Page 343 - DECO502_INDIAN_ECONOMIC_POLICY_ENGLISH

Unit 26: 12 and 13 Finance Commissions
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Notes
(ii) The long-run objective of financial management is to:
(a) maximize earnings per share.
(b) maximize the value of the firm's common stock.
(c) maximize return on investment.
(d) maximize market share.
(iii) A (n) ------ would be an example of a principal, while a(n) ------- would be an example of an
agent.
(a) shareholder; manager (b) manager; owner
(c) accountant; bondholder (d) shareholder; bondholder
(iv) The market price of a share of common stock is determined by:
(a) the board of directors of the firm.
(b) the stock exchange on which the stock is listed.
(c) the president of the company.
(d) individuals buying and selling the stock.
(v) The focal point of financial management in a firm is:
(a) the number and types of products or services provided by the firm.
(b) the minimization of the amount of taxes paid by the firm.
(c) the creation of value for shareholders.
(d) the dollars profits earned by the firm.
(vi) The decision function of financial management can be broken down into the decisions.
(a) financing and investment
(b) investment, financing, and asset management
(c) financing and dividend
(d) capital budgeting, cash management, and credit management
(vii) The controller's responsibilities are primarily in nature, while the treasurer's responsibilities
are primarily related to .
(a) operational; financial management (b) financial management; accounting
(c) accounting; financial management (d) financial management; operations
26.3 Summary

• The Twelfth Finance Commission was constituted by the President under Article 280 of the
Indian Constitution, with Dr. C. Rangarajan as chairman. This was the second finance
commission after he 80 Amendment Act (2000) of the Constitution. The terms of reference of
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the 12 FC were the same as those of the 11 FC, except the last one which was actually added
later through a special notification.
• The transfers from the Centre to the States - in the form of tax devolutions and grants - are
meant to correct, both the vertical and the horizontal imbalances.
• As in the case of the 11 FC, the 12 FC considered all the relevant factors as regards receipts
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and expenditures of the Centre and of the States, the level of over-all transfers relative to Centre’s
gross revenue receipts, the relative balance between tax devolution and grants, etc.
• The horizontal aspect of transfers relates to the sharing of the total shareable pool between the
States. If all the States in the Indian Union have the same or almost the same per capita income,
and if all the States have similar fiscal capacities, the problem of transfer between the States
would be simple - namely, equal per capital transfers to every State...In practice, there are
considerable horizontal imbalances - States differ in area, size of population, income, tax base,
forest and mineral wealth, etc.

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