Explanation:

Only statements 1&2 are correct.

• The 16th Finance Commission (FC) has begun its work, established under Article 280 of the Indian Constitution, primarily focusing on the devolution of the consolidated fund.

About Finance Commission of India

• Statement 1 is correct: The Finance Commission is a constitutional body formed every five years by the President of India as per Article 280 of the Indian Constitution.

• The First Commission was established in 1951 under The Finance Commission (Miscellaneous Provisions) Act, 1951.

• Statement 2 is correct: The Constitution of India envisages the Finance commission as the “balancing wheel of fiscal federalism in India”.

• Comprises a chairman and four other members, as outlined in the Constitution.

• The 4 members should be or have been qualified as High Court judges, or be knowledgeable in finance or experienced in financial matters and are in administration, or possess knowledge in economics.

• Statement 3 is incorrect: The formulation of the Union Budget is not a function of the Finance Commission. The Union Budget is prepared by the Ministry of Finance and presented by the Finance Minister of India.

Hence option 2nd is correct.