{"id":82903,"date":"2021-02-16T12:00:54","date_gmt":"2021-02-16T06:30:54","guid":{"rendered":"https:\/\/blog.forumias.com\/?p=82903"},"modified":"2021-02-16T13:13:46","modified_gmt":"2021-02-16T07:43:46","slug":"issues-in-15th-finance-commission-recommendation","status":"publish","type":"post","link":"https:\/\/forumias.com\/blog\/issues-in-15th-finance-commission-recommendation\/","title":{"rendered":"Issues in 15th Finance Commission Recommendation"},"content":{"rendered":"<p><strong>Synopsis: <\/strong>The recent 15<sup>th<\/sup> FC report recommendations criticised on the basis of two grounds. <strong>One,<\/strong> the recommendations will impact <strong>co-operative federalism<\/strong>. <strong>Two<\/strong>, the recommendations are not aligned with the changing federal structure in India.<\/p>\n<p><strong>Background<\/strong><\/p>\n<ul>\n<li>Recently, the 15<sup>th<\/sup> Finance commission (FC) report tabled in the parliament. It&#8217;s following key recommendations accepted by the government.\n<ol>\n<li>The Commission has recommended a total devolution of Rs 8,55,176 crore to the states, which is 41% of the divisible pool of taxes.<\/li>\n<li>It also recommended for <strong>revenue deficit grants<\/strong> of Rs 1.18 lakh crore to the states.<\/li>\n<li>Furthermore, It recommended a <strong>non-lapsable defence fund. <\/strong>The grants component of the states has been reduced by 1 per cent (from 42% to 41%). It will be used to set up special funds for defence.<\/li>\n<\/ol>\n<\/li>\n<li>The FC\u2019s recommendation for the <strong>vertical devolution<\/strong> at 41% is pragmatic. However, some of its recommendations will have an implication on the <strong>co-operative federalism<\/strong>.<\/li>\n<\/ul>\n<p><strong>What are the issues in the 15<sup>th<\/sup> FC recommendations?<\/strong><\/p>\n<ul>\n<li><strong>First,<\/strong> the <strong>1% cut in the devolution is for special funding on defence<\/strong>. It means states are paying Rs 7,000 crore for defence and internal security. But, Defence and National Security are the centre\u2019s responsibility as per the 7th <strong>Schedule<\/strong> of the Constitution. This use of funds from states to finance the Centre\u2019s expenditure is against the <strong>spirit of cooperative federalism<\/strong>.<\/li>\n<li><strong>Second,<\/strong> the issues in the <strong>horizontal distribution of funds<\/strong>. Successive finance commissions have used the criteria of need, equity for devolving 92.5 per cent of funds to a state.\u00a0Whereas 15<sup>th<\/sup> FC has reduced this to 75%. And the remaining 25% will be based on efficiency and performance. This is the lowest weightage for equity, making the 15th FC transfers the least progressive.<\/li>\n<li><strong>Third<\/strong>, 15<sup>th<\/sup> FC recommendations do not depict the changed fiscal conditions.\u00a0For example, after GST, the tax collection method has changed from a <strong>production-based tax system<\/strong> to a <strong>consumption-based tax system.<\/strong>\n<ul>\n<li>This structural change has a significant impact on the interstate distribution of tax.\u00a0 It is not taken into account by the 15<sup>th<\/sup> FC report.<\/li>\n<\/ul>\n<\/li>\n<li><strong>Fourth,<\/strong> the approach for <strong>distributing revenue deficit grants<\/strong> is not changed. The 15<sup>th<\/sup> FC could have recommended a <strong>minimum-guaranteed revenue of 14 per cent<\/strong> to every state.\n<ul>\n<li>This unchanged policy approach has resulted in an increase of <strong>statutory and non-statutory grants <\/strong>to almost 55 per cent of the total transfers. Whereas the aggregate transfers have dropped to 45 per cent. This makes the devolution process more discretionary.<\/li>\n<\/ul>\n<\/li>\n<\/ul>\n","protected":false},"excerpt":{"rendered":"<p>Synopsis: The recent 15th FC report recommendations criticised on the basis of two grounds. One, the recommendations will impact co-operative federalism. Two, the recommendations are not aligned with the changing federal structure in India. Background Recently, the 15th Finance commission (FC) report tabled in the parliament. It&#8217;s following key recommendations accepted by the government. The&hellip; <a class=\"more-link\" href=\"https:\/\/forumias.com\/blog\/issues-in-15th-finance-commission-recommendation\/\">Continue reading <span class=\"screen-reader-text\">Issues in 15th Finance Commission Recommendation<\/span><\/a><\/p>\n","protected":false},"author":61,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"jetpack_post_was_ever_published":false,"footnotes":""},"categories":[1230,9],"tags":[1280,1276],"class_list":["post-82903","post","type-post","status-publish","format-standard","hentry","category-9-pm-daily-articles","category-public","tag-po_4","tag-po_5","entry"],"jetpack_featured_media_url":"","views":"","jetpack_sharing_enabled":true,"_links":{"self":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts\/82903","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/users\/61"}],"replies":[{"embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/comments?post=82903"}],"version-history":[{"count":0,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts\/82903\/revisions"}],"wp:attachment":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/media?parent=82903"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/categories?post=82903"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/tags?post=82903"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}