president reconstitutes national finance commission profit

The Fourteenth Finance Commission (2010-2015) in India

The Fourteenth Finance Commission (FFC), constituted in 2013 under the chairmanship of Dr. Y.V. Reddy, played a pivotal role in shaping India’s fiscal federalism. Its recommendations, covering the period from 2015 to 2020, significantly altered the distribution of tax revenues between the Union and the States, aiming to enhance states’ autonomy and address developmental disparities.

A core recommendation was a substantial increase in the states’ share of the divisible pool of central taxes. The FFC recommended raising it to 42%, a significant jump from the 32% recommended by the Thirteenth Finance Commission. This increase was intended to empower states with greater financial resources, allowing them more flexibility in planning and implementing their own development programs, aligning with the spirit of cooperative federalism.

The FFC also revised the formula for horizontal distribution of tax revenue amongst states. While population continued to be a major factor, the commission placed greater emphasis on factors such as fiscal capacity (measured by income distance), demographic change (taking into account the 2011 population census), forest cover, and tax effort. Income distance, measuring the gap between a state’s per capita income and the state with the highest per capita income, was given a significant weight, reflecting the commission’s focus on addressing regional disparities. The consideration of forest cover provided an incentive for states to protect and enhance their forests, recognizing the environmental benefits they provide.

Furthermore, the commission advocated for a grants-based approach to address specific state needs. While recommending the discontinuation of some specific purpose grants, it proposed grants for local bodies and disaster management. Grants to local bodies were aimed at strengthening local self-governance and improving the delivery of basic services at the grassroots level. Disaster management grants were allocated to assist states in preparing for and responding to natural disasters, recognizing their vulnerability to such events.

The recommendations of the Fourteenth Finance Commission were largely accepted by the Union Government. The enhanced devolution to states provided them with considerable fiscal space, facilitating increased investment in infrastructure, social sectors, and other developmental priorities. While the shift in the horizontal distribution formula led to some initial concerns and adjustments, it ultimately promoted a more equitable allocation of resources, addressing the needs of fiscally weaker states. However, the increased devolution also placed a greater responsibility on states to manage their finances prudently and improve their revenue generation capabilities. The FFC’s emphasis on performance-based incentives aimed to encourage better fiscal management and service delivery at the state level.

Overall, the Fourteenth Finance Commission’s report marked a significant step towards strengthening fiscal federalism in India, empowering states with greater autonomy and promoting a more equitable distribution of resources. Its recommendations had a lasting impact on the financial relations between the Union and the States, shaping the landscape of Indian federalism for years to come.

570×342 president reconstitutes national finance commission profit from profit.pakistantoday.com.pk