14^th Finance Commission VS 15^th Finance Commission

Under Article 280, the President of India is responsible for periodically constituting the Finance Commissions of India. Each Finance Commission is responsible for making suitable recommendations regarding central tax sharing, distribution of central grants, and measures to improve the states’ financial conditions.

The Indian Government constituted the 15^th Finance Commission in November 2017. It focused on the central transfers to the state. This article will concentrate on a comparison between the 14^th and 15^th Finance Commissions of India. It is expected to help the UPSC aspirants to get a better understanding of these two.

This topic is important for GS Paper-2 and the prelims exam of UPSC 2022.

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14^th Finance Commission

The 14^th Finance Commission was constituted on January 2, 2013. Y.V. Reddy, the former Governor of Reserve Bank of India, was this commission’s chairperson. Its prominent members included M. Govinda Rao, Sushma Nath, Sudipto Mundle, Abhijit Sen, and AN Jha.

• Objective

To augment the consolidated state funds for supplementing the resources of the local bodies and recommend Grant-in-aid following Article 275.

• Components

This commission’s grant was divided into two following parts.

1. Basic Grant (90%)
2. Performance Grant (10%)

• Target Group

Rural and urban population under Local Self Government

• Fund Received

This commission fixed the grant size to be ₹2,87,436 crore in total.

• Panchayats: ₹2,00,292.2 Crore
• Municipalities: ₹87,143.8 Crore

15^th Finance Commission

The Indian Government constituted this commission in November 2017. Nand Kishore Singh, a senior member of the Bharatiya Janata Party (BJP), was this commission’s chairperson. Furthermore, its full-time members included Ashok Lahiri, Ajay Narayan Jha and Anoop Singh.

• Objective

To recommend devolution of taxes and other fiscal matters while strengthening cooperative federalism and improving the quality of public spending.

• Components

This commission was responsible for the following five types of grants.

1. Revenue Deficit grants
2. Local governments’ grants
3. Disaster management grants
4. Sector-specific grants
5. State-specific grants

• Target Group

State and fiscal expenses and deficit

• Fund Received

This commission granted a total of ₹2,147,413 crores to rural and urban local governments.

• Panchayats: ₹236,805 crore
• Municipalities: ₹121,055 crore
• Health grants: ₹70,051 crores

14^th Finance Commission vs 15th Finance Commission

• Increase in Funds to Cities

One can note a big difference between the 14^th and 15^th FCs in terms of the fund allocation to different cities. The 14^th FC allocated only 4.31% of its divisible pool (₹2,87,436 crore) to the Local Government while allocating 30% (₹87,000 crores) to its municipalities. The 15^th FC, on the other hand, has given 4.15% of this divisible pool (₹4,36,361 crore) to the local Government.

• Efforts to Mainstream Metropolitan Governance

India has an instructive geographical spread, with more than, 4500 cities and towns functioning under various municipal acts. According to the Census 2011 report, there is a minimum density of 400 people per square kilometre. A significant difference in the 15^th FC is its attempt to implement the 74^th CAA reforms of 1992.

The 14^th FC had set aside about 20% of its allocations for performance grants. Such grants were tied to revenue improvements, audited accounts, and disclosure of service-level benchmarks. Larger cities could hardly use this much amount for implementing any substantive reforms. However, the 15^th FC has incentivised on metropolitan Government, with 100% funding linked to outcome. It will encourage cities to make efforts for reform.

• National Platform for Municipal Finance

Two kinds of municipal information are publicly disclosed, including financial information such as annual budgets and audited accounts and operational or performance data. In addition, the Ministry of Housing and Urban Affairs had implemented a Service Level Benchmark framework in 2000. It focused on four areas, including solid waste management, sanitation, water supply and stormwater drains.

According to the 14^th FC, municipalities published service level benchmarks as a performance grant condition. It ensured a level of policy continuity but did not aim at better quality data or greater transparency. The 15^th FC, on the other hand, has emphasised on digital municipal accounts and an integrated view of municipal sector finances. It has prepared the ground for improved data-driven decisions and better engagement among mayors, councillors and citizens.

• Deadline for State Finance Commissions

State Finance Commissions serves similar roles at the state level. The 74^th CAA was responsible for developing these. However, most states have not incorporated these into credible institutions. Only about 15 states had fifth or sixth State Finance Commissions till the 14^th FC.

However, the 15^th FC introduced a deadline for these State Governments till March 2024. States have an option to sacrifice this grant and thereby avoid the recommendations from their SFC. Alternatively, they can use this grant by reform without accepting their recommendations.

Therefore, it is clear that the 15^th Finance Commission has several new and innovative reforms, which differ from the 14^th Finance Commission. Hopefully, this article will help UPSC aspirants to understand the Indian Union Finance Commission’s current reforms.

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