The 15th Finance Commission had recommended a share of 41% from the net proceeds of central taxes to the states for the financial year 2021-26. In this article, know more about the 15th Finance Commission and its recommendations.
Nov 17, 2022
20 min read
List of Contents in this article about the 15th Finance Commission
|1.||About the Finance Commission|
|2.||Articles 280 defines more about the Finance Commission|
|3.||Finance Commission and Fiscal Federalism|
|4.||NITI Aayog and Fiscal Federalism|
|5.||First Finance Commission|
|6.||15th Finance Commission|
|7.||15th Finance Commission Report|
|8.||What is income distance?|
|9.||What is demographic performance criterion?|
|10.||What is forest and ecology criterion?|
|11.||What is tax and fiscal efforts criterion?|
1. Distribution of net proceeds of taxes between the Union and States
2. Allocation of net proceeds of taxes among the States themselves.
3. Define financial relations between the Union and the States.
4. Determine factors governing Grants-in-Aid to the states and the magnitude of the same.
5. Measures needed to augment State Fund to supplement the resources of panchayats & municipalities on the basis of the State Finance Commission recommendations.
1. Constituted by the President of India
2. Within two years from the commencement of the Constitution.
3. Thereafter, every fifth year or earlier.
4. FC shall include a Chairman and 4 members (President may determine the qualifications, and selection procedure).
|1.||Recommending monitorable performance criteria for important national flagship programmes.|
|2.||Examining the possibility of setting up a permanent non lapsable funding for India’s defence needs.|
|3.||The reorganisation of the State of J&K into 2 UTs – J&K and Ladakh – presents a new dynamic.|
|S.No||Criteria (FY 2021-26)||Weight|
|5.||Forest and Ecology||10|
|7.||Tax and Fiscal Efforts||2.5|
1. Difference between state's income (avg.per capita GSDP) and state with highest income.
2. State with lower per capita income will have a higher share to maintain equity among states.
1. Demographic performance criterion has been used to reward efforts made by states in controlling their population.
2. States with a lower fertility ratio will be scored higher on this criterion.
1. Share of dense forest of each state in the total dense forest of all the states.
1. To reward states with higher tax collection efficiency.
2. Ratio of average per capita own tax revenue and average per capita state GDP.
17 states will receive grants worth Rs 2.9 lakh crore to eliminate revenue deficit.
Sector-specific grants of Rs 1.3 lakh crore will be given to states for eight sectors. A portion of these grants will be performance-linked.
|4.||Implementation of agricultural reforms|
|5.||Maintenance of PMGSY roads|
|8.||Aspirational districts and blocks|
The 15th Finance Commission recommended state-specific grants of Rs 49,599 crore. These will be given in the areas of
|2.||Administrative Governance and Infrastructure|
|3.||Water and Sanitation|
|4.||Preservation of Culture and Historical Monuments|
|5.||High-Cost Physical Infrastructure|
The total grants to local bodies will be Rs 4.36 lakh crore (a portion of grants to be performance-linked) including
|1.||Rural local bodies (For all 3-tiers)||Rs 2.4 lakh crore|
|2.||Urban local bodies (For all 3-tiers)||Rs 1.2 lakh crore|
|3.||Health grants through local govts||Rs 70,051 crore|
|1.||North-eastern and Himalayan states||90 %||10 %||100 %|
|2.||All other states||75 %||25 %||100 %|
|3.||State disaster management fund corpus||1.2 lakh crore||0.4 lakh crore||1.6 lakh crore|
|S.No||Financial Year||Centre (% of GDP)||State (% of GSDP)|
|1.||Fiscal Deficit 2021-22||-||4 %|
|2.||Fiscal Deficit 2022-23||-||3.5 %|
|3.||Fiscal Deficit 2023-26||-||3 %|
|Fiscal Deficit 2025-26||4 %||-|
Extra annual borrowing worth 0.5% of GSDP will be allowed to states during first four years (2021-25) upon undertaking power sector reforms including
|1.||Reduction in operational losses|
|2.||Reduction in revenue gap|
|3.||Reduction in payment of cash subsidy by adopting DBT|
|4.||Reduction in tariff subsidy as a percentage of revenue|
The Commission observed that the recommended path for fiscal deficit for the centre and states will result in a reduction of total liabilities to the tune of
|1.||Debt to GDP 2020-21||62.9 %||33.1 %|
|2.||Debt to GDP 2025-26||56.6 %||32.5 %|
It recommended forming a high-powered inter-governmental group to
1. Review the Fiscal Responsibility and Budget Management Act (FRBM)
2. Recommend a new FRBM framework for centre as well as states, and oversee its implementation.
1. Income and asset-based taxation should be strengthened.
2. To reduce excessive dependence on income tax on salaried incomes, the coverage of provisions related to tax deduction and collection at source (TDS/TCS) should be expanded.
3. Stamp duty and registration fees at the state level have large untapped potential.
4. Computerised property records should be integrated with the registration of transactions, and the market value of properties should be captured.
5. State governments should streamline the methodology of property valuation.
1. The inverted duty structure between intermediate inputs and final outputs present in GST needs to be resolved.
2. Revenue neutrality of GST rate should be restored which has been compromised by multiple rate structure and several downward adjustments.
3. Rate structure should be rationalised by merging the rates of 12% and 18%.
4. States need to step up field efforts for expanding the GST base and for ensuring compliance.
1. Comprehensive framework for public financial management.
2. Independent Fiscal Council with powers to assess records from centre & states. The Council will only have an advisory role.
3. Phased adoption of standard-based accounting and financial reporting for centre and states. Eventual adoption of accrual-based accounting.
4. Not resort to off-budget financing or non-transparent means of financing for any expenditure.
5. Standardised framework for reporting of contingent liabilities.
6. Improve the accuracy & consistency of macroeconomic & fiscal forecasting.
7. States should amend their fiscal responsibility legislation to ensure consistency with the centre’s legislation, in particular, with the definition of debt.
8. States should have more avenues for short-term borrowings other than the ways and means advances, and overdraft facility from the Reserve Bank of India.
9. States may form an independent debt management cell to manage their borrowing programmes efficiently.
1. States should increase spending on health to >8% of budget by 2022.
2. Primary Healthcare expenditure should be 2/3rds of total health expenditure by 2022.
3. Centrally sponsored schemes in health should be flexible to allow states to adapt & innovate. Focus should be shifted from inputs to outcome.
4. All India Medical and Health Service should be established.
1. A dedicated non-lapsable fund called the Modernisation Fund for Defence and Internal Security (MFDIS) will be constituted to bridge the gap between budgetary requirements and allocation for capital outlay in defence and internal security.
2. Fund will have a corpus of Rs 2.4 lakh crore over the 5 years (2021-26).
3. 1.5 lakh crore will be from Consolidated Fund of India. 0.9 lakh crore from disinvestment of defence PSEs, and defence land monetisation.
1. Phase out CSS which outlived its utility or has insignificant outlay.
2. Third-party evaluation of all CSS should be completed within a stipulated timeframe.
Based on the article 'Undermining federalism, eroding State's autonomy' in The Hindu by B. Vinod Kumar
References/Image: The Hindu, FincomIndia, Press Information Bureau, PRS Legislative Research, Wikipedia/PM India
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