The correct option is Reviewing finances of local bodies and revenue sharing.
Explanation
The State Finance Commission (SFC) is a constitutional body constituted by the Governor of a State every five years under Article 243-I (in the context of Panchayats) and Article 243-Y (in the context of Municipalities). Its primary objective is to rationalize and systematize state-sub-state level fiscal relations.Option Analysis
- Reviewing finances of local bodies and revenue sharing is Correct: The primary function of the State Finance Commission is to review the financial position of the Panchayats and Municipalities. It makes recommendations to the Governor regarding:
- The principles governing the distribution of the net proceeds of taxes, duties, tolls, and fees leviable by the State between the State and the local bodies.
- The determination of taxes, duties, tolls, and fees that may be assigned to, or appropriated by, the local bodies.
- The grants-in-aid to the Panchayats and Municipalities from the Consolidated Fund of the State.
- Auditing State Legislature expenditure is Incorrect: The audit of the accounts of the State Legislature and State Government departments is the constitutional mandate of the Comptroller and Auditor General (CAG) of India, not the State Finance Commission.
- Fixing salaries of State employees is Incorrect: Salaries of State government employees are determined based on the recommendations of State Pay Commissions or administrative decisions by the State Government, unrelated to the SFC's mandate for local self-government finance.
- Allocating funds for national infrastructure is Incorrect: National Highways are under the jurisdiction of the Central Government (Ministry of Road Transport and Highways/NHAI). The allocation of funds for these is a central subject, not within the purview of a State Finance Commission.
Key Takeaway
The State Finance Commission ensures financial federalism at the state level by recommending the devolution of financial resources from the State Government to Panchayati Raj Institutions (PRIs) and Urban Local Bodies (ULBs).