Question
How have the recommendations of the 14th finance commission of India enable the states to improve their fiscal position? UPSC CSE Main 2021 GS Paper 2
Model Answer
Finance commission has been formed under article 280 of Indian constitution. Framers of the constitution knew that there would be situation where central and state governments would be from different political parties. State governments may face step motherly attitude. For this reason finance commission was recommended. Mandate of finance commission was to recommend and oversee fair distribution of finances to both the governments.
With this same view 14th finance commission has few recommendations which may strengthen state’s financial positions.
1 Increase of state’s share in central taxes : The first and foremost recommendation by 14th finance commission was to raise states’ share from central taxes to 42%. It will enable states to take more welfare decisions.
2 Revenue Deficit Grants : Many state governments are unable to collect taxes to meet their expenditure. 14th finance commission recommended to grant additionally to state governments for sound finance.
3 Debt management by state governments : Finance commission has recommended that state should reduce their revenue expenditure to contain their debts and maintain a sound financial health. In short, to stop ‘Revri culture.’
4 More grants to large Population states: 14th finance commission has followed the census of 1971 and 2011 to determine large population based states who require more funds (grants) to run.
5 Promotion of decentralisation: The finance commission has recommended to augment the financial pool of local self governments so that, local governments can become more independent of state governments and in turn, state governments would have more space in financial realm.
6 Additional funds for better performance: State governments which performing better in areas such as revenue collection, wise expenditure and other social sector parameters would be given more funds additionally.
7 Creation of Disaster management funds: A natural disaster management fund would help states to cope with such situation where is necessary. Many a times natural disaster wreak havoc, but due to unavailability of funds, relief measures can not be conducted. Such funds will help state governments in such a situation.
8 Consolidation of central schemes: Finance commission recommended to consolidate several centrally sponsored schemes so that the states could utilise the funds received under them wisely. It will make states more flexible in financial sphere.
These are few recommendations by 14th finance commission to improve financial condition of state governments. We must keep it in mind, recommendations of finance commission are not binding on central government. To improve financial condition of state governments, efforts of both central government and state governments are necessary. For such a situation, cooperative federalism is required. Mere few laws and recommendations would not solve any such situation.