15th Finance Commission: Recommendations/ Basics

The Fifteenth Finance Commission recommended that India reduce its headline fiscal deficit to 4% in the next five fiscals ;commission, led by NK Singh said in its report.

The commission has recommended states to bring down their combined fiscal deficit to 2.8% of the gross state domestic product by FY26.

It also suggested capping net borrowing for states at 4% of the GSDP in FY22, 3.5% in FY23 and at 3% till FY26.States can also consider setting up independent public debt management cells to chart their borrowing programmes efficiently.

It recommend the tax devolution formula or the share of central taxes that all states are entitled to 41% of the net proceeds of union taxes be devolved to states in FY21. This is nearly the same as the commission’s report for 2020-21.

The 15th Finance Commission’s report allowed the government to set up a dedicated fund for defence and internal security.

The dedicated non-lapsable fund—Modernisation Fund for Defence and Internal Security—will be constituted to bridge the gap between projected budgetary requirements and budget allocation for defence, the report said. The total indicative size of the fund has been proposed at Rs 2.38 lakh crore for the 2021-26 period.

The finance commission suggested that health spending by states be increased to 8% of their budget by 2022.

  Total size of grants to local governments should be Rs 4.36 lakh crore for the period 2021-26. Of these, Rs 8,000 crore should be for incubation of new cities.

Annual grants worth Rs 1,200 crore be awarded between FY23 and FY26 for incentivising states to enhance educational outcomes.


Disaster mitigation funds should be set up at both national and state levels, in line with provisions of the Disaster Management Act.

LEARNING FROM HOME/WITHOUT CLASSES/BASICS


The Finance Commission is constituted by the President under article 280 of the Constitution, mainly to give its recommendations on distribution of tax revenues between the Union and the States and amongst the States themselves.

It is the duty of the Commission to make recommendations to the President as to—  

  • the distribution between the Union and the States of the net proceeds of taxes which are to be, or may be, divided between them and the allocation between the States of the respective shares of such proceeds; 
  • the principles which should govern the grants-in-aid of the revenues of the States out of the Consolidated Fund of India;
  • the measures needed to augment the Consolidated Fund of a State to supplement the resources of the Panchayats in the State on the basis of the recommendations made by the Finance Commission of the State;
  • the measures needed to augment the Consolidated Fund of a State to supplement the resources of the Municipalities in the State on the basis of the recommendations made by the Finance Commission of the State;
  • any other matter referred to the Commission by the President in the interests of sound finance.

The President shall cause every recommendation made by the Finance Commission under the provisions of this Constitution together with an explanatory memorandum as to the action taken thereon to be laid before each House of Parliament(Art. 281))

The First Finance Commission was constituted under the chairmanship of Shri K.C. Neogy.




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