Sixteenth Finance Commission: Analysis of Vertical and Horizontal Devolution and Key Concerns
The 16th Finance Commission faces the complex task of balancing vertical and horizontal tax devolution. While the 14th Finance Commission increased the states' share to 42%, the 15th reduced it to 41% following Jammu and Kashmir's reorganization. A major concern is the Centre's increasing reliance on non-shareable cesses and surcharges, which reduces the effective divisible pool for states. The 16th Commission has introduced a new horizontal criterion based on GSDP share to reward economic efficiency. However, critics argue this may disadvantage less developed states and emphasize the need for Article 275 grants to equalize critical services like health and education.
Key Points
- The 16th Finance Commission has maintained the vertical devolution share to states at 41%.
- The increasing use of cesses and surcharges by the Centre effectively lowers the actual revenue share transferred to states.
- A new horizontal devolution criterion uses a state's share in national GSDP to reflect and reward economic efficiency.
- Article 275 of the Constitution is highlighted as a vital tool for providing grants-in-aid to states with specific revenue deficits.
- Experts suggest that dropping state-specific grants might hinder the equalization of essential services across different regions.
Exam Facts
- Articles 270 and 280 of the Indian Constitution govern the Finance Commission's mandate.
- The 14th Finance Commission significantly raised the states' share in the divisible pool from 32% to 42%.
- The 15th Finance Commission adjusted the vertical share to 41% due to the change in status of Jammu and Kashmir.
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