Q: With reference to the Fourteenth Finance Commission, which of the following statements is/ are correct?
- It has increased the share of States in the central divisible pool from 32 percent to 42 percent.
- It has made recommendations concerning sector-specific grants.
Select the correct answer using the code given below:
a) 1 only
b) 2 only
c) Both 1 and 2
d) Neither 1 nor 2
The correct answer is 1 only.
Recommendations of the 14th Commission include:
- Tax devolution should be the primary source of transfer of funds to states.
- The share of taxes of the centre to states is recommended to be increased from 32% to 42%. Hence, Statement 1 is correct.
- Additional budgetary needs of the states will be filled by grants-in-aid to the states. The total revenue deficit grant to states in the 2015-20 period is recommended to be Rs 1,94,821 crore.
- The total grant to local governments for 2015-20 has been fixed at Rs 2,87,436 crore, of which Rs 2,00,292 crore is recommended to panchayats and Rs 87,144 crore to municipalities.
- An independent fiscal council should be created to evaluate the fiscal policy implications of budget proposals before the budget is announced. States are advised to amend their FRBM Acts similarly.
- Alternatively, the FRBM Act may be replaced with a Debt Ceiling and Fiscal Responsibility Legislation, to bring greater legitimacy to fiscal management.
- There was no recommendation concerning sector-specific grants. Hence, Statement 2 is NOT correct.
Important Points
The Finance Commission
- It is a quasi-judicial body provided under Article 280 of the Constitution and is constituted by the president of India every fifth year or at a such earlier time as he considers necessary.
- This commission consists of a chairman and four other members to be appointed by the President who holds office for such period as specified by the president in his order and are eligible for reappointment.
- The Constitution of India authorises the Parliament to determine the qualifications of members of the commission and how they should be selected which the Parliament has accordingly specified in the Finance Commission Act, 1951.
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