With reference to the Finance Commission of India, which of the following statements is correct?

Option D is correct. The Finance Commission is a constitutional body under Article 280. It is constituted every five years to recommend how the net proceeds of taxes are shared between the Union and the States, how the States' share is distributed among themselves, and the principles governing grants-in-aid from the Consolidated Fund of India.

Why the options fail:

• A: Attracting foreign capital is a matter of economic policy, such as FDI routes and RBI or DPIIT frameworks, not the Commission's remit.
• B: Funds for PSUs flow through the Union budget and the Department of Investment and Public Asset Management. The Commission deals only with Centre-State fiscal relations.
• C: Transparency in financial administration is secured through the CAG, the Public Accounts Committee and budget rules. The Commission may recommend fiscal measures, but ensuring transparency is not its defined function.

Core concept: fiscal federalism. The Commission's recommendations are advisory, though the Centre usually accepts them. The 15th Finance Commission (2021-26) recommended a 41 percent share of divisible pool for States, down from 42 percent under the 14th. For Mains, link this to vertical and horizontal fiscal imbalances and cooperative federalism.

Trap: Aspirants see the words "financial" and "distribution" and pick B. The Commission distributes between the Centre and the States, not among PSUs or agencies.