Points to Remember:
- Increased devolution of funds to states.
- Focus on strengthening local governance.
- Emphasis on tax reforms and fiscal prudence.
- Recommendations for improving public service delivery.
Introduction:
The 14th Finance Commission (FC), constituted in 2013, submitted its report in 2015. Its mandate was to recommend the principles governing the distribution of net proceeds of taxes between the Union and the States for the five-year period 2015-2020. Unlike previous commissions, the 14th FC significantly altered the approach to fiscal federalism in India, advocating for a substantial increase in the share of states in the divisible pool of central taxes. This shift reflected a growing recognition of the need for greater autonomy and fiscal capacity at the state level to drive development.
Body:
1. Increased Devolution of Resources to States:
The most significant recommendation of the 14th FC was a substantial increase in the share of states in the divisible pool of central taxes from 32% to 42%. This represented a major departure from the past and aimed to empower states to undertake development initiatives aligned with their specific needs and priorities. This increased devolution aimed to address the historical imbalance in fiscal resources between the Union and the States.
2. Strengthening Local Governance:
The Commission emphasized the crucial role of local governments (Panchayats and Municipalities) in delivering public services effectively. It recommended enhancing their fiscal autonomy and capacity through increased devolution of funds from both the state and central governments. This was intended to promote grassroots democracy and ensure better responsiveness to local needs.
3. Fiscal Prudence and Tax Reforms:
The 14th FC stressed the importance of fiscal discipline and responsible fiscal management at both the Union and state levels. It recommended measures to improve tax administration, broaden the tax base, and enhance tax compliance. This included suggestions for streamlining indirect taxes and improving the efficiency of tax collection mechanisms.
4. Grants-in-Aid:
While significantly increasing devolution, the Commission also recommended grants-in-aid for specific purposes, such as disaster relief, education, and health. These grants were designed to address critical developmental needs and ensure that states with weaker fiscal capacities were not left behind. The criteria for allocating these grants were carefully designed to target areas of greatest need.
5. Focus on Public Service Delivery:
The Commission’s recommendations were not merely about resource allocation; they also focused on improving the quality of public service delivery. It emphasized the need for greater transparency, accountability, and efficiency in government operations. This included suggestions for strengthening monitoring mechanisms and improving citizen engagement in governance.
Conclusion:
The 14th Finance Commission’s recommendations represented a landmark shift in India’s fiscal federalism. The substantial increase in devolution to states, coupled with the emphasis on strengthening local governance and fiscal prudence, aimed to create a more equitable and efficient system of resource allocation. While the increased devolution empowered states, it also placed a greater responsibility on them for effective fiscal management and public service delivery. The success of these recommendations hinges on the implementation capacity of both the Union and state governments, along with a commitment to transparency and accountability. Moving forward, a continuous evaluation of the impact of these recommendations and periodic adjustments based on empirical evidence are crucial to ensure the long-term success of this reform and the holistic development of the nation, upholding the principles of cooperative federalism enshrined in the Constitution.