Finance Commission
Recommendation of 14th Finance Commission
Meaning of Finance commission
Finance Commission is constituted to define
financial relations between the centre and the states. According to the
provision of Article 280 of the Constitution,
The President shall, within two years
from the commencement of this Constitution and thereafter at the expiration of
every fifth year or at such earlier time as the President considers necessary,
by order constitute a Finance Commission which shall consist of a Chairman and
four other members to be appointed by the President.
Role of Finance commission
The main function of finance commission is to recommend how the
Union government should share taxes levied by it with the states. These
recommendations are meant for the period of five years. The commission also
lays down rules by which the centre should provide grants-in-aid to states out
of the Consolidated Fund of India and also in case of special provision of
states. Finance Commission is also assigned the duty of suggesting measures to
augment the resources of states and ways to supplement the resources of
Panchayati Raj institutes and municipalities.
The commission is also mandated to review the
state of finances of the Union and states and suggest a plan by which the
Governments collectively and severally may bring about a restructuring of
public finances, restoring budgetary balances, achieving macro-economic
stability and debt restructuring along with equitable growth.
In making its recommendations on various matters,
the Commission shall generally take the base of population figures as of 1971
in all cases where population is a factor for determination of devolution of
taxes and duties and grants-in-aid; however, the Commission may also take into
account the demographic changes that have taken place subsequent to 1971.
14th Finance Commission and its recommendation
The 14th Finance Commission (FFC) was constituted by the orders of
President on 2 January 2013 in accordance to the Article 280 of the
Constitution of India. The commission submitted its report with recommendations
to the President Pranab Mukherjee on 15 December 2014. The commission was formed to
suggest recommendations for the period from 1 April 2015 to 31 March 2020.
Recommendation
of 14th Finance Commission
1) The 14th
Finance Commission is of the view that tax devolution should be the primary
route for transfer of resources to the States.
2) In
understanding the States’ needs, it has ignored the Plan and non-Plan
distinctions
3) According
to the Commission, the increased devolution of the divisible pool of taxes is a
``compositional shift in transfers’’ – from grants to tax devolution
4) In
recommending an horizontal distribution, it has used broad parameters –
population (1971), changes in population since then, income distance, forest
cover and area, among others.
5) It has
recommended distribution of grants to States for local bodies using 2011
population data with weight of 90 per cent and area with weight of 10 per cent
6) Grants to
States are divided into two
Ø
One, grant to duly constituted gram panchayats
Ø
Two, grant to duly constituted municipal bodies
Ø
And, it has divided grants into two parts - A
basic grant, and a performance one for gram panchayats and municipal bodies
Ø
The ration of basic to performance grant is
90:10 for panchayats; and 80:20 for municipalities
7) The total
grant recommended is Rs. 2,87,436 crores for a five-year period. Out of which,
the grant to panchayats is Rs.2,00,292 crores and, the reminder goes to
municipalities
8) The
Commission has significantly departed from previous commission vis-Ã -vis
recommendation of the principles governing grants-in-aid to the States by the
Centre
9) It has
chosen to take the entire revenue expenditure for this purpose. Hence, it has
decided to take into account a state’s entire revenue expenditure needs without
making a distinction between plan and non-plan expenditure
10) The
Commission is of the view that sharing pattern in respect to various
Centrally-sponsored schemes need to change. It wants the States to share a
greater fiscal responsibility for the implementation of such schemes.
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