The Wise Arbiter

Context: New and unique demands were placed on the 15th Finance Commission. In difficult times, it rose to the challenge.

Recommendations of the 15th FC:

• Vertical devolution: at 41%, adjusting 1% for the erstwhile state of Jammu and Kashmir.
• Horizontal distribution: tried to harmonize the principles of expenditure needs, equity and performance with the introduction of efficiency criteria of tax and fiscal efforts.
  • Demographic performance: Assigned 12.5% weight; incentivizing states for the efforts made in achieving replacement rate of population growth.
• Grants-in-aid to states: recommended Rs 10,33,062 crore during 2021-26. It is broadly categorized into-
  • Revenue deficit grants: Recommended Rs 2,94,514 crore for an entire award period. However, these grants are seen to be disincentivizing tax efforts and prudence in expenditure.
    • Fiscally stressed states of Kerala, West Bengal and Punjab are regular recipients of these grants due to high debt legacy.
• Grants for local governments: recommended Rs 4,36,361 crore during 2021-26.
  • Entry-level conditions for availing grants:
    • Constitution of State Finance Commissions.
    • Timely auditing and online availability of accounts for rural local bodies.
    • Notifying consistent growth rate for property tax revenue for urban local bodies.
  • Alignment with the national programmes: like Swachch Bharat Mission and Jal Jeewan Mission by tying the local bodies to drinking water, sanitation, solid-waste management and faecal sludge management.
  • Incubation of new cities: By granting Rs 1,000 crore each for eight new cities.
  • Urban grants for million-plus cities: For improvement in air quality and meeting the service level benchmark of solid waste management and sanitation.
  • Addressing the gaps in primary health infrastructure: By channelizing the health grant of Rs 70,051 crore through local bodies.
• Grants for disaster management: set up the state and national level Disaster Risk Mitigation Fund (SDRMF); Introduced a 10-25% graded cost-sharing basis by the states for the National Disaster Response Force (NDRF) and National Disaster Mitigation Fund (NDMF).
• Sector-specific grants and state-specific grants: While the government have not accepted, these are linked with performance-based criteria - 
  • Promoting principles of transparency, accountability, and better monitoring of expenditure
• Modernisation Fund for Defence and Internal Security (MFDIS): A dedicated non-lapsable fund
  • Four specific sources of fund:
    • Transfers from the Consolidated Fund of India
    • Disinvestment proceeds.
    • Proceeds from the monetization of surplus defence land.
    • Proceeds of receipts from defence land likely to be transferred to state governments and for public projects in the future.
  • Utilization:
    • To bridge the gap for defence and internal security, by critical defence capital expenditure.
    • Rs 1,000 crore per annum for the welfare of families of the defence and CAPF personnel who sacrificed their lives in frontline duties.