15th Finance Commission: Members, Recommendations, Importance, Concern | UPSC Notes

By K Balaji|Updated : June 30th, 2022

15th Finance Commission (XV- FC or 15- FC) is a constitutional body established in November 2017, under the chairmanship of NK Singh. The 15th Finance Commission recommendations will cover a period of five years from the year 2021-22 to 2025-26.

Under Article 280 of the Constitution, the President of India is required to constitute a Finance Commission at an interval of five years or earlier. The 15th Finance Commission (Chair: Mr. N. K. Singh) was required to submit two reports. The first report, consisting of recommendations for the financial year 2020-21, was tabled in Parliament in February 2020. The final report with recommendations for the 2021-26 period was tabled in Parliament on February 1, 2021.

Let’s discuss in detail the key recommendations of the Fifteenth Finance Commission, which are relevant for all the upcoming UPSC Examinations.

Table of Content

What is the Finance Commission?

The Finance Commission is a constitutional body that is tasked with determining the method and formula for distributing the tax proceeds between the Centre and states and among the states as per the constitutional arrangement and present requirements. Under Article 280 of the Constitution, the President of India is required to constitute a Finance Commission at an interval of five years or earlier.

The 15th Finance Commission recommendations will cover a period of five years from the year 2021-22 to 2025-26 and is headed by NK Singh, a senior member of the BJP.

The commission was set up to give recommendations for devolution of taxes and other fiscal matters for five fiscal years, commencing 1 April 2020. The main tasks of the commission were to "strengthen cooperative federalism, improve the quality of public spending and help protect fiscal stability". The 15th Finance Commission was constituted against the backdrop of the abolition of the Planning Commission (as also the distinction between Plan and non-Plan expenditure) and the introduction of the goods and services tax (GST), which has fundamentally redefined federal fiscal relations.

15th Finance Commission Members

The commission's chairman is Nand Kishore Singh, a senior member of the Bharatiya Janata Party (BJP) since March 2014, with its full-time members being Ajay Narayan Jha, Ashok Lahiri, and Anoop Singh. In addition, the commission also has a part-time member in Ramesh Chand. Shaktikanta Das served as a member of the commission from November 2017 to December 2018.

Recommendations of the 15th Finance Commission

The Recommendations of the 15th Finance Commission are mentioned below.

These recommendations would apply for a period of 6 years i.e, 2021 to 2026.

  • The distribution of tax proceeds between states and the central government is one of the recommendations of the 15th FC.
  • Study the impact of GST ( Goods and Services Tax ) on the Economy.
  • Provide performance-based incentives for the State Government. The incentives should be based on efforts to control the growing population and promote ease the business and the rest of it.
  • Revenue deficit grants, grants to local bodies, and disaster management grants will be provided to the States. The Commission has also proposed a framework for sector-specific and performance-based grants.

Difference Between Vertical and Horizontal Devolution

According to Article 280 of the Indian Constitution, each Finance Commission must make suggestions and recommendations about the sharing of the net proceeds of the taxes between the Union and the states and also among various states of the country. The process of devolution of taxes of the union to various states is known as the vertical devolution while the process of devolution of taxes among various states is known as the horizontal devolution.

Vertical Devolution in the Fifteenth Finance Commission

Key highlights of the vertical devolution include:

  • Fifteenth Finance Commission recommended maintaining vertical devolution at 41%.
  • Similar to that of the Fourteenth Finance Commission, it is at the level of 42% of the divisible pool.
  • The change of a percent in the 15th Finance Commission is due to the adjustment required because of the changed status of Jammu and Kashmir, which has now become the Union Territories of Jammu and Kashmir and Ladakh.

Horizontal Devolution in the Fifteenth Finance Commission

For the horizontal devolution, the commission has suggested the following weights:

  • Income distance - 45%
  • Area - 15%
  • Population - 15%
  • Demographic Performance - 12.5%
  • Forest and Ecology - 10%
  • Tax and Fiscal Efforts - 2.5%

Importance of the Fifteenth Finance Commission

The 15th Finance Commission came out at a time when gigantic reforms were being taken to strengthen cooperative federalism. The importance of the 15th Finance Commission is discussed below:

  • Braces the Concept the Cooperative Federalism: The Finance Commission has worked extensively with all the levels of government to bring out this report. This has helped in the development of the principle of cooperative federalism.
  • Promotes Fiscal Stability: The Finance Commission has set out a report that promotes policies to improve the quality of public spending. Weights at various levels have been suggested in such a way that promotes fiscal stability in the country.
  • Implementation of Good and Services Tax Reforms: The Finance Commission brought many performance-based incentives which helped in the expansion and deepening of the indirect tax. Over the years, revenue from GST has been growing tremendously.

Concerns Regarding the Fifteenth Finance Commission

The points mentioned below analyze the concerns of the 15th Finance Commission.

  • The terms that are referred for the 15th Finance Commission have raised doubts over the spirit of the cooperative center. The use of the 2011 census for allocating resources between states is the most serious issue. Currently, the census of 1971 is used.
  • The aim and idea of using the most recent census data available is a reasonable point. The proposal for it unleashes immense dispute on the social-political front. The main reason is that it would lead to creating disadvantages for the states that have been controlling the population for decades.
  • Lower Population Growth is interlinked directly with the lower fertility rates. This is a consequence of better health care facilities, education, and development. Thus, it seems apparent that the States that have developed faster are penalized for their success in development initiatives.

The Debate of North vs South

In contrast to the earlier commissions, the 15th Finance Commission had used the data of the 2011 census to prepare its report. This displeased many politicians, economists, civil servants, and judges from South Indian states as they believed that this would lead to the dilution of the share of South Indian states’ pool of union’s tax revenue because of the progressive measure in population control which these states had taken in contrast to the northern states.

There were many states like Gujarat, Punjab, Haryana, Maharashtra, etc that received less tax as compared to what they had paid to the Centre.

Fifteenth Finance Commission UPSC

The Fifteenth Finance Commission is an important topic in the UPSC Syllabus. To learn more about Fifteenth Finance Commission and the Indian Economy, one can go through the NCERT Books for UPSC and the UPSC Books. Fifteenth Finance Commission is an important topic from the perspective of both, UPSC Prelims and UPSC Mains.

Aspirants who are appearing for the IAS exam this year can go through the Economics Books for UPSC and Economy Notes for UPSC. Once the books and notes are completed, the candidates should solve the UPSC Previous Year’s Question Papers and see the UPSC Study Material, so that they do not miss any important sources.

Sample Questions on Fifteenth Finance Commission

Question 1: What is the title of the Fifteenth Finance Commission report?

  1. 15th Finance Commission Report
  2. Recommendations in Covid times
  3. Finance Commission in COVID Times
  4. 15th Finance Commission Recommendations

Answer: Option 3

Question 2: The Volume III of the 15th Finance Commission Report addresses issues related to:

  1. State-specific Considerations
  2. Union Government
  3. Main Report and Annexes.
  4. Finances of Each State

Answer: Option 2

Question 3: Who is the Chairman of the 15th Finance Commission?

  1. Dr. Y. V. Reddy
  2. G. C. Murmu
  3. Nand Kishore Singh
  4. Arvind Mehta

Answer: Option 3

Question 4: As per the recommendations, the State's share in the divisible pool of taxes for FY 2020-21 should be reduced from 42% to

  1. 41%
  2. 35%
  3. 39%
  4. 40%

Answer: Option 1

15th Finance Commission UPSC Notes PDF

The 15th Finance Commission is relevant for the IAS Exam and a candidate must be fully aware of all the aspects pertaining to the topic. The recommendations of the Commission are most important. Through the PDF, we have tried to compile every necessary sub-topic that should be read along with the 15th Finance Commission.

Download Fifteenth Finance Commission UPSC Notes PDF

Other Important UPSC Notes
Disaster Management UPSC NotesLand Reforms in India UPSC Notes
One Nation One Ration Card Scheme UPSC NotesClimate Change UPSC Notes
Cyclone UPSC NotesOperation Twist UPSC Notes
Atal Innovation Mission UPSC NotesMajor Ports in India UPSC Notes
Cryptocurrency UPSC NotesWorld Trade Organisation (WTO) UPSC Notes
National Human Rights Commission (NHRC)UPSC NotesUNFCCC UPSC Notes
Plate Tectonic Theory UPSC NotesNew Development Bank (NDB) UPSC Notes
Pressure Groups UPSC NotesSagarmala Project UPSC Notes
El-Nino UPSC NotesNon-Cooperation Movement UPSC Notes
Directive Principles of State Policy UPSC NotesCompetition Commission of India UPSC Notes
Montreal Protocol UPSC NotesVivad Se Vishwas Scheme UPSC Notes
Electoral Bonds UPSC NotesUnlawful Activities (Prevention) Act (UAPA) 1967 UPSC Notes
International Monetary Fund (IMF) UPSC NotesOPEC UPSC Notes
Poverty UPSC NotesStatue Of Equality UPSC Notes

Comments

write a comment

FAQs on 15th Finance Commission

  • The Fifteenth Finance Commission was constituted on 27 November 2017 against the backdrop of the abolition of the Planning Commission (also as the distinction between Plan and non-Plan expenditure) and the introduction of the goods and services tax (GST), which has fundamentally redefined federal fiscal relations

  • The first Finance Commission was set up in 1951 and there have been fifteen so far. Each of them has faced its own unique set of challenges.

  • The Finance Commission is a constitutional body that is tasked with considering the state of federal finances and recommending the dividing of revenue streams among Union and State Governments. It is set up by article 280 of the Constitution and, while maintaining a neutral position, makes recommendations on revenue sharing.

  • The Commission observed that the recommended path for fiscal deficit for the center and states will result in a reduction of total liabilities of the center from 62.9% of GDP in 2020-21 to 56.6% in 2025-26, and. the states on aggregate from 33.1% of GDP in 2020-21 to 32.5% by 2025-26.

  • To download the Fifteenth Finance Commission UPSC Notes PDF, click here. You can also go through the article to understand all the major topics associated with the Finance Commission.

Follow us for latest updates