Question 56 from UPSC CSE 2023 - Economics

Question

Consider the following:
1. Demographic performance
2. Forest and ecology
3. Governance reforms
4. Stable government
5. Tax and fiscal efforts
For the horizontal tax devolution, the Fifteenth Finance Commission used how many of the above as criteria other than population area and income distance?

IASCODEX · Accepted Answer

Correct Option: B. Only three

Strategy: Identify the specific criteria used by the Fifteenth Finance Commission, excluding population, area, and income distance. The relevant criteria are:
*   Demographic Performance
*   Forest and Ecology
*   Tax and Fiscal Efforts

Governance reforms and stable government were not formal criteria. The total count of included criteria is three.

Key Info: The Fifteenth Finance Commission (XVFC) determines the division of divisible tax pool between the Centre and the States, as well as among States (horizontal devolution). The XVFC revised the formula for horizontal devolution, explicitly using the following main criteria with assigned weights:

*   **Population (2011 Census)** -- 15% (Note: Excluded from specific counting task in the strategy)
*   **Area** -- 15% (Note: Excluded from specific counting task in the strategy)
*   **Forest and Ecology** -- 10%. Recognizes ecological contributions and forest coverage.
*   **Income Distance** -- 45% (Note: Excluded from specific counting task in the strategy)
*   **Demographic Performance** -- 12.5%. Rewards states that have controlled population growth (based on fertility rates, per cent of Census 1971 population to 2011, etc.).
*   **Tax and Fiscal Efforts** -- 2.5%. Assesses states based on their revenue-raising and fiscal management capacity.

Governance reforms and stable government were not employed as explicit criteria under XVFC for horizontal tax devolution. The Commission, under Article 280 of the Constitution, periodically updates methodology for sharing resources to reflect economic changes and policy priorities. Prior Commissions have focused on similar core indicators, adjusting the formula and weights as appropriate. The Forest and ecology criterion was introduced in the Fourteenth Finance Commission, and demographic performance was added in the Fifteenth to promote equitable and performance-linked distribution.

IASCODEX · Answer

Option A: Only two

IASCODEX · Answer

Option C: Only four

IASCODEX · Answer

Option D: All five

Consider the following: Demographic performance Forest and ecology Governance reforms Stable government Tax and fiscal efforts For the horizontal tax devolution, the Fifteenth Finance Commission used how many of the above as criteria other than population area and income distance?

Consider the following:

Demographic performance

Forest and ecology

Governance reforms

Stable government

Tax and fiscal efforts
For the horizontal tax devolution, the Fifteenth Finance Commission used how many of the above as criteria other than population area and income distance?