Statement I : The Finance Commission makes principles which govern the grants-in- aid of revenues given to the States out of the Consolidated Fund of India. Statement II Members of the Finance Commission are drawn from all the States and Union Territories.

Statement I is correct as Article 280(3)(b) of the Constitution mandates the Finance Commission to recommend the principles governing grants-in-aid of the revenues of the States out of the Consolidated Fund of India [3]. These grants, primarily under Article 275, address horizontal imbalances and assist states in need. Statement II is incorrect. According to Article 280 and the Finance Commission (Miscellaneous Provisions) Act, 1951, the Commission consists of a Chairman and four other members appointed by the President. There is no constitutional or statutory requirement that members be drawn from all States and Union Territories. Instead, Parliament determines the qualifications, which typically include expertise in economics, public affairs, or judicial experience [3]. The Commission functions as a quasi-judicial body rather than a representative body of all sub-national units [3].

Sources

1. [1] Laxmikanth, M. Indian Polity. 7th ed., McGraw Hill. > Chapter 46: Finance Commission > FUNCTIONS > p. 431
2. [3] Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 4: Government Budgeting > 1. Finance Commission Grants > p. 182