ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

Fourteenth Finance CommissionSubscribe to Fourteenth Finance Commission

Stance on Devolution and Grants

The Fourteenth Finance Commission is to be commended for bringing states to the forefront of the development paradigm. The award is transformational but the fall in progressivity is of concern. There is a divergence in the growth projections between the FFC and the central and state governments. This underlines the need to implement quickly the recommendations to put in place an institutional framework for ex ante and ex post validation of both central and state budgets.

Some Hits and Misses

The Fourteenth Finance Commission has come up with some bold and game-changing recommendations such as an increase in the tax share going to states from 32% to 42%, setting up of the Fiscal Council to make the centre accountable, and doing away with direct transfers to states under centrally-sponsored schemes. But unlike the Thirteenth Finance Commission the FFC has not bothered to estimate the impact of the Goods and Services Tax and disinvestment proceeds on gross domestic product as well as fiscal space. The discontinuation of the practice of giving special weight to a Fiscal Discipline Index, started by the Eleventh Finance Commission is an unwelcome development. This, coupled with the provisions of the revenue deficit and untied grants, is likely to encourage fiscal profligacy among several states.

Fourteenth Finance Commission

In preparation of its report, the Fourteenth Finance Commission was guided by the terms of reference; the approach of the previous finance commissions; the prevailing macroeconomic situation in the country; and the evolving circumstances relevant to the ToR. The FFC learnt that there is much to be gained by adhering to the letter and spirit of the Constitution, and listen to and learn from stakeholders so that an appreciation can be had of the current problems. Further, the legitimacy of the finance commission in advocating policy agendas and assigning priorities should be kept in view.

Implications for Local Governments

The subject of local governments has not been comprehensively treated by the Fourteenth Finance Commission. The implications of the new inter se distribution formula of the commission's award for local governments have not been thought through and important conditionalities have been changed or watered down.
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