Q. With reference to the Fourteenth Finance Commission, which of the following statements is/are correct?

  1. It has increased the share of States in the central divisible pool from 32 percent to 42 percent.
  2. It has made recommendations concerning sector-specific grants.

Select the correct answer using the code given below.

  • 1 only
  • 2 only
  • Both 1 and 2
  • Neither 1 nor 2

Answer: (a) 1 only

14th Finance Commission:
  • The 14th Finance Commission’s recommendations transformed India’s fiscal landscape by increasing the states’ share of central taxes to 42%, empowering them with greater financial autonomy. This bolstered state budgets, enabling investments in crucial sectors and enhancing fiscal management. The decentralized approach aimed to address regional disparities and foster overall economic development.
    • However, it did not make recommendations concerning sector-specific grants.
      • The 15th Finance Commission has made recommendations concerning sector-specific grants.
  • The 14th Finance Commission enabled the States to improve their fiscal position in the following ways:
    • Share in Centre’s Divisible Pool: The commission recommended an increase in the share of States in the Center’s divisible tax pool to 42% from 32% at present. This will enhance the states autonomy in deciding their expenditure priorities.
    • Centrally Sponsored Schemes: The Commission also recommended eight centrally sponsored schemes (CSS) to be delinked from support from the Centre. Thus, States will be sharing a higher fiscal responsibility and autonomy to implement development initiatives.
    • Taxation: The Commission has recommended that tax devolution should be the primary source of transfer of funds to States. This would increase the flow of unconditional transfers and give States more flexibility in their spending
    • Grants: Transfers were proposed including grants to rural and urban local bodies, a performance grant along with grants for disaster relief and revenue deficit. These transfers total to approximately 5.3 lakh crore for the period 2015-20.
    • Compensation: The commission recommended compensating States fully for three years in case of revenue loss after GST implementation. The Commission suggested that 100% compensation be paid to the States in the first, second and third years, 75% compensation in the fourth year and 50% compensation in the fifth and final year. It also recommended the creation of an autonomous and independent GST compensation fund through legislative actions
14th Finance Commission