GST Compensation Cess was extended to March 2026 to repay back-to-back loans of the Centre.
Frequently asked questions
How many RAS Prelims practice MCQs are there on Fiscal Federalism and Finance Commission?
This page has 99 practice MCQs on Fiscal Federalism and Finance Commission (Indian Economy). Each has the correct answer, and most have an explanation.
Who appoints the Finance Commission?
The President of India, under Article 280, every five years or earlier. The Commission recommends how the net proceeds of taxes are shared between the Union and the States and among the States.
Which Article lists the duties of the Finance Commission?
Article 280(3). It sets out the duties, including recommending the distribution of the net proceeds of taxes between the Union and the States and the principles that govern grants-in-aid to States.
What kind of federalism does the GST Council show?
Cooperative federalism. The Council, with the Union Finance Minister as chairperson and State Finance Ministers as members, takes decisions on GST rates and rules jointly, and the votes of the Centre and States are weighted.
