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Indian Economic Policy

Notes • There is no objective factor in any of the above criteria. Till now, every FC has attempted to
work out different criteria and different weightages for each criterion to arrive at a reasonable
degree of equalization. In practice, this is impossible to arrive at and every FC award has been
criticized by those States who felt that they should have got a bigger share in the shareable.
Central revenue pool.
• For the first time, it was the 11 FC which was required to suggest “the measures needed to
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augment the Consolidated Fund of a State to supplement the financial resources of Panchayats
and Municipalities.
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• The 12 Commission has emphasized that, of the grants allocated to panchayats, priority should
be 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.
• The twin objectives of the 12 FC, were to give debt relief to the States and urge them to reduce
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and completely eliminate revenue deficit.
• The award of the Twelfth Finance Commission has been accepted by the Government, though
in some cases, the Finance Ministry has added some conditionalties - as, for example, the total
share of the States in the Central Government’s gross revenue should not exceed 38 percent.
• 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.
• On the expenditure side, the commission notes that the, states have higher ‘fixed costs’ than the
Centre, as reflected in their higher share of committed expenditure in total non-plan expenditure
relative to the Centre.
• In view of the objective of inclusive growth, regressive untargeted subsidies that reduce fiscal
space for key growth-promoting public investments and delivery of public goods to enhance
inclusiveness are, today, a fiscal obstacle to the acceleration of India’s development
transformation. Therefore the commission favored a fiscal path, wherein subsidies are closely
targeted.
• In horizontal devolution of resource transfers the commission clearly stated that it is concerned
with equalisation, not equity, (italics added) it says at it is both feasible and possible to address
efficiency and fiscal equalisation, using both instruments available to the commission, viz. grants
and devolution.
• Thirteenth Finance Commission provided ` 87,519 crores as grants for local bodies. It is significant
that out of total transfers from center to states share of local bodies made a jump from 3.3 per
cent by Twelfth Finance Commission to 5.1 percent by Thirteenth Finance Commission.
• Thirteenth Finance Commission had to deal with a special issue and that was Goods and Service
Tax (GST), which was scheduled to be implemented by October 1, 2010 (earlier it was scheduled
for April 2010). The Finance Commission was entrusted with the task of facilitating transition
from prevailing system of indirect taxation to a new tax named GST.
• The Thirteenth Finance Commission has recommended fiscal consolidation through the
elimination of revenue deficit as the long-term target for both the Centre and States.
• Thirteenth Finance Commission recommended that the share of States in net proceeds of
shareable Central taxes shall be 32 percent every year for the period of the award. It has also
recommended for greater grants-in-aid to states. In all States will get 136 percent higher amount
in comparison with Twelfth Finance Commission.
• According to the basic spirit of the Constitution, Finance Commission is supposed to make
recommendations in such a manner that devolution of taxes and grants in aid tend to reduce
the prevailing disparities among different states by allocating more resources for the development
of less privileged and underdeveloped states.

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