Finance commission

*Grant-in-aid* -Revenue deficit grant: 14 states are estimated to face a revenue deficit post devolution and grants worth rs 74,341 cr (special grants to Karnataka,Mizoram and Telangana) -Sectoral grant: special grant for 'nutrition' -Performace-based incentives: six areas •agricultural reforms •development of aspirational districts and blocks •power sector reforms •enhancing trade including exports •education •promotion of domestic and international tourism

*Empowering Local bodies* -grants to fifth and sixth scheduled areas and cantonment board -additional grants over CSS(centrally sponsored schemes) -share of urban local bodies increased to 40% -larger cities need differentiated treatments *Grants to Local bodies* -grants worth of rs 90000 cr -distribution of grants for local bodies based on population and area - 90:10 -distribution of grants for rural and urban local bodies- 67.5:32.5 *Disaster Risk Management* -creation of funds for disaster mitigation along with disaster response-NDRMF(National) and SDRMF(State Disaster Risk Management Fund) -NDRMF- rs 12,390cr -SDRMF- rs 28,983cr (SDRF-80% and SDMF-20%) -allocations for NDRF/SDRF sub-divided into •reponse and relief-40% •recovery and reconstruction-30% •capacity building-10%

*15th Financial Commission* -chairman: N.K.Singh -members: Ajay Narayan Jha(replaced Shaktikanta Das),Anoop Singh,Ashok Lahiri,Ramesh Chand -constituted: 2017 -operational duration: 2020-25(will commence from April 1,2020)

*Horizontal devolutions* •Need-based criteria -population(2011): 15% -area: 15% -forest and ecology: 10% •Equity-based criteria -income distance: 45% •Performance-based criteria -demographic performance: 12.5% -tax effort: 2.5% (in 2020-21, highest devolution received UP and Bihar, lowest Karnataka and Kerala) *Vertical devolution-41%*

Procedures and functioning

-FC is a *quasi-judicial body* -FC's recommendations are merely *advisory* in nature and not binding on the govt -*the president* shall lay the recommendations of FC in the *House of Parliament* -FC has to make recommendations to president on two specific matters(net proceeds and grant-in-aids) and one other matter

Composition of FC

-one chariman and 4 members appointed by the president -as per *Finance Commission (Miscellaneous Provisions) Act,1951* and *Finance Commission(salaries and allowances) rules,1951* •chairman with knowledge in public affairs •other 4 members -are or qualified to be appointed as high court judges -have special knowledge in finances and govt accounts -have wide experiences in financial matters and administration -special knowledge of economics

1st FC chairman: *K.C.Neogy* (1951) *14th Financial Commission* -chairman: *Y.V.Reddy* -constituted in 2014 -operational duration: 2015-20

-used broader parameters for horizontal distributions -increased net proceeds to state*(devolution)* to 42% as vertical distributions -states can use upto 10% of SDRF at times of disasters which are not in the notified list of disaster of the ministry of home affairs -grants to local and rural bodies in two parts:*basic grant* and *performance grant* (for panchayats 90:10 and municiaplities 80:20)

Roles and reponsibilities

1)distribution between the union and the states of the net proceeds of taxes 2)determination of principles and quantum of grants-in-aid to states which are in need of such assistance 3)measures to augment the consolidated fund of a state to supplement the resources of the panchayats and municipalities(third tier of govt) in the state on the basis of recommendations made by the FC of the state

Article 280 of the Indian Constitution reads

President should within 2 yrs of commencement of the consitution and thereafter *on expiry of every 5th yr*, or at such intervals as he/she thinks necessary would constitute a *Financial Commission*

FC has to make recommendations on what principals,the grant-in-aid of the revenues of the state out of the _____ should be give to needy states

consolidated fund of india

the recommendations of the 15th FC is reqd to be submitted in the form of how many reports

two reports