How have the recommendations of the 14 th Finance Commission of India enabled the States to improve their fiscal position? UPSC 2021, 10 Marks

Q3. भारत के 14 वें वित्त आयोग की संस्तुतियो ने राज्यों को अपनी राजकोषीय स्थिति सुधारने में कैसे सक्षम किया है? (उत्तर 150 शब्दो में दीजिए)

Q3. How have the recommendations of the 14th Finance Commission of India enabled the States to improve their fiscal position? (Answer in 150 words) 10

Answer: The recommendations of the 14th Finance Commission of India enabled the States to improve their fiscal position.

  1. The14th Finance Commission has radically enhanced the share of the states in the central divisible pool from the current 32 percent to 42 per cent which is the biggest ever increase in vertical tax devolution. The last two Finance Commissions viz. Twelfth (period 2005-10) and Thirteenth (period 2010-15) had recommended a state share of 30.5 per cent (increase of 1 percent) and 32 per cent (increase of 1.5 percent), respectively in the central divisible pool.  
  2. The FFC has also proposed a new horizontal formula for the distribution of the states’ share in divisible pool among the states. Relative to the Thirteenth Finance Commission, the FFC has incorporated two new variables: 2011 population and forest cover; and excluded the fiscal discipline variable. 
  3.  Grants: Should be distributed to states for local bodies on the basis of the 2011 population data; the grants be divided into two broad categories on the basis of rural and urban population — constituting gram panchayats, and constituting municipal bodies respectively.
  4. Types of grants: A basic grant and a performance grant — the ratio of basic to performance grant be 90:10, with respect to panchayats; and 80:20 in the case of municipalities.
  5.  States will have more “untied” funds at their disposal and will be free to deploy them in the manner they deem appropriate to their needs and concerns. Planning within states now assumes even greater importance even if the Planning Commission has been abolished. 
  6. The formula used in the Fourteenth Finance Commission is not the same as that used by its predecessor and so the share of individual states cannot really be compared. Reddy’s Commission, for instance, has given 7.5% weightage to forest cover, which had not been done by the Thirteenth Finance Commission. As a result, some large states with low forest cover like Uttar Pradesh and Bihar are complaining that their share in tax devolution has decreased. It has, but the basis for calculations has itself undergone a change. 
  7.  The FFC seeks to fundamentally alter the Centre-State funding patterns to give boost to the idea of “cooperative federalism”. For instance Central assistance for critical developmental programmes being implemented by states relating to health, child development, education, rural drinking water, housing etc has been reduced drastically by about Rs 75,000 crore in the budget for 2015-16.

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