15th Finance Commission: Meaning, Facts, Members and Terms of Reference (2020-21)

Key facts about 15th Finance Commission

Formation: 27 November 2017
Chairman of 15th Finance Commission: Nand Kishore Singh

Full-time members of the 15th Finance Commission: Ashok Lahiri, Ajay Narayan Jha, and Anoop Singh.

Part-Time Member: Ramesh Chand, Shaktikanta Das served as a member of the commission from 
November 2017 to December 2018.

Secretary: Shri Arvind Mehta  

Parent department: Department of Economic Affairs, Ministry of Finance

Constitutional Provision: Article 280

Formed by: The President of India

Duration: 5 years (2021 -2026), Annual Report-2020-21

What is the Finance Commission?

The Finance Commission is a constitutional body formed by the President of India to seek suggestions on the share of states in the centre’s taxes.

Article 280 of the Indian constitution envisages the formation of the Finance Commission by the President for the period of the 5 years. 15th Finance Commission is headed by Mr. N.K. Singh. The duration of the 15th finance commission was supposed to be from 1 April 2020 to 31st March 2025 but it is 2021-26 for the full set of recommendations.

The earlier 14th Finance Commission was headed by the former RBI governor Mr. Y.V. Reddy.

The current 15th Finance Commission was required to submit two reports. The first report has the recommendations for the financial year 2020-21, and the second and final report with recommendations for the 2021-26 period will be submitted by October 30, 2020.  

Composition of 15th Finance Commission of India:-

14th Finance Commission: Share of States in the Union Tax Revenue

The first report of the 15th Finance Commission was tabled in Parliament on February 1, 2020. The Key recommendations in the first report (2020-21 period) include: 

For the period 2020-21, the share of states in the centre’s taxes is to be 41% which is one percent less than the previous commission’s recommendations. This one percent decrease is to provide financial assistance to newly created union territories of Ladakh and Jammu & Kashmir from the resources of the central government. 

Criteria for devolution of centres taxes for (2020-21). The table shows the weight assigned to each criterion to decide the share of the states.

Sources: Report for the year 2020-21, 15th Finance Commission; PRS.

Explanation of the Indicators;

1. Income Distance: Income distance is the distance of the state’s income from the state with the highest income.  The income of a state has been computed as average per capita GSDP during the three-year period between 2015-16 and 2017-18.  

Hence, States with lower Per Capita Income would be given a higher share to maintain equity among states.

2. Population growth: The Terms of Reference (ToR): The 15th Finance Commission used only 2011 population data for its recommendations and it did not give any weight to the census of 1971.

This Demographic criterion has been introduced to reward those states which have controlled their population growth. It will be computed by using the reciprocal of the Total Fertility Ratio of each state, scaled by 1971 population data.   

It means the which has a lower fertility ratio will get a higher score on this criterion.  

3. Tax Effort: This indicator has been used to reward those states which have higher tax collection efficiency.  

The tax collection efficiency was computed as the ratio of the average per capita own tax revenue and the average per capita SGDP during the three-year period from 2014, 2015, and 2016.

4. Forest and Ecology: This criterion calculates the share of the dense forest of each state in the aggregate dense forest of all the states.

Uttar Pradesh has the largest share in the divisible pool which is 17.93% of the total divisible pool. The Devolution for all states for FY 2020-2021 is Rs 8,55,176.

We have to wait to read the full set of recommendations of the 15th Finance Commission by October 30, 2020.

So this was the overall detail about the 15th Finance Commission. This topic is very important for exams like IAS/PCS/SSC/BANKING and CDS etc.

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