Skip to main content

Key Recommendations of 14th Finance Commission

Horizontal Devolution Formula – 
  • Horizontal devolution means transfer of finance between states. The Commission added a new criterion of forest cover for devolution of Central taxes which has gone against the nine states. The panel has assigned 7.5 per cent weight to forest cover for inter-se determination of the shares of taxes to the states, while population carries 17.5 per cent weight, demographic change 10 percent, income distance 50 and area 15 per cent weight. With the addition of the new criterion, Uttar Pradesh is the biggest loser followed by Bihar. Meanwhile, 19 states stand to gain from the new arrangement. Arunachal Pradesh is the biggest gainer.
Devolution to states: 
  • It has recommended that devolution should be primary mode of funds transfers to states. States’ share in net proceeds from tax collections be 42% — a huge jump from 32% recommend by the 13th Finance Commission, and the largest change ever in the percentage of devolution. The higher tax devolution will allow states greater autonomy in financing and designing of schemes as per their needs and requirements.
Resource transfer: 
  • Tax devolution be the primary route resource transfer to states
Delinking of schemes: 
  • Eight centrally sponsored schemes (CSSes) will be delinked from support from the Centre; Consequent to the higher devolution of funds, the Centre is likely to re-evaluate several schemes that it sponsors for the States.
Cooperative federalism: 
  • There are recommendations on cooperative federalism, GST, fiscal consolidation road map, pricing of public utilities and PSUs, too.
  • Set up an independent council to undertake assessment of fiscal policy implications of Budget proposals.
  • Replace existing FRBM Act with a debt ceiling & fiscal responsibility law.
  • Wind up National Investment Fund and maintain all disinvestment receipts in the consolidated fund.
  • Amend electricity Act to provide for penalties for delay in payment of subsidies by state governments.
  • Set up autonomous and independent GST compensation fund
  • The commission suggested performance-based grants to panchayats and local bodies. It was recommended the ratio of basic-to-performance grant be kept at 90:10 for panchayats and 80:20 for municipalities.
  • The Commission had also asked to do away with a distinction between Plan and non-Plan expenditure.
  • 2% kept aside for natural calamities
Recommendations concerning PRIs and ULBs
o 5% devolved to ULBs
o New measures to augment local government resources were suggested such as municipal bonds.

The acceptance of the recommendations marks at least five major shifts from the past. They are:
  • The sizeable increase in tax devolution.
  • To suggest institutional mechanisms for better monitoring of fiscal rules (like replacement of FRBM Act with a new institution) and to achieve ‘cooperative federalism’.
  • Discontinuing the distinction between special category and other states.
  • Taking into account plan revenue expenditures while assessing revenue deficit grants.
  • Desisting from awarding sector/state specific grants or to subject grants to conditionality.
Labels:

Comments

Post a Comment

Popular posts from this blog

India Tech Vision-2035

India Tech Vision-2035 India's technology thinktank under the ministry of science & technology has come out with `Technology Vision 2035' here at the ongoing Indian Science Congress, identifying the challenges ahead and how they can be dealt with through technological interventions while realising the dream of a developed India by the year 2035. The thinktank -Technology Information, Forecasting and Assessment Council (TIFAC) -in the vision document lists a technology roadmap for India, giving details of 12 sectors and technologies that in some cases exist but need to be deployed, some in the pilot stage that must be scaled up and technologies in R&D stage. It, in fact, talks about many future technologies, ranging from flying cars, real time translation software, personalised medicine, wearable devices, e-sensing (e-nose and e-tongue) to 100% recyclable materials among others which may be used in different areas to solve day-to-day problems “The trajectories del...
Post a Comment
Read more

Inland Waterways in India

Here are some key points you need to know: The bill seeks to add 106 inland waterways to the existing six National Waterways on the recommendations of the Parliamentary Standing Committee on Transport, Tourism and Culture and comments of several state governments The bill will also look after the renovation and maintenance of the existing waterways Out of the 106 new waterways, 18 have already been identified. These include five waterways each from Karnataka and Meghalaya, three each from Maharashtra and Kerala, one each from Tamil Nadu and Rajasthan The bill also aims to help the Inland Waterways Authority of India (IWAI) to develop the feasible stretches for Shipping and Navigation. Let us look at the six existing National Waterways in India: National Waterway 1 (NW1) The National Waterway No. 1 uses a 1,620-kilometre stretch of the Ganges River. It was declared a national waterway in the year 1986 and runs from Allahabad in Uttar Pradesh to Haldia in West Bengal....
Post a Comment
Read more

Budget basics: A glossary of terms used in Budget

Disinvestment Receipts The term refers to the money raised by the Government through disinvestment, or the sale of its equity stake in companies it owns. Fiscal Responsibility and Budget Management Act The Act is an attempt to make the Government adhere to a phased plan to reduce fiscal deficit, which denotes an excess of expenditure over revenue. Dividend Distribution Tax This is a tax levied on companies that pay out dividends to its shareholders, i.e. share a portion of earnings with them. Venture Capital Funds These are funds that invest in startups, a financially riskier proposition than investing in established companies. Securities Transaction Tax It is a tax on all transactions done over the stock exchanges involving securities such as shares, derivatives, and equity-linked mutual funds. Wholesale Price Index (WPI) It is a measure of inflation, or price change, arrived at after regularly measuring the prices of a slew of wholesale goods. Consumer Price...
Post a Comment
Read more