15th Finance Commission headed by Mr. N.K. Singh submitted its recommendations. Usually, Finance Commission recommendations are valid for a period of 5 years. However, 15th Finance Commission recommendations would be valid for a period of 6 years. Earlier, 15th Finance Commission had submitted its first set of recommendations which were applicable for the financial year 2020-21. Now, commission has submitted its second report, whose recommendations will be applicable for the next 5 years i.e., 2021-2026.
RECOMMENDATIONS OF 15TH FINANCE COMMISSION
Vertical Devolution of Taxes: Share of states in central taxes for the 2021-26 period is recommended to be 41%, same as that for 2020-21. This is less than 42% share recommended by 14the Finance Commission for 2015-20 period. The adjustment of 1% is to provide for the newly formed UT of Jammu and Kashmir, and Ladakh from resources of Centre.
Criteria for Horizontal distribution of taxes among States
| Criteria | 14th Finance Commission | 15th Finance Commission |
| Income Distance | 50 | 45 |
| Population (1971 Census) | 17.5 | Not Considered |
| Population (2011 census) | 10 | 15 |
| Demographic Performance | Not Considered | 12.5 |
| Forest Cover | 7.5 | Not Considered |
| Forest and Ecology | Not Considered | 10 |
| Area | 15 | 15 |
| Tax Effort | Not considered | 2.5 |
| Total | 100 | 100 |
ANALYSIS OF CRITERIA USED BY 15TH FINANCE COMMISSION
Earlier, 15th Finance Commission has asked to explore the possibility of using the Population of 2011 census instead of 1971 census for the devolution of taxes. However, this was opposed by the Southern states.
These states have taken substantial efforts to reduce Population growth rates by undertaking Family planning programs since 1970s. So, naturally, if the criteria of 2011 census were to be used, this would lead to loss in the share of their taxes. Here, the Finance Commission has done a fine balancing between the directions issued by Centre and concerns raised by Southern states.
It has used the Population of 2011 census and done away with Population of 1971 census. However, keeping in mind, concerns raised by Southern states, it has introduced new criteria of Demographic performance.
Demographic performance indicator looks at the Fertility rate in a state. If the fertility rate in a particular state is lower, it would mean that such a state has taken substantial efforts to reduce its population growth rate and accordingly it would get a higher share. Since fertility rate in southern states is much lower, introduction of such an indicator is likely to reduce the impact caused by using the criteria of 2011 census instead of 1971 census.
GRANTS-IN-AID
Revenue Deficit Grants worth Rs 74,000 crore to these 14 states.
Grants to local bodies: Total grants to local bodies for 2020-21 has been fixed at Rs 90,000 crore. This allocation is 4.31% of the divisible pool. This is an increase over the grants for local bodies in 2019-20, which amounted to 3.54% of the divisible pool. The grants will be divided between states based on population and area in the ratio 90:10. The grants will be made available to all three tiers of Panchayat- village, block, and district.
Disaster risk management: Commission recommended setting up National and State Disaster Management Funds (NDMF and SDMF) for the promotion of local-level mitigation activities.
Centrally Sponsored Schemes (CSS)
Present Status: Union Budget 2020- 21 shows that fifteen of thirty umbrella CSS account for about 90% of total allocation under CSS. Many umbrella schemes have, within them, several small schemes, some of them with negligible allocations.
Recommendations: It is important to gradually stop funding for those CSS and their subcomponents which have either outlived their utility or have insignificant budgetary outlays not commensurate to a national programme. There should also be a minimum threshold funding size for the approval of a CSS. Below stipulated threshold, administrating department should justify need for continuity of the scheme. Third-party evaluation of all CSS should be completed within a stipulated timeframe.
FUNDING OF DEFENCE AND INTERNAL SECURITY
Present Status: Defence expenditure has been characterised by a higher share of revenue expenditure, huge pension bills and lower capital expenditure with high dependence on import of defence equipment.
Recommendations: A dedicated non-lapsable fund called the Modernisation Fund for Defence and Internal Security (MFDIS) should be constituted under Public Account for capital expenditure in defence and internal security. The fund will be funded through (a) Transfers from the Consolidated Fund of India (b) Disinvestment of defence PSUs (c) Monetisation of defence lands.