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Unit 26: 12 and 13 Finance Commissions
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Government of India. The Commission felt that there was a case to augment the consolidated fund of Notes
the states through additional grants from the Centre, keeping in view the special circumstances of
the states. Besides, there was a clear need to provide an impetus to the decentralization process.
Accordingly, the Commission recommended a sum of ` 25,000 crores for the award period, (2005-10)
as grant-in-aid to supplement the resources of municipalities and the panchayats.
The 12 FC argued that the urban local bodies (Municipalities) had a greater access to tax and non-
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tax resources of their own, and therefore, it were the panchayats which required substantial support.
According to the 2001 Census Report, urban population in India constituted 26.8 percent of the total
population. Hence, the 12 FC’s grant-in-aid was based on the ratio of 20:80. That is, ` 5,000 crores
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(20 percent of the grant) would go to municipalities and ` 20,000 crores (80 percent) would go to
Panchayats. In this connection, the 12 FC had also recommended separately grants for maintenance
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of roads and buildings which include the roads maintained by the municipalities. The municipalities
would thus be major beneficiaries.
The criteria used for inter-State distribution of the above grants were as follows :

Criterion Weight (percent)

1. Population 40
2. Geographical area 10
3. Distance from highest per capita income 20
4. Index of deprivation 10
5. Revenue effort 20

Total 100

The 12 Commission has emphasized that, of the grants allocated to panchayats, priority should be
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given to expenditure on the operation and maintenance costs (O & M) of water supply and sanitation
and at least 50 percent of the grants provided to each State for the urban local bodies should be
earmarked for the scheme of solid waste management. Besides, expenditure on the O & M costs of
water supply and sanitation in rural areas and on the scheme of solid waste management in panchayats
and urban local bodies should, out of the grants allotted should give high priority to expenditure on
data base and maintenance of account.
Financing of Calamity Relief Expenditure
The 12 FC was asked to review the present arrangements as regards financing of disaster management
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with reference to the National Calamity Relief Fund (CRF) and the National Calamity Contingency
Fund (NCCF) and make appropriate recommendations. After a careful study of the present system of
disaster management, the 12 FC recommended the continuance of the scheme of CRF in its present
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form with contributions from the Centre and the States in the ratio of 75 : 25. The Commission fixed
the size of the CRF for the award period, 2005-10 at ` 21,333 crores, of which the Centre’s share
would be ` 16,000 crores and the balance would be the share of the States (` 5,333 crores).
The 12 FC has also recommended continuance of the scheme of NCCF in its present form with core
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corpus of ` 500 crores. The outgo from the NCCF may continue to be replenished by way of collection
of National Calamity Contingent Duty and levy of special surcharges.
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26.2 13 Finance Commission
The Thirteenth Finance Commission (FC-XIII) was constituted by the President under Article 280 of
the Constitution on 13 November 2007 to make its recommendations for the period 2010-15. Dr. Vijay
Kelkar was appointed the Chairman of the Commission.

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