Question 66 from UPSC CSE 2015 - Economy

Question

With reference to the Fourteenth Finance Commission, which of the following statements is/are correct?
1. It has increased the share of States in the central divisible pool from 32 percent to 42 percent.
2. It has made recommendations concerning sector-specific grants.
Select the correct answer using the code given below.

IASCODEX · Accepted Answer

Correct Option: A. 1 only

Strategy: The critical phrase is 'sector-specific grants.' Knowing the Fourteenth Finance Commission (FFC) was notable for increasing state shares from 32% to 42%, but intentionally avoided sector-specific grants is key. Previous Finance Commissions, notably the Thirteenth, recommended sector-specific grants, but FFC deliberately shifted to greater autonomy by giving unconditional transfers.

Key Info: The Fourteenth Finance Commission (FFC), constituted under Article 280 of the Constitution, was chaired by Dr. Y.V. Reddy and submitted its report in 2015.

- The FFC recommended raising the states' share in the net proceeds of Union taxes from 32% (prescribed by the Thirteenth Finance Commission) to 42%, the largest increase in the history of Finance Commissions. This was intended to provide greater fiscal autonomy and flexibility for state governments, aligning with the principle of cooperative federalism.
- The FFC departed from the earlier practice of sector-specific grants, which were allocations for priority sectors like health, education, or infrastructure. Instead, it focused on broad, formula-based devolution to allow states maximal flexibility in resource use. This was seen as reducing conditionality and central direction, a deliberate policy shift.
- Sector-specific or 'tied' grants had been a feature of commissions like the Thirteenth, which provided targeted funds for certain areas in addition to general devolution.
- Finance Commissions' recommendations are advisory but customarily followed by the Centre. The divisible pool consists of all central taxes, excluding surcharges and cesses.
- The Fourteenth Commission's recommendations applied for the period 2015–20.

IASCODEX · Answer

Option B: 2 only

IASCODEX · Answer

Option C: Both 1 and 2

IASCODEX · Answer

Option D: Neither 1 nor 2