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

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Issues before the Sixteenth Finance Commission

The finance commission’s expanding responsibilities have led to an increased workload. This has resulted in the distribution of transfers across states with minor changes, causing fiscal imbalances. It is crucial to define the Sixteenth Finance Commission’s scope carefully to prevent such imbalances.

The transfers of revenue from the union to the state governments for effective performance through an independent body serve the objectives of equity and efficiency relatively better than those of a political body (Khemani 2007). The finance commission in India is treated as an independent, impartial, competent and semi-judicial body that has dealt with revenue transfer tasks from the union to state governments over more than seven decades. The transfers of the finance commission achieve equity and efficiency objectives to a greater extent compared to transfers of the political bodies like the Planning Commission and central ministries (Khemani 2007). However, rising fiscal imbalances persist (Mahamallik and Sahu 2015). These imbalances are due to structural and methodological inconsistencies as well as unwanted changes in the scope of the finance commission.

The scope of the Fifteenth Finance Commission was significantly expanded compared to previous commissions. The commission was given additional tasks besides determining tax and grants devolution to states.1 The commission kept the vertical sharing proportion the same as the Fourteenth Finance Commission and distributed union shared taxes across states with an increased weight of neutral criteria and decreased weight of equity criteria compared to the Fourteenth Finance Commission. A marginal weight was assigned to efficiency criteria to reduce fiscal imbalances.

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Published On : 9th Mar, 2024

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