Final Report Of The 15th Finance Commission For 2021-26.

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  • The 15th Finance Commission (Chair: Mr. N. K. Singh) was required to submit two reports.  The first report, consisting of recommendations for the financial year 2020-21, was tabled in Parliament in February 2020.  The final report with recommendations for the 2021-26 period was tabled in Parliament on February 1, 2021. 

Key recommendations for 2021-26

  • The share of states in the central taxes for the 2021-26 period is recommended to be 41%, the same as that for 2020-21.  This is less than the 42% share recommended by the 14th Finance Commission for the 2015-20 period.  The adjustment of 1% is to provide for the newly formed union territories of Jammu and Kashmir, and Ladakh from the resources of the centre. 

Devolution criteria. 

  • Income distance: Income distance is the distance of a state’s income from the state with the highest income.  The income of a state has been computed as the average per capita GSDP during the three-year period between 2016-17 and 2018-19.  A state with lower per capita income will have a higher share to maintain equity among states.
  • Demographic performance: The Terms of Reference of the Commission required it to use the population data of 2011 while making recommendations.  Accordingly, the Commission used 2011 population data for its recommendations. The demographic performance criterion has been used to reward efforts made by states in controlling their population.  States with a lower fertility ratio will be scored higher on this criterion. 
  • Forest and ecology: This criterion has been arrived at by calculating the share of the dense forest of each state in the total dense forest of all the states.
  • Tax and fiscal efforts: This criterion has been used to reward states with higher tax collection efficiency.  It is measured as the ratio of the average per capita own tax revenue and the average per capita state GDP during the three years between 2016-17 and 2018-19.

Criteria for devolution  - mentioned in the table below 


Grants

Over the 2021-26 period, the following grants will be provided from the centre’s resources.

  1. Revenue deficit grants: 17 states will receive grants worth Rs 2.9 lakh crore to eliminate revenue deficit.
  2. Sector-specific grants: Sector-specific grants of Rs 1.3 lakh crore will be given to states for eight sectors: (i) health, (ii) school education, (iii) higher education, (iv) implementation of agricultural reforms, (v) maintenance of PMGSY roads, (vi) judiciary, (vii) statistics, and (viii) aspirational districts and blocks.  A portion of these grants will be performance-linked.
  3. State-specific grants: The Commission recommended state-specific grants of Rs 49,599 crore.  These will be given in the areas of: (i) social needs, (ii) administrative governance and infrastructure, (iii) water and sanitation, (iv) preservation of culture and historical monuments, (v) high-cost physical infrastructure, and (vi) tourism.  
  4. Grants to local bodies: The total grants to local bodies will be Rs 4.36 lakh crore (a portion of grants to be performance-linked) including: (i) Rs 2.4 lakh crore for rural local bodies, (ii) Rs 1.2 lakh crore for urban local bodies, and (iii) Rs 70,051 crore for health grants through local governments.  
  5. Disaster risk management:  The Commission recommended retaining the existing cost-sharing patterns between the centre and states for disaster management funds.  The cost-sharing pattern between centre and states is: (i) 90:10 for north-eastern and Himalayan states, and (ii) 75:25 for all other states.  


Source : PRS India, PIB Image courtesy - PRS India

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