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The 14th Finance Commissionof India
 Introduction
 Composition of Finance Commission
 Functions of the Finance Commissi...
INTRODUCTION
 The Finance Commission of India came into existence in 1951.
 It was established under Article 280 of the ...
COMPOSITION OF FINANCE
COMMISSION
 Article 280 of the constitution deals with composition, functions and
role of the Fina...
 Qualifications – The Chairman shall have vast experience in Public
affairs and other four members shall be selected amon...
FUNCTIONS OF THE FINANCE
COMMISSIONThe Finance Commission is a quasi – judicial body. But primarily, the
Finance Commissio...
14TH FINANCE COMMISSION OF INDIA
 The Fourteenth Finance Commission (FC-XIV) was constituted
by the President on 2 Januar...
RECOMMENDATIONS MADE BY THE 14th
FINANCE COMMISSION OF INDIA
The Major Recommendations of 14th Finance Commission headed b...
 A target of 62% of GDP for the combined debt of centre and states;
an improvement over the 13th Finance Commission which...
 States need to address the problem of losses in the power sector in
time bound manner.
 Owing to this increase in the s...
IMPLICATIONS OF 14TH FINANCE
COMMISSION With greater fiscal space – there has been a 10% increase in the states’
share of...
 The biggest gainers in absolute terms under General Category States
(GCS) are Uttar Pradesh, West Bengal and Madhya Prad...
CONCLUSION
 It appears there is a dissent from unanimity in the recommendations
of the 14th Finance Commission. Sen has c...
 Secondly, assumptions are also made about Central Assistance to
States (CAS) amounts in 2014-15 and about reductions in ...
 A collateral benefit of moving from Central Assistance to States (CAS)
to 14th Finance Commission transfers is that over...
REFERENCES
 Ministry of Finance (Department of Economic Affairs) - Explanatory
memorandum as to the action taken on the r...
Thank You
Group - 3
Roll Number –
Economics 14/433
Economics 14/450
Economics 14/476
Economics 14/463
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Presented by group 3 from Mizoram University, Economics Department 3rd semester in 2015

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14th finance commission of India

  1. 1. The 14th Finance Commissionof India  Introduction  Composition of Finance Commission  Functions of the Finance Commission:  Fourteenth Finance Commission of India  Recommendations made by the 14th Finance Commission of India  Implications of 14th Finance Commission  Conclusion
  2. 2. INTRODUCTION  The Finance Commission of India came into existence in 1951.  It was established under Article 280 of the Indian Constitution by the President of India. It was formed to define the financial relations between the central and the state.  The Finance Commission Act of 1951 states the terms of qualification, appointment and disqualification, the term, eligibility and powers of the Finance Commission. As per the Constitution, the commission is appointed every five years and consists of a Chairman and four other members.
  3. 3. COMPOSITION OF FINANCE COMMISSION  Article 280 of the constitution deals with composition, functions and role of the Finance Commission:  The Constitution provides that Finance Commission shall consist of a Chairman and four other members to be appointed by the President. The Chairman or members are eligible for re-appointment.  The Constitution authorizes Parliament to make provisions related to qualifications, conditions of service of members or powers of Finance Commission.
  4. 4.  Qualifications – The Chairman shall have vast experience in Public affairs and other four members shall be selected among persons who a) have qualifications as par with a judge of High Court, b) has special knowledge of Finance and Accounts of government, c) have vast experience in financial matters and d) have special knowledge of economics.  Disqualifications – A member or Chairman is become disqualified if he a) is of unsound mind, b) is an undischarged solvent (bankrupt), c) is convicted of an offence and d) has such financial or other interest which is likely to affect prejudicially his functions as a member of the commission.
  5. 5. FUNCTIONS OF THE FINANCE COMMISSIONThe Finance Commission is a quasi – judicial body. But primarily, the Finance Commission makes recommendations to the President on the following matters :  To distribute central funds between the Center and the states based on their respective contributions of the taxes.  To determine the principles which should govern Grants-in-Aid to the States by the Central government  To recommend the measures required to augment the Consolidated Fund of a State in order to supplement the resource of the Panchayats and Municipalities in the States based on the recommendations of the State Finance Commission in this regard (This function has been added in the 73rd and 74th Constitutional Amendment Act, 1992).  Any matter referred to the Commission by the President.
  6. 6. 14TH FINANCE COMMISSION OF INDIA  The Fourteenth Finance Commission (FC-XIV) was constituted by the President on 2 January 2013 to make recommendations for the period 2015-20.  Dr. Y. V. Reddy was appointed the Chairman of the Commission.  Ms. Sushama Nath, Dr. M. Govinda Rao and Dr. Sudipto Mundle were appointed full time Members.  Prof. Abhijit Sen was appointed as a part-time Member.  Shri Ajay Narayan Jha was appointed as Secretary to the Commission.
  7. 7. RECOMMENDATIONS MADE BY THE 14th FINANCE COMMISSION OF INDIA The Major Recommendations of 14th Finance Commission headed by Prof. Y V Reddy are given below:  The standout recommendation of the 14th Finance Commission (FFC) is its recommendation that the share of states in the net proceeds of the shareable Central taxes should be 42% against 32% recommended in the 13th Finance Commission, i.e., 10% higher than the recommendation of 13th Finance Commission. Revenue deficit to be progressively reduced and eliminated.  Fiscal deficit to be reduced to 3% of the GDP by 2017–18, which is a carbon copy of the 13th Finance Commission.
  8. 8.  A target of 62% of GDP for the combined debt of centre and states; an improvement over the 13th Finance Commission which targeted 68% of GDP for the combined debt of centre and states.  The Medium Term Fiscal Plan (MTFP) should be reformed and made the statement of commitment rather than a statement of intent.  FRBM Act need to be amended to mention the nature of shocks which shall require targets relaxation.  Both centre and states should conclude 'Grand Bargain' to implement the model Goods and Services Act (GST).  Initiatives to reduce the number of Central Sponsored Schemes (CSS) and to restore the predominance of formula based plan grants.
  9. 9.  States need to address the problem of losses in the power sector in time bound manner.  Owing to this increase in the states’ share, it was envisaged that the increase in their shares to be utilized in accumulating capital assets.  The FFC has also proposed a new horizontal formula for the distribution of the states’ share in divisible pool among the states. There are changes both in the variables included/excluded as well as the weights assigned to them. Relative to the Thirteenth Finance Commission, the FFC has incorporated two new variables: 2011 population and forest cover; and excluded the fiscal discipline variable. Note: There has not been a significance change in recommendations no. 2, 5, 6, 7, 8 and 9.
  10. 10. IMPLICATIONS OF 14TH FINANCE COMMISSION With greater fiscal space – there has been a 10% increase in the states’ share of the shareable of the central taxes – states can meaningfully contribute to the overall growth and development in their regions, thereby adding to the aggregate growth of the nation.  Huge tax devolution could put some strain on center’s finances. At the same time, in order to ensure that the Centre’s fiscal space is secure, the suggestion is that there will be commensurate reductions in the Central Assistance to States (CAS) known as “plan transfers”.  With regards to the new horizontal formula proposed by the 14th Finance Commission for the distribution of states’ share, all states stand to gain from FFC transfers in absolute terms. However, to assess the distributional effects, the increases should be scaled by population, Net State Domestic Product (NSDP) at current market price, or by states’ own tax revenue receipts
  11. 11.  The biggest gainers in absolute terms under General Category States (GCS) are Uttar Pradesh, West Bengal and Madhya Pradesh while for Special Category States (SCS) it is Jammu & Kashmir, Himachal Pradesh and Assam.  A better measure of impact is benefit per capita. The major gainers in per capita terms turn out to be Kerala, Chhattisgarh and Madhya Pradesh for GCS and Arunachal Pradesh, Mizoram and Sikkim for SCS.  The 14th Finance Commission reinforced the idea of the 13th Finance Commission to reduce or if possible eliminate revenue deficits; that in essence could mean that 13th Finance Commission was failed in this case, or that the government has not been able to raise its revenue efficiently.  India’s high fiscal deficit is clearly pictured by the recommendation of this commission to reduce fiscal deficit again by 3% after recommendation made by the 13th Finance Commission to reduce the same by the same per cent
  12. 12. CONCLUSION  It appears there is a dissent from unanimity in the recommendations of the 14th Finance Commission. Sen has criticised the recommendation of the 14th Finance Commission that states' share of taxes should be 42%, much higher than the current 32%. In his note, Sen notes that the increased devolution is about a third of all current plan transfers.  Some caveats or complications to this exercise must be noted. First, they are sensitive to the assumptions underlying GDP growth, revenue and expenditure estimations/projections for 2014-15 and 2015-16.
  13. 13.  Secondly, assumptions are also made about Central Assistance to States (CAS) amounts in 2014-15 and about reductions in Central Assistance to States (CAS) amounts in 2015-16. So, these must be treated as illustrative calculations. For example, another option would simply be to transfer those schemes that are on State list back to the states. Also, estimates have only been presented for the year 2015- 16. Thereafter, additional factors such as Goods and Services Act (GST) implementation and the next Pay Commission awards will affect projections beyond the coming year.  With these caveats, the main conclusions are that the 14th Finance Commission has made far-reaching changes in tax devolution that will move the country toward greater fiscal federalism, conferring more fiscal autonomy on the states.  This will be enhanced by the 14th Finance Commission - induced imperative of having to reduce the scale of other central transfers to the states. In other words, states will now have greater autonomy on
  14. 14.  A collateral benefit of moving from Central Assistance to States (CAS) to 14th Finance Commission transfers is that overall progressivity will improve. To be sure, there will be transitional costs entailed by the reduction in Central Assistance to States (CAS) transfers. But the scope for dislocation has been minimized because the extra 14th Finance Commission resources will flow precisely to the states that have the largest Central Assistance to States (CAS) financed schemes.  In sum, the far-reaching recommendations of the 14th Finance Commission, along with the creation of the NITI Adyog, will further the Government’s vision of cooperative and competitive federalism. The necessary, indeed vital, encompassing of cities and other local bodies within the embrace of cooperative and competitive federalism is the next policy challenge.
  15. 15. REFERENCES  Ministry of Finance (Department of Economic Affairs) - Explanatory memorandum as to the action taken on the recommendations made by the 14th Finance Commission in its report submitted to the President on December 15th, 2014. Dated 24th February, 2015.  FICCI Economic Affairs and Research Division – Highlights of 14th Finance Commission Report, February 2015.  The Fourteenth Finance Commission (FFC) – Implications for Fiscal Federalism in India (http://Indiabudget.nic.in15/echapvo-10.pdf).  Internet Wikipedia
  16. 16. Thank You Group - 3 Roll Number – Economics 14/433 Economics 14/450 Economics 14/476 Economics 14/463
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Presented by group 3 from Mizoram University, Economics Department 3rd semester in 2015

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