Mains Booster-Recomendations of the 14th Finance commission

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Recomendations of the 14th Finance Commission

ARTICLE 280 of the Constitution of India requires the Constitution of a Finance Commission every five years, or earlier.  For the period from 1st April, 2015 to 31st March, 2020,  the 14th Finance Commission (FFC) was constituted by the orders of President on 2nd January, 2013 and submitted its report on 15th December, 2014.

The Finance Commission is required to recommend the distribution of the net proceeds of taxes of the Union between the Union and the States (commonly referred to as vertical devolution); and the allocation between the States of the respective Shares of such proceeds (commonly known as horizontal devolution).

Some of the important recommendations of the 14th finance commission are as follows:

  • The fourteenth finance commission is of the view that tax tax devolution should be the primary route of Resources to the states. The commission recommends to increase the tax devolution of the divisible pool to states to 42% for years 2015 to 2020. This is 10% more compared to 32% target set by 13th financial commission.
  • The commission recommended that the new tax devolution should be the primary route of transfer of resources to States since it is formula based and thus conducive to Sound fiscal Federalism. However, to the extent that formula-based transfers do not meet the needs of specific States, they need to be supplemented by grants-in-aid.
  • The commission came up with new formula to divide the 42% share of the divisible pool between the states.
  • The commission followed the method adopted by the 12th commission and put the floor limit at 2 percent for smaller States and assigned 15 percent weight.
  • The commission assigned 7.5 per cent weight to forest cover as the new criteria to balance the benefit of the huge ecological benefits and the opportunity cost in terms of area not available for other economic activities that becomes indicator of fiscal disability.
  • The commission felt that allocation based on dated Population data is not fair, and assigned a 17.5 percent weight to the 1971 population and assigned 10 percent a weight to the 2011 population to capture the demographic changes since 1971, both in terms of Migration and Age structure.
  • The commission assigned 50% weight to income distance as it is the only measure of fiscal capacity. It is the distance of actual per capita income of a state from the state with the highest per capita. The commission calculated the income distance following the method used the 12th commission. A three-year Average (2010-11 to 2012-13) per capita comparable GSDP has been taken for all the twenty-nine states. Income distance has been computed by taking the distance from the state having highest per capita GSDP. Goa had the highest, followed by Sikkim. Since these two are very small states, income distance had been computed from the third, Haryana. Goa, Sikkim and Haryana are assigned the same distance as obtained for Haryana.
  • The grants by Union Government are to be used only on the basic Services within the functions assigned to them by legislation, water supply, sanitation, sewerage, storm water drainage, Solid Waste Management, street lighting, local body roads and footpaths, parks, playgrounds etc. The Commission fixed the total size of the grant to be Rs. 2,87,436 crore for the period 2015-20, constituting an assistance of Rs. 488 per capita per annum at an aggregate level. Of this, the grant for panchayats is Rs. 2,00,292.2 crore and for municipalities is Rs. 87,143.8 crore.
  • The Commission recommended that distribution of grants shall be given to the States using 2011 population data with weight of 90 percent and area with weight of 10 per cent. The grant to each State will be divided into two – a grant to duly constituted gram panchayats and a grant to duly constituted municipalities, on the basis of urban and rural population of that State using the data of Census 2011.
  • Each grant has two components, basic and performance. The commission recommends that 50 per cent of the basic grant for the year is to be released to the State as the first installment of the year. The remaining basic grant and the full performance grant for the year may be released as the second instalment for the year. The State Government have to release the grants to the local bodies within fifteen days of it being credited to their account by the Union Government. In case of any delay, the State Governments have to pay the installment with interest paid from its own funds.
  • In the case of gram panchayats, 90 per cent of the grant will be the basic grant and 10 per cent will be the performance grant. The grants for Panchayats should go only to them without any share for other levels of government in State. State Governments has to take care of the needs of the other levels and districts. Grants for gram panchayats with in a State will be distributed using the formula chosen by a State Finance Commission. In case the SFC formula is not available, then the share of each gram panchayat will be on the basis on 2011 population with a weight of 90 per cent and area with a weight of 10 per cent.
  • In the case of municipalities, the division between basic and performance grant will be on a 80:20 basis. The basic grant for Urban Local Bodies will be divided into tier-wise shares and distributed across each tier, the municipal corporations, municipalities (the tier II urban local bodies) and the nagar panchayats (the tier III local bodies) using the formula given by a state finance commission. In case the SFC formula is not available for urban local bodies, shares of each of the three tiers will be on the basis of population of 2011 with a weight of 90 percent and area with a weight of 10 percent, and then distributed among the entities in each tier in proportion using same formula.
  • The commission recommended the Union to establish GST compensation fund. This compensation is to be used to address 100% of the shortfall in the first year, 75% in the second year and 50% in the third year. This additional fiscal burden on the Union government has to be taken as Investment to get yields in the medium and long run.
  • The financing of the NDRF had been from levying cess on some selected items and some of them will be subsumed by GST. The commission recommended the Union Government to ensure an assured source of funding. The commission recommended to consider tax exemption to private contributions to the NDRF. The commission recommended all States to contribute 10 per cent and Union with the remaining 90 per cent. Considering the need for regard to state-specific disasters, the commission recommended that up to 10 per cent of the funds available under the SDRF can be used by States for natural disasters that they consider to be ‘disasters’ within the local context in the State and which are not included in the notified list of disasters of the Ministry of Home Affairs.

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The 14th Finance Commission (FFC) was constituted on 1 January 2013 by the President of India, Pranab Mukherjee, under Article 280 of the Constitution of India. The FFC was tasked with devising a new formula for the distribution of central taxes between the Centre and the States. The FFC submitted its report to the President on 15 December 2014.

The FFC was given the following terms of reference:

  • To review the existing arrangements for the devolution of central taxes to the States and to recommend a new formula for such devolution.
  • To review the existing arrangements for the sharing of central grants-in-aid with the States and to recommend a new formula for such sharing.
  • To review the existing arrangements for the financing of centrally sponsored schemes and to recommend a new formula for such financing.
  • To make any other recommendations that the FFC may deem necessary in the context of its terms of reference.

The FFC was composed of the following members:

  • Chairman: Vijay Kelkar
  • Members: N. K. Singh, K. C. Pant, Shaktikanta Das, Ashok Lahiri, and Rakesh Mohan
  • Secretary: Sumit Bose

The FFC made a number of recommendations, including the following:

  • The share of the States in central taxes should be increased from 32.5% to 42%.
  • The share of the States in central grants-in-aid should be increased from 27.5% to 30%.
  • The share of the States in centrally sponsored schemes should be increased from 20% to 25%.
  • The FFC recommended a new formula for the devolution of central taxes to the States, which is based on the following criteria:
    • Population
    • Area
    • Income
    • Backwardness
    • Fiscal discipline
  • The FFC recommended a new formula for the sharing of central grants-in-aid with the States, which is based on the following criteria:
    • Population
    • Area
    • Income
    • Backwardness
    • Fiscal discipline
  • The FFC recommended a new formula for the financing of centrally sponsored schemes, which is based on the following criteria:
    • Population
    • Area
    • Income
    • Backwardness
    • Fiscal discipline

The recommendations of the FFC have had a significant impact on the finances of the States. The increase in the share of the States in central taxes has led to an increase in their Revenue Receipts. The increase in the share of the States in central grants-in-aid has led to an increase in their non-tax revenue receipts. The increase in the share of the States in centrally sponsored schemes has led to an increase in their expenditure.

The recommendations of the FFC have had a positive impact on the finances of the States. The increase in the share of the States in central taxes, central grants-in-aid, and centrally sponsored schemes has led to an increase in their revenue receipts, non-tax revenue receipts, and expenditure. This has helped the States to improve their Infrastructure-2/”>INFRASTRUCTURE, provide better services to their citizens, and reduce their Fiscal Deficit.

However, there have also been some criticisms of the FFC’s recommendations. Some have argued that the increase in the share of the States in central taxes is too high and will lead to a fiscal deficit at the Centre. Others have argued that the FFC’s recommendations are not fair to all States and that some States will benefit more than others.

Despite these criticisms, the FFC’s recommendations have been generally welcomed by the States. The States have welcomed the increase in their share of central taxes and grants-in-aid. They have also welcomed the FFC’s recommendations for the financing of centrally sponsored schemes. The States believe that the FFC’s recommendations will help them to improve their infrastructure, provide better services to their citizens, and reduce their fiscal deficit.

The 14th Finance Commission was constituted by the President of India on 1 January 2014 under the chairmanship of Dr. Y. K. Sinha. The Commission submitted its report to the President on 15 December 2014. The report was tabled in the Parliament on 16 December 2014.

The Commission made a number of recommendations, including the following:

  • The share of the states in the divisible pool of taxes should be increased from 32% to 42%.
  • The states should be given greater freedom to raise their own revenues.
  • The central government should provide more funds to the states for social sector schemes.
  • The central government should provide more funds to the states for Infrastructure Development.

The Commission’s recommendations have been widely welcomed by the states. The states have welcomed the increase in their share of the divisible pool of taxes. They have also welcomed the greater freedom to raise their own revenues. However, the states have expressed some concerns about the Commission’s recommendations on social sector schemes and infrastructure development. They have argued that the central government should provide more funds for these schemes and projects.

The Commission’s report is a significant document that will have a major impact on the finances of the states. The states will need to carefully consider the Commission’s recommendations and take steps to implement them.

Here are some frequently asked questions about the 14th Finance Commission:

  1. What is the 14th Finance Commission?
    The 14th Finance Commission is a body constituted by the President of India to recommend the sharing of taxes between the central government and the state governments.

  2. Who is the chairman of the 14th Finance Commission?
    The chairman of the 14th Finance Commission is Dr. Y. K. Sinha.

  3. When was the 14th Finance Commission constituted?
    The 14th Finance Commission was constituted on 1 January 2014.

  4. When did the 14th Finance Commission submit its report?
    The 14th Finance Commission submitted its report to the President on 15 December 2014.

  5. When was the 14th Finance Commission’s report tabled in the Parliament?
    The 14th Finance Commission’s report was tabled in the Parliament on 16 December 2014.

  6. What are the key recommendations of the 14th Finance Commission?
    The key recommendations of the 14th Finance Commission include the following:

  7. The share of the states in the divisible pool of taxes should be increased from 32% to 42%.

  8. The states should be given greater freedom to raise their own revenues.
  9. The central government should provide more funds to the states for social sector schemes.

  10. The central government should provide more funds to the states for infrastructure development.

  11. How have the states responded to the 14th Finance Commission’s recommendations?
    The states have welcomed the increase in their share of the divisible pool of taxes. They have also welcomed the greater freedom to raise their own revenues. However, the states have expressed some concerns about the Commission’s recommendations on social sector schemes and infrastructure development. They have argued that the central government should provide more funds for these schemes and projects.

  12. What is the impact of the 14th Finance Commission’s report on the finances of the states?
    The 14th Finance Commission’s report is a significant document that will have a major impact on the finances of the states. The states will need to carefully consider the Commission’s recommendations and take steps to implement them.

The 14th Finance Commission was constituted by the President of India on 29 January 2014 under the chairmanship of Dr. Y. V. Reddy. The Commission submitted its report on 15 December 2014. The Commission made a number of recommendations on the sharing of central taxes between the Centre and the States, the devolution of funds to local bodies, and the fiscal reforms to be undertaken by the States.

The following are some of the key recommendations of the 14th Finance Commission:

  • The Commission recommended that the share of the States in the net proceeds of central taxes be increased from 32.5% to 42%.
  • The Commission recommended that the share of the local bodies in the net proceeds of central taxes be increased from 2.5% to 3%.
  • The Commission recommended that the States be given greater flexibility in the use of their funds.
  • The Commission recommended that the States be given greater autonomy in the management of their finances.
  • The Commission recommended that the States be given greater powers to raise their own revenues.

The 14th Finance Commission’s recommendations have been widely welcomed by the States. The States have welcomed the increase in their share of central taxes, the greater flexibility in the use of their funds, and the greater autonomy in the management of their finances. The States have also welcomed the Commission’s recommendations on fiscal reforms.

The 14th Finance Commission’s recommendations are likely to have a significant impact on the fiscal relations between the Centre and the States. The recommendations are likely to lead to a more equitable sharing of resources between the Centre and the States. The recommendations are also likely to lead to greater fiscal autonomy for the States.

The 14th Finance Commission’s recommendations are a significant step forward in the evolution of fiscal federalism in India. The recommendations are likely to lead to a more equitable and efficient allocation of resources between the Centre and the States. The recommendations are also likely to lead to greater fiscal autonomy for the States.

Here are some MCQs based on the 14th Finance Commission’s recommendations:

  1. The 14th Finance Commission was constituted in:
    (A) 2013
    (B) 2014
    (C) 2015
    (D) 2016

  2. The chairman of the 14th Finance Commission was:
    (A) Dr. C. Rangarajan
    (B) Dr. Vijay Kelkar
    (C) Dr. Y. V. Reddy
    (D) Dr. Raghuram Rajan

  3. The 14th Finance Commission recommended that the share of the States in the net proceeds of central taxes be increased from:
    (A) 32.5% to 35%
    (B) 32.5% to 40%
    (C) 32.5% to 42%
    (D) 32.5% to 45%

  4. The 14th Finance Commission recommended that the share of the local bodies in the net proceeds of central taxes be increased from:
    (A) 2.5% to 3%
    (B) 2.5% to 3.5%
    (C) 2.5% to 4%
    (D) 2.5% to 4.5%

  5. The 14th Finance Commission recommended that the States be given greater flexibility in the use of their funds. This means that the States will be able to:
    (A) Use their funds for any purpose they want
    (B) Use their funds for any purpose except for repaying their debts
    (C) Use their funds for any purpose except for repaying their debts and meeting their expenditure on salaries and pensions
    (D) Use their funds for any purpose except for repaying their debts, meeting their expenditure on salaries and pensions, and meeting their expenditure on capital projects

  6. The 14th Finance Commission recommended that the States be given greater autonomy in the management of their finances. This means that the States will be able to:
    (A) Set their own tax rates and decide how to spend their tax revenues
    (B) Set their own tax rates and decide how to spend their tax revenues, subject to the approval of the Centre
    (C) Set their own tax rates and decide how to spend their tax revenues, subject to the approval of the Parliament
    (D) Set their own tax rates and decide how to spend their tax revenues, subject to the approval of the President

  7. The 14th Finance Commission recommended that the States be given greater powers to raise their own revenues. This means that the States will be able to:
    (A) Levy their