12 Finance Commission of India

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The Twelfth Finance Commission was appointed under the chairmanship of C. Rangarajan on November 1, 2002 to make recommendations regarding the distribution between the Union and the States of net proceeds of shareable taxes, the principles which should govern the grants- in-aid of the revenues of States from the Consolidated Fund of India and the measures needed to augment the Consolidated Fund of a State to supplement the Resources of local bodies in the State on the basis of the recommendations made by the Finance Commission of the State.

Recommendations of the Twelfth Finance Commission

Restructuring public finances

Centre and States to improve the combined tax-GDP ratio to 17.6 per cent by 2009-10.
Combined debt-GDP ratio, with External Debt measured at historical exchange rates, to be brought down to 75 percent by 2009-10.
Fiscal Deficit to GDP targets for the Centre and States to be fixed at 3 per cent.
Revenue Deficit of the Centre and States to be brought down to zero by 2008-09.
Interest payments relative to Revenue Receipts to be brought down to 28 per cent and 15 per cent in the case of the Centre and States, respectively.
States to follow a recruitment policy in a manner so that the total salary bill, relative to Revenue Expenditure, net of interest payments, does not exceed 35 per cent.
Each State to enact a fiscal responsibility legislation providing for elimination of revenue deficit by 2008-09 and reducing fiscal deficit to 3 per cent of State Domestic Product.
The system of on-lending to be brought to an end over time. The long term goal should be to bring down debt-GDP ratio to 28 per cent each for the Centre and the States.

Sharing of Union tax revenues

The share of States in the net proceeds of shareable Central taxes fixed at 30.5 per cent, treating additional excise duties in lieu of sales tax as part of the general pool of Central taxes. Share of States to come down to 29.5 per , when States are allowed to levy sales tax on sugar, textiles and tobacco.
In case of any legislation enacted in respect of service tax, after the notification of the eighty eighth amendment to the Constitution, revenue accruing to a State should not be less than the share that would accrue to it, had the entire service tax proceeds been part of the shareable pool.
The indicative amount of overall transfers to States to be fixed at 38 per cent of the Centre’s gross revenue receipts.

Local bodies

A grant of Rs.20,000 crore for the Panchayati Raj institutions and Rs.5,000 crore for Urban Local Bodies to be given to States for the period 2005-10.
Priority to be given to expenditure on operation and maintenance (O&M) costs of Water supply and sanitation, while utilizing the grants for the Panchayats. At least 50 per cent of the grants recommended for urban local bodies to be earmarked for the scheme of Solid Waste Management through public-private PARTNERSHIP.

Calamity relief

The scheme of Calamity Relief Fund (CRF) to continue in its present form with contributions from the Centre and States in the ratio of 75:25. The size of the Fund worked out at Rs.21,333 crore for the period 2005-10.
The outgo from the Fund to be replenished by way of collection of National Calamity Contingent Duty and levy of special surcharges.
The definition of natural calamity to include landslides, avalanches, cloud burst and pest attacks.
Provision for disaster preparedness and mitigation to be part of State Plans and not calamity relief.

Grants-in-aid to States

The present system of Central assistance for State Plans, comprising grant and loan components, to be done away with, and the Centre should confine itself to extending plan grants and leaving it to States to decide their borrowings.
Non-plan revenue deficit grant of Rs.56,856 crore recommended to 15 States for the period 2005-10. Grants amounting to Rs.10,172 crore recommended for the Education sector to eight States. Grants amounting to Rs.5,887 crore recommended for the Health sector for seven States. Grants to education and health sectors are additionalities over and above the normal expenditure to be incurred by States.
A grant of Rs.15,000 crore recommended for roads and bridges, which is in addition to the normal expenditure of States.
Grants recommended for maintenance of public buildings, forests, heritage conservation and specific needs of States are Rs. 500 crore, Rs.1,000 crore, Rs.625 crore, and Rs.7,100 crore, respectively.

Fiscal reform facility

With the recommended scheme of debt relief in place, fiscal reform facility not to continue over the period 2005-10.

Debt relief and corrective measures

Central loans to States contracted till March,2004 and outstanding on March 31, 2005 amounting to Rs.1,28,795 crore to be consolidated and rescheduled for a fresh term of 20 years, and an interest rate of 7.5 per cent to be charged on them. This is subject to enactment of fiscal responsibility legislation by a State.
A debt write-off scheme linked to reduction of revenue deficit of States to be introduced. Under this scheme,
repayments due from 2005-06 to 2009-10 on Central loans contracted up to March 31,2004 will be eligible for write- off.
Central Government not to act as an intermediary for future lending to States, except in the case of weak States,
which are unable to raise funds from the market.
External assistance to be transferred to States on the same terms and conditions as attached to such assistance by external funding agencies.
All the States to set up sinking funds for amortization of all loans.
States to set up guarantee redemption funds through earmarked guarantee fees.

Others

The Centre should share ‘profit petroleum’ from New Exploration and Licensing Policy (NELP) areas in the ratio of 50:50 with States where mineral oil and natural gas are produced. No sharing of profits in respect of nomination fields and non-NELP blocks.
Every State to set up a high level committee to monitor the utilization of grants recommended by the TFC.
Centre to gradually move towards accrual basis of accounting.

Source:Ministry of Finance,

The 12th Finance Commission of India was constituted on 16 November 2009 by the President of India, Pratibha Patil, under ARTICLE 280 of the Constitution of India. The Commission was headed by Vijay Kelkar, a former Governor of Reserve Bank of India. The Commission submitted its report on 15 December 2014.

The Commission was tasked with making recommendations on the distribution of central taxes between the Centre and the states, and on the grants-in-aid to be given to the states. The Commission also made recommendations on the devolution of funds to local bodies.

The Commission made a number of recommendations on the above-mentioned topics. Some of the key recommendations include:

Increasing the share of central taxes to states from 32% to 42%
Providing a special package of assistance to states affected by natural disasters
Increasing the share of local bodies in the divisible pool of taxes from 2.5% to 4%
Setting up a new mechanism for sharing of central taxes between the Centre and the states
Introducing a new system of grants-in-aid to states
Introducing a new system of devolution of funds to local bodies

The Commission’s report was accepted by the government in principle. The government has implemented some of the recommendations, while others are still under consideration.

The Commission’s report has been widely welcomed by the states. The states have welcomed the increase in the share of central taxes to states, and the special package of assistance to states affected by natural disasters. The states have also welcomed the increase in the share of local bodies in the divisible pool of taxes, and the new mechanism for sharing of central taxes between the Centre and the states.

The Commission’s report has also been welcomed by the local bodies. The local bodies have welcomed the increase in their share of the divisible pool of taxes, and the new system of devolution of funds to local bodies.

The Commission’s report has been criticized by some experts. Some experts have criticized the increase in the share of central taxes to states, arguing that it will lead to a fiscal deficit. Some experts have also criticized the special package of assistance to states affected by natural disasters, arguing that it is not enough.

Overall, the 12th Finance Commission of India has made a number of important recommendations. The Commission’s report has been widely welcomed by the states and the local bodies. The government has implemented some of the recommendations, while others are still under consideration.

The 12th Finance Commission of India was constituted on 15 December 2004 by the President of India, A.P.J. Abdul Kalam. The Commission was headed by Dr. Vijay Kelkar, a former Governor of Reserve Bank of India. The Commission submitted its report on 15 December 2005.

The 12th Finance Commission was tasked with devising a new formula for the distribution of central taxes between the Centre and the States. The Commission also recommended a number of measures to improve the fiscal health of the States.

The 12th Finance Commission’s recommendations were accepted by the Government of India and implemented from 1 April 2006.

Here are some frequently asked questions about the 12th Finance Commission:

What is the 12th Finance Commission?

What was the task of the 12th Finance Commission?

What were the 12th Finance Commission’s recommendations?

The 12th Finance Commission’s recommendations were accepted by the Government of India and implemented from 1 April 2006. The Commission recommended a new formula for the distribution of central taxes between the Centre and the States. The Commission also recommended a number of measures to improve the fiscal health of the States.

What were the key features of the 12th Finance Commission’s recommendations?

The key features of the 12th Finance Commission’s recommendations were:

A new formula for the distribution of central taxes between the Centre and the States.
A number of measures to improve the fiscal health of the States.
A focus on social sector spending.
A commitment to fiscal discipline.
What was the impact of the 12th Finance Commission’s recommendations?

The 12th Finance Commission’s recommendations had a significant impact on the Indian economy. The new formula for the distribution of central taxes led to a significant increase in the share of the States in central taxes. This increase in resources helped the States to improve their fiscal health and to increase their spending on social sectors. The Commission’s recommendations also helped to improve the overall fiscal discipline of the Indian economy.

What are the criticisms of the 12th Finance Commission’s recommendations?

The 12th Finance Commission’s recommendations have been criticized on a number of grounds. Some critics have argued that the new formula for the distribution of central taxes is unfair to the poorer States. Others have argued that the Commission’s recommendations have not done enough to address the problem of fiscal deficit in the Indian economy.

What are the future challenges for the Indian economy?

The Indian economy is facing a number of challenges in the future. These challenges include:

The need to improve the fiscal health of the States.
The need to address the problem of fiscal deficit.
The need to improve the Infrastructure-2/”>INFRASTRUCTURE in the country.
The need to create more jobs.
The need to improve the quality of education and healthcare.
What are the opportunities for the Indian economy?

The Indian economy also has a number of opportunities in the future. These opportunities include:

The demographic dividend.
The rise of the middle class.
The growing demand for Indian goods and Services in the global market.
The increasing Investment in infrastructure in the country.
The growing focus on innovation and Entrepreneurship.
What is your vision for the Indian economy?

My vision for the Indian economy is to see it become a developed economy by 2020. I believe that this is achievable if we address the challenges and seize the opportunities that lie ahead.

The 12th Finance Commission of India was constituted on 1 January 2014. The Commission was headed by Vijay Kelkar. The Commission submitted its report on 15 December 2014.

The Commission made a number of recommendations, including:

Increasing the share of central taxes to states from 32% to 42%.
Introducing a new system of devolution of central taxes to states, based on the recommendations of the 14th Finance Commission.
Providing additional grants to states for meeting their expenditure on social sector schemes.
Providing additional grants to states for meeting their expenditure on Infrastructure Development.

The Commission also made a number of recommendations on fiscal reforms, including:

Reducing the fiscal deficit of the central government to 3% of GDP by 2017-18.
Reducing the fiscal deficit of the state governments to 3% of GSDP by 2017-18.
Introducing a new system of fiscal responsibility and budget management.
Strengthening the Public Debt management system.

The Commission’s recommendations were accepted by the central government and the state governments. The central government has taken a number of steps to implement the Commission’s recommendations, including:

Increasing the share of central taxes to states from 32% to 42%.
Introducing a new system of devolution of central taxes to states, based on the recommendations of the 14th Finance Commission.
Providing additional grants to states for meeting their expenditure on social sector schemes.
Providing additional grants to states for meeting their expenditure on infrastructure development.

The state governments have also taken a number of steps to implement the Commission’s recommendations, including:

Reducing the fiscal deficit of the state governments to 3% of GSDP by 2017-18.
Introducing a new system of fiscal responsibility and budget management.
Strengthening the public Debt Management system.

The Commission’s recommendations have had a significant impact on the Indian economy. The increase in the share of central taxes to states has helped to improve the fiscal position of the states. The new system of devolution of central taxes to states has helped to reduce inter-state disparities. The additional grants to states for meeting their expenditure on social sector schemes and infrastructure development have helped to improve the Quality Of Life of the people. The new system of fiscal responsibility and budget management has helped to improve the fiscal discipline of the central government and the state governments. The strengthening of the public debt management system has helped to reduce the risk of default on public debt.

The Commission’s recommendations have been widely praised by economists and policymakers. They have been seen as a major step forward in the process of fiscal reforms in India.

Here are some MCQs on the 12th Finance Commission of India:

The 12th Finance Commission was constituted on:
(a) 1 January 2014
(b) 1 January 2015
(c) 1 January 2016
(d) 1 January 2017
The 12th Finance Commission was headed by:
(a) Vijay Kelkar
(b) C. Rangarajan
(c) Y.V. Reddy
(d) Vijay L. Kelkar
The 12th Finance Commission submitted its report on:
(a) 15 December 2014
(b) 15 December 2015
(c) 15 December 2016
(d) 15 December 2017
The 12th Finance Commission made a number of recommendations, including:
(a) Increasing the share of central taxes to states from 32% to 42%.
(b) Introducing a new system of devolution of central taxes to states, based on the recommendations of the 14th Finance Commission.
(c) Providing additional grants to states for meeting their expenditure on social sector schemes.
(d) All of the above.
The Commission’s recommendations were accepted by the central government and the state governments.
(a) True
(b) False
The central government has taken a number of steps to implement the Commission’s recommendations, including:
(a) Increasing the share of central taxes to states from 32% to 42%.
(b) Introducing a new system of devolution of central taxes to states, based on the recommendations of the 14th Finance Commission.
(c) Providing additional grants to states for meeting their expenditure on social sector schemes.
(d) All of the above.
The state