Recommendations of 14th Finance Commission
The Finance Commission was established in 1951 to define the financial relations between the Center and the State. It was formed under Article 280 of the Indian Constitution by the President of India. The commission is appointed every five years which consists of five members including the chairman. Fourteen commissions have submitted their report since the commencement of the Commission. These reports have been formulated according to the macroeconomic scenario and the economy in general.
The 14th Finance commission was constituted by the President in January of 2013. Many states had expressed concern over the rigidity of the centrally sponsored schemes. They believed that the design and implementation guidelines given by the Centre could not be successfully implemented in their states. These concerns were noted by the finance commission.
Composition of the 14th Commission –
| Chairman | Dr. Y.V.Reddy Former Governor Reserve Bank of India |
| Member(Part Time) | Prof Abhijit Sen
Member, Planning Commission |
| Member | Ms. Sushama Nath
Former Union Finance Secretary |
| Member | Dr. M.Govinda Rao
Director, National Institute for Public Finance and Policy, New Delhi |
| Member | Dr. Sudipto Mundle, Former Acting Chairman, National Statistical Commission |
| Secretary | Shri Ajay Narayan Jha |
The report came out on 24th February 2015 and the main recommendations are concisely described below –
- Sharing of Union Taxes- The union government has decided to devolve 42% of net annual tax receipts to the states. This is a 10% increase in the share allotted to the states by the 13th Finance Commission which stood at 32%. This will give the states greater latitude in devising schemes as well as in implementing them as per the needs of the concerned state.
- Grants-in-aid of Revenue of States under article 275 of the Constitution- A recommendation has been made by the Commission regarding Grants-in-aid of revenues for revenue deficits, local bodies and disaster management under Article 275.
- Revenue Deficit Grant – The commission gave a measure of deficit for the states after forecasting the revenue and expenditure of the states for the period 2015-2020 keeping in account the share of taxes the states will receive from the Centre. A grant of 194,821 Crores has been recommended by the Commission.
- For local Bodies – The Commission has recommended a grant in two parts – a basic grant and a performance grant for duly constituted Gram Panchayats and Municipalities.
| Gram Panchayat | Municipalities |
| Basic Grant – 180,262 Crores | Basic Grant – 69,715 Crores |
| Performance Grant- 20,029 Crores | Performance Grant – 17,428 Crores |
- Fiscal Deficit- The fiscal deficit needs to be reduced 3% of GDP by 2017-2018.
- 62% of the GDP to be the combined debt of Centre and States.
- Grand bargain be concluded by both state and Centre in order to facilitate the implementation of GST.
- The nationwide problem of inadequate power supply be taken seriously by states and the seriousness be visible in solving the problem on time bound basis.
- Fiscal Responsibility and Budget Management (FRBM) act to be amended to include a detailed description of shocks which are pre-requisites to target relaxations.
