The 15th Finance Commission was established by the Government of India to define the fiscal relationships between the central and state governments for the years 2021-2026. It plays a critical role in balancing the distribution of financial resources, which is essential for the smooth functioning of the federation. Its recommendations influence how funds are allocated across states, impacting welfare schemes, infrastructure, and overall growth.
- The 15th Finance Commission chairman is N.K. Singh, a seasoned economist and administrator.
- Its recommendations are designed to guide the distribution of taxes between the center and states.
- The commission evaluates the financial position of both the center and states before making recommendations.
- It also addresses key economic challenges faced by states, like revenue generation and fiscal management.
Highlights of the 15th Finance Commission 2021-2026
The 15th Finance Commission report for the period 2021-2026 introduced several key recommendations aimed at ensuring balanced financial distribution, promoting fiscal discipline, and addressing regional disparities. Here are the main highlights:
Vertical Devolution
The commission recommended that 41% of the divisible pool of central taxes be allocated to states. This is slightly lower than the previous share of 42%, adjusted due to the newly created union territories of Jammu & Kashmir and Ladakh.
Special Grants for Local Governments
The 15th Finance Commission introduced special grants for local governments to strengthen decentralized governance in India. These grants aim to empower rural and urban local bodies by providing them with necessary financial resources. The goal is to improve infrastructure, enhance public services, and promote local development, ensuring better implementation of welfare programs at the grassroots level.
Health Sector Focus
The 15th Finance Commission placed significant emphasis on the health sector, recognizing the need to strengthen healthcare infrastructure across states. It recommended targeted grants to improve health systems, with a focus on primary healthcare, addressing regional disparities, and enhancing state capabilities to manage future health crises. This approach aims to ensure equitable access to quality healthcare for all citizens.
Performance-Based Incentives
Performance-based incentives are financial rewards given to states or organizations for achieving specific targets or improvements in key sectors such as health, education, or fiscal management. These incentives encourage efficiency, transparency, and good governance. The 15th finance commission introduced such incentives to promote sustainable development, rewarding states that demonstrate measurable progress in areas like power sector reforms and agriculture.
Disaster Risk Management
Disaster risk management refers to the strategies and processes aimed at minimizing the impact of natural and man-made disasters. It involves preparedness, mitigation, response, and recovery efforts to reduce vulnerability and strengthen resilience. Effective disaster risk management ensures better protection of lives, property, and infrastructure, helping communities recover more quickly and efficiently from disasters.
State-Specific Grants
State-specific grants are financial allocations provided by the 15th Finance Commission to address unique needs and challenges of individual states. These grants aim to promote regional development by supporting specific sectors like health, education, disaster management, and infrastructure. They are tailored to ensure equitable growth and cater to the diverse socio-economic conditions across India’s states.
Revenue Deficit Grants
A total of ₹2.94 lakh crore was recommended for 17 states to cover revenue deficits during the 2021-2026 period. This ensures that states struggling with revenue generation can meet their expenditure needs.
Incentives for Agricultural Reforms
The 15th Finance Commission recommendations also encouraged states to implement agricultural reforms, offering financial incentives for states that take steps to modernize and improve agricultural productivity.
Significance of the 15th Finance Commission
The 15th finance commission is significant because it addresses the financial relationships between the center and states in a changing economic environment. It helps distribute funds in a manner that promotes equitable growth across the country. By ensuring a fair distribution of resources, the commission promotes cooperative federalism and ensures the smooth running of welfare programs.
Equitable Resource Distribution
The commission ensures a fair distribution of tax revenues between the center and states, taking into account factors like population, income levels, forest cover, and demographic performance. This helps address regional disparities by allocating more resources to states that are less developed or have unique needs.
Strengthening Cooperative Federalism
By outlining how financial resources are shared, the 15th Finance Commission fosters a strong, cooperative relationship between the central and state governments. It empowers states to implement welfare programs and infrastructure projects while encouraging collaboration on national priorities like health, education, and disaster management.
Encouraging Fiscal Discipline
The commission promotes fiscal responsibility by recommending measures that encourage states to manage their finances prudently. States that demonstrate sound fiscal management are rewarded with incentives, while those that fail to control debt or expenditure may face penalties. This system fosters a culture of financial accountability.
State-Specific Grants
Recognizing the diversity of India’s states, the 15th Finance Commission provides state-specific grants to address unique challenges. These grants focus on sectors like health, education, disaster preparedness, and infrastructure development, ensuring that resources are allocated to regions that need them most, based on their socio-economic conditions.
Incentivizing Reforms and Good Governance
The commission offers performance-based grants to states that undertake key reforms, such as power sector reforms, improving agricultural productivity, and introducing transparent budgeting practices. These incentives encourage states to adopt policies that promote long-term growth, sustainability, and improved governance.
Focus on Disaster Risk Management
The 15th Finance Commission introduced a dedicated disaster risk management fund, emphasizing the need for states to prepare for natural disasters. It recommended that states invest in disaster mitigation strategies and infrastructure, ensuring better preparedness and reducing vulnerability to emergencies.
Balancing Regional Disparities
The commission addresses regional imbalances by recommending higher allocations to states with lower per capita incomes and poor infrastructure. This approach is designed to uplift economically weaker states and promote nationwide development, ensuring that growth is inclusive and sustainable across all regions.
Support for Local Governance
A significant portion of the 15th Finance Commission’s recommendations focuses on strengthening local governance. Grants are provided to rural and urban local bodies to help them manage their finances, deliver public services, and promote local-level development, which is critical for grassroots growth.
The North vs South Debate in the 15th Finance Commission
One of the key concerns during the formulation of the 15th finance commission was the debate between northern and southern states. The northern states, which have higher populations, demand a larger share of resources, while the southern states argue that they have managed their economies more efficiently. This North vs South debate in the 15th Finance Commission has raised questions about the fairness of resource allocation.
Concerns Regarding 15th FCI
There are several concerns regarding the recommendations of the 15th finance commission. Some states have raised issues related to the reduction in their share of tax revenues, while others are concerned about the burden of implementing reforms without adequate financial backing. The concerns regarding 15th FCI also include fears of imbalances between wealthier and poorer states.
Reduction in States’ Share
One of the major concerns raised by states is the reduction in their share of central taxes from 42% to 41%. While this reduction accounts for the creation of the union territories of Jammu & Kashmir and Ladakh, many states argue that this decrease limits their ability to fund welfare schemes and infrastructure projects, especially as many states are already struggling with deficits.
Impact of Population-Based Formula
The use of the 2011 Census data to calculate resource distribution has been a contentious issue. Southern states, which have managed to control population growth effectively, feel that they are being penalized for their success. They argue that using population as a key factor disadvantages them compared to northern states with higher population growth, exacerbating regional disparities.
The North vs South Debate
The North vs South debate in the 15th Finance Commission centers around the perceived unfairness in resource allocation. Southern states believe they contribute more to the national economy but receive less in return, while northern states, which face higher population growth, benefit from larger allocations despite lower contributions to GDP.
Concerns Over Fiscal Deficit Targets
Some states have raised concerns about the strict fiscal deficit targets imposed by the commission. These targets may be difficult to meet for states with limited revenue-generation capacity, particularly during economic downturns. States worry that these restrictions could hinder their ability to spend on essential services and development projects.
Inadequate Attention to Climate Change
There is a growing concern that the 15th Finance Commission did not give adequate attention to climate change and environmental sustainability in its recommendations. Some stakeholders argue that more funds should have been allocated for climate adaptation and disaster resilience, particularly for states prone to natural disasters.
Challenges for Local Governments
While the commission recommended increased grants for local governments, concerns remain about the actual implementation of these recommendations. Local bodies often lack the capacity and administrative infrastructure to effectively utilize the funds, leading to inefficiencies in delivering public services at the grassroots level.
Health and Education Allocations
Although the 15th Finance Commission made provisions for grants in health and education, some experts argue that the funds allocated are insufficient to address the growing challenges in these sectors. The pandemic has further exposed the inadequacies of the healthcare system, and many feel that the commission’s recommendations fall short in addressing these urgent needs.
Disaster Risk Management
While the commission introduced a dedicated disaster management fund, there are concerns that not enough emphasis was placed on mitigation strategies. States that are frequently hit by natural disasters believe they need more financial support to strengthen their disaster preparedness and resilience.
Conclusion
The 15th finance commission has introduced a framework aimed at promoting balanced growth and ensuring financial discipline. Its recommendations are vital in maintaining the fiscal health of the country while addressing regional disparities.
