15th Finance Commission & Recommendations (Explained) | Indian Economy for UPSC

Описание: 15th Finance Commission (2021-22 to 2025-26)

The Finance Commission (FC) is a constitutional body, that determines the method and formula for distributing the tax proceeds between the Centre and states, and among the states as per the constitutional arrangement and present requirements.
Under Article 280 of the Constitution, the President of India is required to constitute a Finance Commission at an interval of five years or earlier.
The 15th Finance Commission was constituted by the President of India in November 2017, under the chairmanship of NK Singh. Its recommendations will cover a period of five years from the year 2021-22 to 2025-26.
1) Vertical Devolution :
(Devolution of Taxes of the Union to States):
It has recommended maintaining the vertical devolution at 41% - the same as in its interim report for 2020-21.
It is at the same level of 42% of the divisible pool as recommended by the 14th Finance Commission.
It has made the required adjustment of about 1% due to the changed status of the erstwhile State of Jammu and Kashmir into the new Union Territories of Ladakh and Jammu and Kashmir. Horizontal Devolution (Allocation Between the States):
For horizontal devolution, it has suggested
12.5% weightage to demographic performance,
45% to income, 15% each to population and area,
10% to forest and ecology and
2.5% to tax and fiscal efforts.

Revenue Deficit Grants to States:
Revenue deficit grants emanate from the requirement to meet the fiscal needs of the States on their revenue accounts that remain to be met, even after considering their own tax and non-tax resources and tax devolution to them.

Revenue Deficit is defined as the difference between revenue or current expenditure and revenue receipts, that includes tax and non-tax.
It has recommended post-devolution revenue deficit grants amounting to about Rs. 3 trillion over the five-year period ending FY26.
The number of states qualifying for the revenue
deficit grants decreases from 17 in FY22, to 6 in FY26

Performance Based Incentives and Grants to States: These grants revolve around
four main themes:

The first is the social sector, where it has focused on health and education.

Second is the rural economy, where it has focused on agriculture and the maintenance of rural roads.
The rural economy plays a significant role in the country as it encompasses two-thirds of the country's population, 70% of the total workforce and 46% of national income.

Third, governance and administrative reforms under which it has recommended grants for judiciary, statistics and aspirational
districts and blocks.

Fourth, it has developed a performance-based
incentive system for the power sector, which is
not linked to grants but provides an important,
additional borrowing window for States.

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