UPSC Prelims Practice Questions — Finance Commission transfers and equity issue

Q1. By how many percentage points did the 14th Finance Commission raise the States' share in the net proceeds of Union taxes compared with the share recommended by the 13th Finance Commission?

  • A. 6 percentage points
  • B. 9 percentage points
  • C. 10 percentage points
  • D. 12 percentage points

Q2. The 16th Finance Commission's retained 'vertical devolution share of 41%' refers to 41% of which one of the following?

  • A. The Union's gross tax revenue including cesses and surcharges
  • B. The net proceeds of shareable central taxes, i.e. the divisible pool
  • C. The Centre's total receipts including non-tax revenue and borrowings
  • D. The Union's Goods and Services Tax collections alone

Q3. Among the criteria used by the 15th Finance Commission for horizontal devolution among States, which one carried the highest weight?

  • A. Population (2011)
  • B. Area
  • C. Income Distance
  • D. Demographic Performance

Q4. In the context of Finance Commission transfers, 'grants-in-aid to the States' are best defined as which one of the following?

  • A. The States' formula-based share of the divisible pool, spendable at their discretion
  • B. Transfers from the Consolidated Fund of India that are tied to specified purposes or conditions
  • C. The net market borrowings that States are permitted to raise each year
  • D. The compensation paid to States for shortfalls in guaranteed GST revenue growth

Q5. The Finance Commission is constituted by the President of India under which Article of the Constitution?

  • A. Article 270
  • B. Article 275
  • C. Article 280
  • D. Article 281

Q6. The release of Finance Commission grants to the States and the administrative servicing of the Commission fall under which Union Ministry?

  • A. NITI Aayog
  • B. Ministry of Finance
  • C. Ministry of Statistics and Programme Implementation
  • D. Ministry of Home Affairs

Q7. In the context of Finance Commission transfers, 'vertical devolution' is best defined as which one of the following?

  • A. The division of the divisible pool between the Union and the States as a whole
  • B. The distribution of the States' aggregate share among individual States
  • C. The transfer of funds from States to their local governments
  • D. The sharing of GST revenue between producing and consuming States

Q8. Which of the following is/are correctly identified as conditional (tied) transfers to States rather than untied tax devolution?

  1. National Health Mission
  2. Ayushman Bharat
  3. Swachh Bharat Mission
  4. States' formula-based share under Article 270
  • A. 1 and 2 only
  • B. 3 and 4 only
  • C. 1, 2 and 3
  • D. 1, 2, 3 and 4

Q9. In the context of Centre-State fiscal transfers, the 'GST compensation cess' is best defined as which one of the following?

  • A. A cess on select luxury and sin goods whose proceeds funded compensation to States for revenue growth falling short of the guaranteed 14%
  • B. A surcharge on income tax whose proceeds the Finance Commission distributes among States
  • C. A component of the divisible pool that the Finance Commission allocates using its horizontal formula
  • D. A cess earmarked exclusively for grants to rural and urban local bodies