Union Government in the third week of February 2015 accepted the recommendations of the 14th Finance Commission. The commission headed by former Reserve Bank of India (RBI) Governor Dr. YV Reddy seeks to provide more power to the states for their progress.
This devolution of more share of revenue to states through tax revenue is an indicator of Union Government’s commitment to move away from One Size Fits All approach.
Recommendations of the 14th Finance Commission
• Tax devolution should be the primary route for transfer of resources to the states
• The increased devolution of the divisible pool of taxes is a compositional shift in transfers – from grants to tax devolution
• The panel recommended horizontal distribution by using broad parameters like population (1971) and changes in population since then, income distance, forest cover and area among others
• Distribution of grants to States and local body was recommended by using 2011 population data with weight of 90 percent and area with weight of 10 percent
• Grants to States should be divided into two and they are
a) Grant to duly constituted Gram Panchayats
b) Grant to duly constituted municipal bodies
• Grants should be divided into two parts and they include, basic grants – depending upon the performance of the gram panchayats and municipal bodies. The ration of basic to performance grant is 90:10 for Panchayats and 80:20 for municipalities
• It recommended a total grant of 287436 core rupees for a five-year period. Of this fund, 200292 crore rupees will go for panchayats while the remainder will go to the municipalities
• It views there is a need to change the sharing pattern in respect to various Centrally-sponsored schemes. It wants the stats to share a greater fiscal responsibility for the implementation of such schemes.
The 14th Finance Commission
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.