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.