Article 280 of the Constitution of
India requires the Constitution of a Finance Commission every five years, or
earlier.
For the period from 1st April, 2015 to 31st
March, 2020, the 14th Finance Commission (FFC) was constituted by the
orders of President on 2nd January, 2013 and submitted its report on 15th December,
2014.
The Finance
Commission is required to recommend
i)
the distribution of the net proceeds of taxes of the Union between
the Union and the States (commonly referred to as vertical devolution);
ii)
and the allocation between the States of the respective shares of such
proceeds (commonly known as horizontal devolution).
With regard to
vertical distribution, FFC has recommended by majority decision that the States’ share in the
net proceeds of the Union tax revenues be 42%.
The recommendation of tax
devolution at 42% is a huge jump from the 32% recommended by the 13th Finance
Commission.
In recommending horizontal distribution,
the FFC
has used broad parameters of population (1971) and changes of population since,
income distance, forest cover and area.
The Finance
Commission is also required to recommend on ‘the measures needed to augment the
Consolidated Fund of a State to supplement the resources of the Panchayats and
Municipalities in the State on the basis of the recommendations made by the
Finance Commission of the State’.
FFC has recommended distribution of grants to
States for local bodies using 2011 population data with weight of 90% and area with weight of
10%.
The grants to States will
be divided into two, a grant to duly constituted Gram Panchayats and a grant to duly
constituted Municipal bodies, on the basis of rural and urban population.
FFC has recommended
grants in two parts; a basic grant, and a performance grant, for duly constituted
Gram Panchayats and municipalities.
The ratio of basic to performance grant is 90:10
with respect to Panchayats and 80:20 with respect to Municipalities.
FFC has recommended out a total
grant of Rs 2,87,436 crore for five year period from 1.4.2015 to 31.3.2020.
Of this the grant recommended to
Panchayatas is Rs 2,00,292.20 crores and that to municipalities is Rs 87,143.80 crores.
The transfers in the year 2015-16
will be Rs 29,988 crores.
The Government has
accepted the recommendations of the Finance Commission with regard to grants to
local bodies.
The Finance Commission is
also required to ‘review the present arrangements as regards financing of
Disaster Management with reference to the National Calamity Contingency Fund
and the Calamity Relief Fund and the funds envisaged in the Disaster Management
Act, 2005 (Act 53 of 2005), and make appropriate recommendations thereon’.
FFC has recommended
that up
to 10 percent of the funds available under the SDRF can be used by a State for
occurrences which State considers to be ‘disasters’ within its local context and which are not in the
notified list of disasters of the Ministry of Home Affairs.
In view of the
above, with regard to disaster relief, the Government has decided that the percentage
share of the States will continue to be as before, and that the flows will also
be of the same order, as in the existing system; and that, once GST is in place,
the recommendation of FFC on disaster relief would be implemented in the manner
recommended by the Finance Commission.
The Finance
Commission is also required to make recommendation regarding the principles
governing grants-in-aid of the States’ revenues, by the Centre.
As noted by the FFC in
Para 11.28, while calculating grants to the States they “have departed
significantly from previous Finance Commissions, by taking into consideration a
States’ entire revenue expenditure needs without making a distinction between
Plan and Non-Plan”.
Taking thus into account the
expenditure requirements of the States, the tax devolution to them, and the
revenue mobilization capacity of the States, the FFC have recommended
“Post-Devolution Revenue Deficit Grants” of a total of Rs. 1,94,821 crores, for
the five year period.
The States of Andhra Pradesh, Assam, J&K, Himachal Pradesh, Kerala, Manipur, Meghalaya, Mizoram, Nagaland, Tripura and West Bengal (a total of 11 States) have been identified
for receiving these revenue deficit grants.
Grants-in-Aid to States
(Rs. crore)
|
1
|
Local Government(all
States)
|
287436
|
|
2
|
Disaster Management(all
States)
|
55097
|
|
3
|
Post-devolution
Revenue Deficit
(11 States)
|
194821
|
|
|
Total
|
537354
|
Over 30 Centrally Sponsored Schemes have been identified which ought
to have been transferred to the States because expenditure on them has already
been taken into account as State expenditure, in arriving at the
greater devolution of 42% to the States.
However,
keeping in mind that many of these schemes are national priorities, and some
are legal obligations (such as MGNREGA) and in order to underline the Central
Government’s continued support to national priorities, especially with regard
to schemes meant for the poor, most of these are proposed to be
continued. The Government has decided that only 8 Centrally Sponsored Schemes
be delinked from support from the Centre.
