14 FINANCE COMMISSION RECOMENDATIONS

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The 14th Finance Commission was constituted in January 2014. Commissions chairman was former RBI governor Y V Reddy and its members were Sushma Nath, M. Govinda Rao, Abhijit Sen, Sudipto Mundle. In December 2014, Commission had submitted its report to the President Pranab Mukherjee.

Major Recommendations of 14th Finance Commission headed by Prof. Y V Reddy

1)     The share of states in the net proceeds of the shareable Central taxes should be 42%.This is 10% higher than the recommendation of 13th Finance Commission.

2)   Revenue deficit to be progressively reduced and eliminated.

3)   Fiscal deficit to be reduced to 3% of the GDP by 2017–18.

4)   A target of 62% of GDP for the combined debt of centre and states.

5)    The Medium Term Fiscal Plan(MTFP)should be reformed and made the statement of commitment rather than a statement of intent.

6)   FRBM Act need to be amended to mention the nature of shocks which shall require targets relaxation.

7)    Both centre and states should conclude 'Grand Bargain' to implement the model Goods and Services Act(GST).

8)   Initiatives to reduce the number of Central Sponsored Schemes(CSS)and to restore the predominance of formula based plan grants.

9)   States need to address the problem of losses in the power sector in time bound manner.

Union government has accepted recommendations of the 14th Finance Commission (FC) as per its agenda of cooperative federalism. The accepted recommendations are for the five-year period 2015-16 to 2019-20.

Key facts:

1.      Government has accepted FC’s recommendation to increase the devolution of tax receipts from the Centre to the states to 42 percent. Previously, 13th FC had pegged the states’ share at 32 per cent.

2.    The share of States in the Centre’s net tax receipts will go up by Rs. 1,78,000 crore in 2015-2016. It is the largest ever change in percentage of devolution.

3.    As per the increased devolution suggested by 14th FC, States will get Rs 3.48 lakh crore in 2014-15 and Rs 5.26 lakh crore in 2015-16.

4.    Higher tax devolution will allow states greater autonomy in financing and designing of schemes as per their needs and requirements.

5.     FC also recommended the distribution of grants of Rs 2 .88 lakh crore to states for strengthening duly elected gram panchayats and municipal bodies for five years.

6.      FC also has identified 11 revenue deficit states and granted them Rs 48,906 crore as additional resources for the year 2015-16.