15th Finance Commission

The 15th Finance Commission, constituted by the President of India in November 2017, is a constitutional body established under Article 280 of the Indian Constitution. Its primary task is to recommend the distribution of tax revenues between the Union and the States, and amongst the States themselves. The Commission also suggests measures to augment the resources of Panchayats and Municipalities.

Constitution and Members

The 15th Finance Commission was constituted on 27 November 2017, under the chairmanship of N.K. Singh, a former member of the Planning Commission and a former Rajya Sabha MP. The other members of the commission include:

• Shaktikanta Das, former Economic Affairs Secretary
• Anoop Singh, former Chief Economist of the Asian Development Bank
• Ashok Lahiri, former Chief Economic Adviser to the Government of India
• Ramesh Chand, Member of NITI Aayog

The Commission was initially mandated to make recommendations for the period from 1 April 2020 to 31 March 2025. However, its term was later extended by one year, requiring it to submit two reports – one for the year 2020-21 and another for the period 2021-26.

Terms of Reference

The Terms of Reference for the 15th Finance Commission include:

• Recommending the distribution of net proceeds of taxes between the Union and the States.
• Providing recommendations on the principles governing the grants-in-aid of the revenues of the States out of the Consolidated Fund of India.
• Measures to augment the resources of Panchayats and Municipalities.
• Reviewing the current status of Finance, Deficit, Debt levels, and Cash balances of the Union and the States.
• Suggesting fiscal consolidation roadmap for sound fiscal management.

In addition to these standard terms, the 15th Finance Commission was also asked to consider the impact of the Goods and Services Tax (GST) on the finances of the Centre and States, and the need for maintaining a stable fiscal environment consistent with sustainable economic growth.

Recommendations

The 15th Finance Commission submitted its first report for the year 2020-21 in February 2020. Some of the key recommendations include:

• Vertical Devolution: The Commission recommended maintaining the vertical devolution at 41% – the same level as recommended by the 14th Finance Commission.
• Horizontal Devolution: The criteria for horizontal devolution were modified, with 15% weight given to the population of a State, 15% to its area, 10% to forest and ecology, 12.5% to demographic performance, and 47.5% to income distance.
• Grants-in-aid: The Commission recommended grants-in-aid to States for various purposes, including local body grants, disaster management grants, and sectoral grants.
• Fiscal Consolidation: The Commission suggested a fiscal consolidation roadmap for both the Centre and the States, targeting a combined debt-to-GDP ratio of 60% by 2024-25.

The Commission’s final report for the period 2021-26 was submitted in November 2020. It largely maintained the recommendations made in the first report, with some adjustments to account for the economic impact of the COVID-19 pandemic.